Interest rates may not plunge, but the trend is down

Alan Murray, a Citibank economist, sometimes imagines money-market interest rates as movie cartoon characters running over a cliff. They keep on going through thin air - until they look down, see nothing there, and suddenly fall - ''splat.''

Well, interest rates have run over the recession cliff and remain suspended in midair. There seems to be nothing underneath holding them up except fear - fear of budget deficits. Will investors suddenly realize that there is nothing else keeping the rates up and thus will rates suddenly plunge?

Mr. Murray likes the idea, but being a ''prudent'' banker, he forecasts declining rates but no sudden drop.

One encouraging sign is that interest rates changed little when President Reagan and the ''Gang of 17'' congressional leaders failed to reach an agreement on a fiscal 1983 budget; they didn't zoom sky high again.

Mr. Murray offered three other reasons it's likely that interest rates will continue their downtrend of recent months:

1. Inflation has declined dramatically. Over the last six months, the consumer price index has risen at a mere 3.2 percent annual rate. That means ''real'' interest rates - after a correction for inflation - are at unprecedented high levels. This spread should narrow.

''The basic inflation rate is dropping a lot faster than Keynesian economists thought possible - and not just Keynesians,'' he said, referring to the school of economics that places considerable emphasis on interest rates in its examination of the economy.

2. Money supply growth should slow down in May or June. In the last year or so, that trend has meant a drop in interest rates rather than an increase.

3. Loan demand has slackened.

4. Congress may yet take some action on the budget. According to its own schedule, it is supposed to pass a ''first resolution'' stating its budget intentions by May 15.

''If Congress is going to avoid being charged by the President with fiscal irresponsibility, it is going to have to come up with something,'' Mr. Murray noted in a telephone interview. That ''something'' will be ''less than the worst case,'' he added.

But even if Congress was unable to reach an agreement and passed ''continuing resolutions'' for the entire budget - probably unlikely - it would not be disastrous for the economy.

''It's not all that important,'' he said. He reckons the economic recovery will start anyway, perhaps next month. Interest rates will be somewhat higher than if an agreement was reached that would lower the deficit. The housing and automobile industry would not like that.

Treasury Secretary Donald Regan differs. He told a breakfast press gathering last Friday: ''The thought of the federal government going along without a budget the way the economy is, is incomprehensible to me. There has to be a budget.''

But what if the federal government proceeded on a ''continuing resolution''?

''That,'' the secretary said, ''would exacerbate the deficit and will drive the money markets wild.''

The current Treasury ''work sheet'' shows a deficit of $182 billion for the fiscal year starting next Oct. 1. But that includes the President's proposals for 18 percent growth in real defense spending. Under a continuing resolution, defense spending would not grow so fast. So, according to a Congressional Budget Office source, federal outlays under a continuing resolution might drop $10 billion or $20 billion. But apparently no one has done detailed research on that possibility.

In some ways, the economy is building a base for an excellent recovery. Besides the decline in inflation, wage costs are rising much more slowly than most economists anticipated.

The Labor Department reported last week that newly negotiated first-year wage increases averaged only 2.2 percent in the first quarter of this year. That's largely because of wage freezes in automobile and trucking contracts. In 62 other major contracts, first-year increases averaged 7.8 percent.

Moreover, productivity rose in the first quarter at an adjusted 0.3 percent annual rate, up from a record drop in the fourth quarter of last year. This means employers cut payrolls by a greater amount than they trimmed output.

Productivity normally drops in a recession and turns up in a recovery. The slight gain in productivity in the first quarter may be somewhat earlier than usual.

Whatever, all these factors - lower prices, smaller wage gains, and increased productivity - will mean that there will be more room within the money-supply ceiling set by the Federal Reserve System for real economic growth in the recovery starting soon. Less of the new money supplied by the Fed will just go up in inflation smoke; more will be used to buy real goods and services.

Citibank expects a small increase in gross national product this quarter and faster growth following. One reason is that so-called ''real disposable personal income'' - income after taxes available for spending - hasn't fallen in this recession. It has been boosted by tax cuts.

At some point, people will start spending more. As one economist has said: ''History shows that money burns a hole in the pocket.'' Then the recovery will be under way.