Washington — One of the hottest high-wire acts in Washington, breeding intense audience reaction, is the Fed's bold effort to stimulate the economy without setting off another round of inflation.
Is the Federal Reserve Board right to let, even encourage, the money supply to swell above targets the Fed itself set earlier this year? After all, Fed chairman Paul A. Volcker has intoned the lesson many times - the money supply must be curbed to bring inflation down.
Within the White House and elsewhere in Washington opinion is sharply divided on the risks involved in the central bank's current policy.
Martin Feldstein, President Reagan's chief economic adviser, calls himself a booster of Mr. Volcker and shares the Fed's view that, with so much slack in the economy, the risk of igniting inflation right now is small.
Another senior White House aide, who declined to be named, says he thinks the opposite - that the investment community will foresee inflation coming down the road and will prop up interest rates.
''We have changed,'' this official says, ''from a downward trend of interest rates to a trend that is either flat or may be upward.''
''The problem for the Fed,'' says a top Federal Reserve official, ''is to relax the monetary reins - but not too much and not too long, lest the investment community be convinced that renewed inflation is on the way.''
Given this risk, why did the Federal Reserve Board's policy-setting Federal Open Market Committee (FOMC) loosen up? Because, in the view of Fed officials, the risk of deeper and more dangerous recession now outweighs the danger of inflation.
Consumers, despite more cash in their pockets, are not spending - at least not enough to fuel a recovery. Many people, anxious about the future, appear to be holding onto their money.
A great deal of consumer cash is flowing into interest-bearing checking accounts. This boosts M-1 - the basic measurement of money that includes currency in circulation and all types of checking accounts - well above the 5.5 percent upper growth limit set by the Fed for 1982.
Ordinarily this would prod the central bank into tightening up. Now, however, Fed officials no longer consider M-1 to be a reliable indicator of consumer intentions. A lot of the M-1 money eventually flows out of NOW checking accounts into savings instruments of various kinds included in the measurements known as M-2 and M-3.
It will be a long time, in the Fed view, before the classic breeder of demand-pull inflation - too much money chasing too few goods - reasserts itself. To support this view, Fed officials point to factories operating at less than 70 percent of capacity and 10.8 percent unemployment as evidence of ample slack.
Cost-push inflation, which stems primarily from a spiraling upward of wage costs, also appears to pose little threat for some time to come. This, Fed officials say, gives them room to bring interest rates down by loosening up on the monetary reins. The goal is interest rates low enough to stimulate meaningful recovery.
Lower interest rates in the United States would tend to tug rates down in other industrial nations, where high interest rates also contribute to deep recession.
Another element of tension is the possibility of default by some debt-burdened developing countries, which - in the context of global recession - cannot export enough goods to pay off their accumulating debt.
Finally, Federal Reserve officials see little prospect that Congress and the White House are about to reduce soaring US budget deficits.
Says economist Herbert Stein: ''Two conditions now put upward pressure on interest rates. One is the expectation of more inflation. The second is the growing size of budget deficits.''
Officials of the FOMC apparently see the Fed as the only available catalyst to apply some stimulation to the battered US economy.