President Reagan has decided not to pressure the Federal Reserve System for a looser monetary policy - for the time being. The decision followed a debate within the administration as to whether monetary policy is too tight or not. Treasury officials in particular were concerned that slow growth in the basic money supply - the fuel for economic expansion - might prompt too slow growth or even a recession by election time.
However, at a meeting last week with top economic advisers, President Reagan was persuaded that, as a paper prepared for the Office of Management and Budget (OMB) put it, ''On balance, it seems hard to argue for any significant change in the current stance of monetary policy.''
''They are going to continue to watch,'' said Michael J. Hamburger, an economist with OMB until last week and author of the paper.
What prompted the monetary policy debate within the administration was the recent slow growth in the basic money supply, known as M1, which consists of private checking deposits and cash held by the public. History shows that if the supply of new money is cut sufficiently, economic growth will slow or halt after a lag of six to 12 months.
Last spring, M1 was expanding at a double-digit rate. There was much concern that a continuation of such rapid money growth would reignite inflationary pressures this year and next.
Since then, however, the Fed has tightened up, and the basic money supply has been growing much more slowly and at the bottom of a range specified by the nation's central bankers. In his paper, dated Dec. 29, Mr. Hamburger noted that M1 had increased at only a 1.5 percent annual rate over the previous four months.
This fact troubled Beryl Sprinkel, undersecretary of monetary affairs at the Treasury, and an economist of the monetarist school that believes strongly in the need for steady growth in money.
When the Cabinet Council on Economic Affairs met Jan. 5, the question of Fed monetary policy was the key item on the agenda.
Members of the council include Treasury Secretary Donald T. Regan, chairman of the Council of Economic Advisers Martin Feldstein, OMB director David A. Stockman, Commerce Secretary Malcolm Baldrige, and Agriculture Secretary John R. Block.
Mr. Hamburger, now an economic consultant in New York, argued in his paper (prepared for that meeting) that questions of seasonal adjustment of the M1 numbers and other statistics indicated that monetary policy was not too tight. ''While it may be inappropriate for money to grow much more slowly than it presently is growing, it is also difficult to ask for a significant shift toward ease,'' he wrote.
The former OMB economist looked at such other monetary indicators as total reserves, the monetary base, and the yield curve, as well as raw industrial commodity prices and the stock market, before concluding that monetary policy ''does not seem too restrictive.''
Mr. Hamburger's arguments prevailed at that Cabinet-level meeting, and the President approved the decision early last week. But the administration will continue to watch monetary policy anxiously. White House officials have not forgotten that, although many other factors were involved, the slump in the economy at election time in 1980 certainly was no help to President Carter's reelection bid.
The Treasury, as a high official noted, ''remains concerned.'' It was noted that M1 did grow somewhat more rapidly in December. Over the past 13 weeks, M1 was increasing at about a 3.3 percent annual rate - above the 1.5 percent noted by Mr. Hamburger for an earlier time span and using a different method of measure.
But, this official added, the turnaround in monetary policy since spring was ''the most dramatic slowing in the history of M1.''
Some on Wall Street say they believe a recession has already been cranked into the economic system. No one in the administration, this official said, reckons that a recession is a fait accompli. But, a recession or too slow growth could occur if the Fed did not provide sufficient money growth this month and next, the Treasury source held; it is a ''serious threat.''
One of the oddities of the American political system is that the President is held largely responsible by the voting public for the economic situation in the country. But, in the view of many economists, the Federal Reserve System, with its control over monetary policy, is the most important factor in the business cycle. And the Fed, a creature of Congress, is semi-independent of the administration.
Thus, should the Reagan administration find that monetary policy over the next few weeks remains restrictive, it can only bring pressure on the Fed, either in private conversations with Fed chairman Paul A. Volcker, or by public statements.
In this administration, top Treasury officials have shown little hesitation in voicing disapproval of Fed policy to the press or to Congress.