Is Fed too tight on credit policy?

The bosses and many staff economists at the Fed differ on appropriate monetary policy today. These economists, working for the Federal Reserve System either in Washington or at regional Fed branches, have been urging the Fed's monetary policymakers to pump up the nation's money supply in order to prevent the recession from worsening. They argue this could be done without violating the Fed's own targets for growth in the money supply - the fuel which fires economic activity in the nation.

But at a meeting of the policymaking Federal Open Market Committee earlier this month, the voting members decided to remain tough. Many of the seven Fed governors and five regional Fed bank presidents that make up the committee fear that any substantial loosening of monetary restraint would prompt the money market to anticipate more inflation and shove up interest rates once again.

The decision reflects the determination of the nation's monetary authorities to continue their fight against inflation.

Outside the Fed, a number of economists also maintain the central bank should ease off somewhat - but not too much - on monetary tightness.

For instance, Steven Blitz of Data Resources Inc., a Lexington, Mass., consulting firm, says that if the Fed continues to fight inflation by holding money growth to its lower growth limits, ''the results for the economy will be disastrous.''

He says a sustained 2.5 percent money growth through 1983, which is about the growth rate since midyear, would produce interest rates near their record highs of early this year. After next July's 10 percent cut in income taxes, the prime would average 20.3 percent, he predicts. As a result of these high rates, the housing, auto and thrift industries would continue to flounder. Business investment would fall 4.1 percent from 1981's depressed levels. Real durable goods spending (excluding autos) would fall 0.2 percent.

In addition, Blitz maintains, the current recession would be protracted and the eventual recovery weak. The federal deficit would balloon to $116.8 billion by 1983 as government revenues decline and unemployment payments and other social spending increases.

Such predictions, especially of interest rates, have not been particularly reliable in the past.

However, two leading ''monetarist'' economists - economists who place great importance on stable growth in the money supply - would also like the Fed to step up money growth to 4 to 5 percent.

Dr. Karl Brunner, a University of Rochester economist, worries that the Fed might be trying to dampen the slide in interest rates now under way as a result of the decline in economic activity. The Fed, he maintains, should push the growth in the ''monetary base'' (cash in circulation and bank reserves) up at a 4 or 5 percent annual rate through next November. This would produce a similar growth in the money supply (cash plus bank transaction accounts).

But, he says, the Fed shouldn't push out money faster than that. ''They should get on the growth path they have announced.''

H. Erich Heinemann, an economist with Morgan Stanley & Co., an investment banking firm, would agree on the need for the Fed ''to get back on target.'' But he is not too concerned about the slow growth in the money supply in recent months, noting that today's recession cake is already baked by this monetary heat.

In fact, Heinemann is pleased that ''the monetary authorities have improved considerably the degree of control they exercise over the money stock. . . .The basic change in operating technique that was announced on Oct. 6, 1979, finally appears to be paying off.'' On that date the Fed decided to pay more attention to growth rates of bank reserves and the money supply than to interest rates. This is considered by economists as a momentous decision that will eventually reduce inflation and possibly trim the magnitude of the business cycle.

Moreover, notes Heinemann, the monetary restraint dominating financial markets is the intended result of deliberate policy moves. It is not ''the fortuitous result of random changes in the public's portfolio of money assets.''