Congress budget feat -- why no applause

Interest rates are going up, the stock market is going down. That appears to sum up the negative assessment the financial markets are giving to the fiscal 1983 budget pasted, prodded, and stuffed together by a congressional conference committee last week.

White House officials had hoped that mere agreement on a budget, if it was along the lines of one passed earlier by the House, would send some encouragement to the stock and money markets. But hard-eyed money managers have looked at the numbers and evidently see little reason to expect a rosy future ahead.

A more optimistic viewpoint is expressed by Commerce Secretary Malcolm Baldrige, who gives his ''personal estimate'' that the recession may have hit bottom. The economy, he believes, may register a very small gain during the April-June quarter.

The problem of soaring interest rates, meanwhile, has galvanized the Reagan Administration into a study of alternative economic moves, if interest rates refuse to come down.

Analysts cite two reasons why the financial markets have failed to give a thumbs-up sign to the prospective budget:

* The deficit number of just under $104 billion is widely regarded as ''phony ,'' based on spending and savings assumptions that may not come about.

Some congressional staffers who work with the budget say privately that the deficit embedded in the budget thrashed out by the conference committee is closer to $120-130 billion.

''A deficit of $120 to $130 billion,'' said Treasury Secretary Donald T. Regan recently, ''would be too large to convince the markets that we will have a strong recovery.''

* Cuts in some social programs are so severe in the prospective budget that appropriations committees are unlikely to rubber-stamp the full reductions.

In response to all this, short-term interest rates jumped last week and the stock market plummeted more than 21 points to land at 788.62, its lowest point in more than two years.

A major factor is a continued strong demand for capital by cash-starved companies, whose internal cash flow is too weak to finance their operations.

The markets' expectation of brisk corporate demand for short-term capital -- along with huge borrowing requirements by the US Treasury -- serves to push rates up. Even Mr. Regan, who had been heralding lower rates in the offing, says the current outlook is for interest rates to climb, not drop.

Buoyed by this expectation, the US dollar continued its steady climb against most major currencies, reaching record high levels against the French franc, Italian lira, and Canadian dollar.

The prospect of a high rate of return on dollar investments impels many overseas investors to switch part of their holdings from other currencies into the US dollar.

Against this background the tentative budget, which now goes to both congressional chambers for final vote, appears to have been brushed aside by lenders and investors as irrelevant, or at least unlikely to produce lower interest rates.

Most experts expect economic recovery to begin in the latter half of this year. High interest rates, however, could and probably would nip this recovery in the bud, consigning the economy again to the doldrums or even tipping it back into recession.

Aware of this, the Reagan administration appears to be preparing the public for shifts in White House economic policy, though details are not disclosed.

Treasury chief Regan, in an interview with the Washington Post, said a study was underway to decide what to do if high interest rates abort the recovery.

The study - embracing the Treasury, Council of Economic Advisers (CEA), and the Office of Management and Budget (OMB) - includes a review of what past presidents have done when interest rates were high.

Also under review is the possibility of making the Federal Reserve Board - now an independent agency - more responsive to White House policies.

The Fed's persistent effort to curb the growth of the money supply -- a policy approved in principle by the Reagan White House -- has scored marked success in bringing down inflation, but at the cost of high interest rates and the worst unemployment since World War II.

Surface changes in Administration economic policy are one thing, but there is no public indication that President Reagan will modify the fundamentals of his program, based on huge tax and spending cuts.

The President's planned tax cuts, says Alice M. Rivlin, director of the Congressional Budget Office (CBO), will shrink government income from 21 percent of gross national product (GNP) to 18 percent by 1987. Government outlays, meanwhile, will remain constant at 23 percent of GNP.

This indicates, says Dr. Rivlin, that the budget deficit will expand from 2 percent of GNP in fiscal 1981 to 5 percent by 1987. The specter of rising deficits troubles financial markets and is a key factor in keeping interest rates high.