For scores of highly paid financial analysts, watching Paul Volcker is a full-time job. So by 7:50 last Thursday morning, conservatively dressed Wall Street analysts were already lining up outside the Senate Caucus Room for a 9:30 hearing at which the 6-foot, 7-inch Mr. Volcker would speak.
Like most of the well-tailored crowd that packed the ornate hearing room, Stanley J. Kraska Jr. did not expect Mr. Volcker to spring any major surprises on monetary policy at a session called to consider his renomination as Fed chairman.
''I expect nothing earth shattering,'' Mr. Kraska, the fixed-income specialist with T. Rowe Price Associates Inc., said before the 31/2-hour session began. ''He'll talk about how the recovery is going well, but we still need to worry about inflation.''
And in fact that is about what Mr. Volcker had to say. The recovery ''falls right about on average'' with other postwar upturns, he said. To keep inflation under control, the central bank ''has been slightly less accommodative in recent weeks'' in supplying money to the economy, he added.
In their hunt for tiny clues, real or imagined, to what the Fed is doing, the assembled analysts paid close attention both to what Mr. Volcker said and to how he said it.
''I am a fixed-income securities trader and I rely on the nuances of Fed policy,'' explained one man in a dark gray suit, who did not want to identify himself. Rushing out of the hearing to phone buy or sell advice to his office as a result of a Volcker comment ''is a pretty remote possibility, (but) I still sit on the aisle,'' the trader said.
Volcker-watchers will be sitting even closer to the edges of their chairs this week when the Fed chairman testifies before both House and Senate Banking Committees on monetary policy and economic trends. He is expected to spell out how the Fed's targets for growth in the money supply may have been changed as a result of last week's meeting of the Federal Open Market Committee, the 12 -member panel that sets monetary policy.
''The markets will be very closely focused on what the chairman has to say,'' says Marshall B. Front, a partner in Stein Roe & Farnham, a Chicago-based mutual fund management organization.
What Mr. Volcker said last week did not shake the market. ''I could sense no surprises, in the sense that he did not indicate any (unanticipated) change in approach,'' said Monte Gordon, vice-president and director of research at the Dreyfus Corporation, a mutual fund firm.
The day Mr. Volcker spoke, the Dow Jones industrial average gained six points , closing at 1,204.33. On Friday the Dow dropped 12.02 points in anticipation of a run-up in the money supply. It ended the week at 1,192.31, down 14.92.
''The markets had anticipated (the) sort of testimony'' Mr. Volcker gave, says Paul Voltz, vice-president of T. Rowe Price, a mutual fund house. ''But for some investors who do not follow the Fed each day . . . there may be some further weakening as they respond to this.''
Robert Schwartz, vice-president and economist at Merrill Lynch & Co., says: ''Right now the market is focusing on money supply numbers.''
After the market closed Friday the Federal Reserve announced that the money supply, as measured by M-1, grew $5.8 billion in the week ending July 6, just about what was expected. M-1 measures currency in public hands and checking accounts. In the 13 ending July 7, M1 rose at a seasonally adjusted annual rate of 11.8 percent, versus a Fed target of 4 to 8 percent.
The figures on broader money measures were more reassuring. The Fed said M-2, which contains the items in M-1 plus savings accounts and money market deposit accounts, rose 8.8 percent percent in the three months ending in June. The Fed's M-2 target is 7-10 percent.
''When you look at the broader money aggregates everything looks fine,'' says Deborah Johnson, an economist at Prudential-Bache, the big brokerage house.
The slightly tighter hand the Fed is keeping on credit which Mr. Volcker announced last week does not radically change the economy's prospects, analysts say. ''There will be continued improvement, albeit at a less rapid rate,'' Mr. Front says. By tightening credit slightly now, ''hopefully this will avert the need for tougher, more drastic action at a later stage in the cycle.''
The economy's current strength was evident in Friday's announcement that the nation's factory output rose 1.1 percent in June to a level only 5.2 percent less than when the recession began. Meanwhile, producer (or wholesale) prices rose 0.5 percent in June.
In a bid to keep inflation from reigniting, the Federal Open Market Committee decided at its May 24 meeting to tighten credit conditions. A majority of the members ''favored marginally more restraint on reserve positions for the near term,'' according to minutes of the meeting released after the market closed on Friday.
The seven FOMC members who favored tightening held it would ''minimize the possible need for more substantial restraint later, reducing the interest rate impact on financial markets over time and helping to sustain the expansion,'' the minutes show.
The five FOMC members who were opposed argued such a course would ''incur an undue risk of an exaggerated reaction in domestic and international financial markets,'' the minutes say.