President Reagan faces a crucial decision: whether to reappoint Paul Volcker as chairman of the powerful Federal Reserve Board. The Fed, by regulating the nation's supply of money and credit, is one of the most important agencies in the American governmental establishment. It is essential that the chairman be a person of the highest professional competence, not to mention strictest ethical standards - an individual, in short, who places the welfare of the nation ahead of personal or political gain.
That is not to say that the Fed chairman should be insulated from nor insensitive to political and public concerns about inflation, interest rates, unemployment, federal deficits. The chairman must walk a delicate line between taking careful account of public opinion and not bending Federal Reserve action to reflect popular whims.
All of this is mentioned now because of news media reports that some White House advisers are tempted to base the selection process on political considerations linked to the 1984 presidential election, particularly if Mr. Reagan runs for a second term.
In other words, could President Reagan, a Republican, trust Mr. Volcker (who was appointed by President Carter back in 1979) not to take some action inimical to the Reagan administration during the election? Should President Reagan appoint a new Fed chairman and then, with Mr. Volcker out of the limelight, take primary credit for the recovery and lower inflation rate? Should Mr. Reagan blame the recession on the Volcker-led Fed?
These are the kind of crude political calculations that should be avoided as Mr. Reagan weighs his choice.
The record is still out on Mr. Volcker. He came into office embracing the notion that the best way to fight inflation was to concentrate on the nation's total money supply, rather than focusing on interest rates, as had been the prior policy of the Fed. Inflation has fallen sharply to below 5 percent from the double-digit levels of the late 1970s.
Yet the price paid for that drop has been considerable. The nation is emerging from its deepest recession since the 1930s and interest rates remain historically high - an effect of years of soaring inflation, aggravated by Reaganomics.
Still, nothing is so successful as success. The nation could not have continued the ruinous inflation of the 1970s. The fact that inflation has fallen so sharply is an accomplishment that critics of Mr. Volcker can hardly ignore. This is why an influential segment of the Wall Street and banking community would find Mr. Volcker's reappointment a sign that the administration meant business about avoiding a new round of inflation.
A final point is perhaps in order here, given the controversy surrounding some recent White House appointments. Mr. Volcker came to the Fed after a distinguished career in both banking and government service. If President Reagan does decide on a new chairman, that person should have equally good qualifications.