PRESIDENT Bush has fired the opening salvo in his drive to stay in the White House. Under heavy pressure from the White House, the Federal Reserve cut its key lending rate, the discount rate, to 5 from 5.5 percent. Political operatives at 1600 Pennsylvania Avenue clearly want to control the election agenda. They expect lower short-term interest rates to boost the economy well in advance of the coming campaign.However, the move could boomerang in 1992. Attempts to hold down the cost of credit during an economic expansion always lead to higher rather than lower rates. Pushing rates down forces the Fed to print money. The more money the Fed prints, the more the expected inflation rate rises. As a result, rates go up at an accelerating pace as lenders seek to maintain the real rate of return on their funds. While inflation is falling at present because of tight money from 1987 through 1990, easy money could rekindle inflation before Nov. 3, 1992. The Fed cut the discount rate at a time when total bank reserves (high-powered funds that provide raw material for the money supply) are rising. The rate of increase in reserves, though modest by the standards of the mid-1980s, is still rapid. From April through August, total reserves rose at an annual rate of more than 10 percent. Were this rate of increase to continue for another six to nine months, that would lead to a new round of inflation - and another recession. Both stock and bond prices dropped immediately after the discount rate cut. Investors are alert to the risk. It is true that growth in broadly defined measures of the money supply - for example, "M-2," which includes currency, checking accounts, and individual thrift deposits - has been weak. However, this weakness does not indicate that Fed policy is, or has been, a drag on the economy. The slowdown was not due to policy action, but to portfolio decisions by the public in investing liquid assets. The Fed was mostly an innocent bystander. In its conduct of policy, the only thing that the Fed controls directly is the size of its balance sheet - namely, the monetary base. The principal source of the base is the Fed's $260-billion-plus portfolio of Treasury securities. The two uses of the base are currency in the hands of the public and total bank reserves. Put simply, the Fed's job is to increase its Treasury portfolio enough to satisfy the demand for United States currency, but not so fast as to flood banks with unwanted reserves. The spending money that individuals and businesses use to make payments to third parties is subject to reserve requirements. Bank and thrifts must set aside a portion of such deposits at the Fed. However, only the Fed can add to or subtract from the total amount of reserves. From January through August this year, both bank reserves and transaction balances went up at annual rates close to 10 percent. This indicates that the Fed is adding to the part of the money supply for which it is responsible at a rapid pace. By contrast, depositors have pulled large amounts out of thrift institutions. Over the last two years, such accounts have dropped by almost $200 billion. Federal deposit insurance covers amounts up to $100,000. With thrifts failing right and left, investors are wary. Deposit insurance or no, savers are not willing to tie up their funds at institutions they do not trust. The money that flowed out of the thrift industry did not go into a black hole. It went to alternative investments - for example, bond funds - that the Fed does not count as part of the money supply. The thrift crisis redirected the flow of funds in the economy. It did not cut off that flow. Meanwhile, it won't make much difference to the economy if savers invest through mutual funds rather than mutual savings banks. The Fed cannot restore confidence in the thrifts by flooding commercial banks with excess money. Stop-go-stop monetary policy will eventually lead to inflation and a credit crunch. If Fed chairman Alan Greenspan cares about his place in history, he shouldn't, in effect, join the committee to reelect the president.