The Federal Reserve System is coming under strong pressure to ease its monetary policy in this election year. Both the Republican and Democratic members of the Joint Economic Committee of Congress, in their annual report released Monday, urged the Fed to supply money to the economy in the upper range of its official targets.
Earlier, the White House moved to protect its economic flanks by changing its money-policy recommendation to the Fed. The change would make it more difficult politically for the Fed to refuse to speed the flow of money into the economy if growth begins to slow.
In testimony to the Senate Banking Committee Feb. 9, Beryl W. Sprinkel, undersecretary of the Treasury for monetary affairs, suggested that the midpoint of the Fed's target range for the basic money supply, known as M1, should be the goal ''unless convincing evidence emerges that institutional or other changes have altered the relation between money growth and economic activity.'' The Fed's M1 target is 4 to 8 percent, so the Treasury was calling for the Fed to aim for 6 percent money growth this year.
But several days later, Treasury Secretary Donald T. Regan refused to specify any suggested target number. He would only say that the Fed must supply enough money to meet its own 4 to 4.5 percent projection for economic growth.
As a result, even if the Fed supplies new money at a 6 percent annual rate, should the economy start to slump below a 4 to 4.5 percent growth rate, the Reagan administration could freely call on the Fed to ease monetary policy to meet the central bank's own economic growth target.
As Paul Craig Roberts, a former Treasury economist with continued ties at the White House and the Treasury, put it, the shift means that the Reagan administration will not have endorsed a monetary policy that is possibly too tight. Nor will it be subject to statements by Fed officials, should the economy go sour, that the Fed was only following the administration's advice. ''(Fed Chairman Paul A.) Volcker can't go collapse the economy and say he met his target,'' Mr. Roberts said.
The Reagan administration is highly suspicious of Mr. Volcker after the deep 1981-82 recession. It blames that slump on too tight Fed monetary policy in the last half of 1980 and early 1981.
Volcker and other Fed officials were themselves surprised by the depth of the last recession.
The administration, Roberts commented, ''has been sandbagged enough by Volcker.''
There is a fear that the Fed might ''gamble'' with too tight a monetary policy in the hope of preventing a resurgence of inflation.
Economically, the concern over the adequacy of the Fed's monetary target for M1, which consists of currency plus checking accounts, arises from an unknown - what the velocity of money will be this year after a period of bank deregulation. Velocity consists of the number of times money is turned over during the year.
During the recent recession, velocity grew much slower than expected, resulting in a deep drop in output. The Fed assumes velocity will return to its growth rate during the 1960s and 1970s of about 3.5 percent. So does Martin S. Feldstein, chairman of President Reagan's Council of Economic Advisers.
But Treasury officials and the Republicans on the Joint Economic Committee (JEC) are not so sure.
''Money growth in the upper half of the range of 6 to 8 percent . . . would be appropriate if trend velocity (the ratio of nominal gross national product (GNP) to the money stock) remains lower than the postwar trend,'' states the JEC Republican report. ''It is likely that velocity growth, in fact, will remain on a lower track. The sooner the Federal Reserve anticipates and reacts to this outcome, the smaller will be the risk of an unanticipated economic slowdown.''
The issue sounds arcane; but if the Fed is right, the economy will grow at a healthy rate and the Republicans will benefit in the upcoming election. If the Treasury and JEC Republicans are correct, the economy would slip into stagnation , possibly combined with more inflation, and President Reagan would suffer at the polls.
Fed officials are aware of this dispute and the election risks involved. But they are dubious of their ability to ''fine tune'' the economy. Moreover, they regard M1 as ''on probation,'' as one central banker put it. In other words, there is some question as to whether the close relationship between M1 and GNP that has prevailed in the past continues. In determining monetary policy, Fed officials also are looking at more comprehensive measures of money, such as M2 or M3 that include various types of savings.
Both Mr. Sprinkel at the Treasury and the senior economist at the JEC, Robert R. Davis, are ''monetarists,'' believing the growth rate for money is extremely important to the business cycle and to the prospects for inflation. Both also come from Harris Bank in Chicago, Mr. Davis only six weeks ago. But Davis says there was no coordination with the Treasury in writing his report.
Both are concerned about a slowdown in the growth of the money supply that occurred in the last half of 1983.
''The difficult task before the Federal Reserve is to offset the contractionary effects of slower money growth during the second half of 1983, while avoiding any tendency toward an extended and inflationary expansion,'' writes Davis in the JEC report.
At the same time, that report cautions that ''the nation is unlikely to escape some inflationary consequence of excessive money growth between the summers of 1982 and 1983.''
In other words, Davis expects higher inflation this year. A chart accompanying Sprinkel's testimony indicates he, too, would not be surprised by more inflation as a result of earlier fast money growth.
Roberts, a supply-side economist, is less concerned about a hike in the inflation rate. He believes that with tax reforms and other changes introduced by the Reagan administration, there are enough incentives in the system now for the economy to grow faster with less inflation.
In other words, more of the new money supplied by the Fed will be used for real growth in the output of goods and services and less merely for price boosts.
By pointing to the extreme volatility of Fed monetary policy and the need for adequate money growth to keep the economy moving, GOP monetarist economists hope to shift some of the attention away from fiscal policy to the Fed and its monetary policy.