In the movie ''The Wizard of Oz,'' the Cowardly Lion sings a song about his search for courage. Eventually, when he has reached Oz, the Lion realizes he already has this marvelous quality.
Similarly, the Federal Reserve System has long been regarded as a coward on monetary policy whenever a recession came along. It would back off quickly from this fearsome economic witch, easing credit policy and reviving another round of inflation.
But not this time. Fed officials have found their courage.
The money markets wondered for a while last month whether the Fed was once more running in the other direction. The growth of the money supply was huge.
But it turns out that the burst in money is probably something illusionary -- like a fancy spell cast by the Wicked Witch of the West.
Or, to switch to the language of an expert, the problem was ''random,'' not ''systematic.'' H. Erich Heinemann, an economist with the investment banking firm of Morgan Stanley & Co., explains the bulge in the money supply which has caused such a storm in Washington and the money markets as the result of two factors:
1. The money supply figures have been badly seasonally adjusted. The Fed tries to make the figures more realistic by removing seasonal factors. Such adjustments depend on past seasonal trends. But the introduction of NOW accounts in January of 1981 has made this year's seasonal adjustments more difficult.
The unadjusted money statistics are far less alarming than the seasonally adjusted numbers. M-1 -- which includes all so-called bank ''transaction accounts'' and currency in circulation - has risen from $452 billion Dec. 30 to only $453.9 billion Jan. 20. By contrast M-1 seasonally adjusted has risen at a far higher, 19.4-percent annual clip in the past four weeks.
2. Within M-1 there has been strong growth in the amount of money going into NOW accounts and passbook savings. This, Mr. Heinemann believes, reflects the normal tendency for consumers to put money into liquid and safe assets whenever recession creates economic uncertainty.
''That's part of the recession timetable,'' says the Morgan Stanley economist. ''This lays the foundation for recovery.''
The Fed's courage was demonstrated when it applied the credit brakes last week -- despite the recession, rising unemployment, and climbing interest rates. It pushed the nation's commercial banking system into its tightest reserve position in almost two years.
In political Washington, with an election approaching, that takes courage. But the Fed believes tight money is the only way to cure inflation.
This was shown in an almost plaintive-sounding interview in Monday's Journal of Commerce with Fed vice-chairman Frederick H. Schultz. He was talking about the crucial meeting Feb. 2 of the policymaking Federal Open Market Committee. ''We have a very difficult decision to make,'' he told reporter Linda Stern. ''On the one hand, the money supply has been growing very rapidly, and that disturbs us a great deal.''
But ''you hesitate to be Draconian in your moves when you have a very weak economy,'' Mr. Schultz said.
The Fed does not announce its open-market decisions immediately. They are released after a month. But it may be signaled soon by an increase in the so-called discount rate, the interest rate the Fed charges commercial banks on their borrowed reserves.
The guess is that the Fed decided to remain courageous.
What does this mean?
Oddly, it could result in lower interest rates. There could be a brief surge upward in short-term rates as the banks try to reduce their high borrowed reserves. On Monday Citibank and Crocker National led in a boost of the prime rate -- the interest banks charge their most creditworthy customers -- from 153/ 4 percent to 161/2 percent. But long-term rates should not react.
The basic business demand for loans, Heinemann notes, is weak because of the recession. Also, inflation is coming down rapidly.
Heinemann is critical of President Reagan and other administration officials for their criticism of the Fed at this moment. They want the Fed to stick to its stern monetary policy. But they charge that the monetary growth figures have been too unstable. The upsurge in the money supply, the President said, has been sending ''the wrong signal to the money markets.''
Heinemann states: ''By reacting strongly against a short-run, and almost certainly ephemeral, change in reported monetary growth, President Reagan has done himself a serious disservice. By undercutting the political support that is essential for the Federal Reserve to do its job, the President has made it all that much more difficult for the monetary authorities to adhere to an anti-inflationary policy in a period of economic weakness. No matter that the President's criticism was that policy was too easy, not too tight. The details will be forgotten; what will remain is the sense that the President has lost confidence in the chairman of the central bank. The irony, obviously, is that monetary stabilization is one of the essential keys to the Reagan administration's domestic economic program.''
But the Fed does retain considerable autonomy. And, like the Cowardly Lion, it has found its courage.