Behind the rally: easier money

''The Federal Reserve Board,'' says a high Fed official, ''will supply enough money and credit to the economy to allow a recovery to take place.''

Thus the official summarized the policy that the nation's central bankers are hammering out during a period of rising unemployment, economic stagnation, and turmoil in financial markets.

''At the same time,'' the official says, ''our long-run goal of reducing inflation has not changed. We have not been deterred from that.''

What this adds up to is a broader framework within which the Federal Open Market Committee (FOMC) - the operative arm of the Fed system - will try to govern the US money supply over coming months.

Making up the 12-member FOMC are the governors of the Federal Reserve Board, chaired by Paul A. Volcker, plus presidents of regional Federal Reserve banks.

Speculation is widespread that the FOMC at a meeting earlier this week agreed to let the money supply expand more rapidly than its formal yearly targets would allow.

Easier credit would exert downward pressure on interest rates. This in turn would permit cash-starved firms and individuals to borrow more freely, which should stimulate economic growth.

In a related move, several major banks - including Manufacturers Hanover Trust, Citibank, and Chase Manhattan - cut their prime rate, the interest charged to top corporate borrowers, from 13.5 percent to 13 percent.

Separately, Richard Pratt, chairman of the Federal Home Loan Bank Board, predicted that a new savings instrument, which savings and loan associations and banks will be allowed to offer depositors, could reduce mortgage interest rates to about 12 percent.

For two years the homebuilding industry has been stifled by soaring mortgage rates that until recently stood at about 17 percent. Currently the nationwide rate averages roughly 15 percent.

The new savings instrument, authorized by a bill just passed by Congress and awaiting President Reagan's signature, forms part of the Fed's dilemma over how quickly to allow the money supply to expand.

When the President signs the measure into law, the Depository Institutions Deregulation Committee will have 60 days to work out details of the instrument.

The new account will pay market interest rates, will be insured to $100,000 by the federal government, and probably will contain limited checking-account features.

The attraction of the new instrument, bankers hope, will impel Americans to switch many billions of dollars out of uninsured money-market accounts into competitive S&L and bank accounts.

Fed officials cannot be sure, however, where depositors will put their money. How much will go into interest-bearing checking accounts (M-1) and how much into savings accounts (M-2)?

M-1, the key aggregate by which the Fed measures the money supply, includes cash in circulation and all checking accounts. Growth of M-1 is targeted within a 2.5 to 5.5 percent range, measured from the fourth quarter of 1981 to the fourth quarter of 1982.

M-2, which includes all of M-1 plus various types of savings accounts, is targeted for a 6 to 9 percent growth range over the same period of time.

Recently M-1 has grown well above the upper end of its target range. Based on past performance the FOMC would be tightening credit, rather than letting money supply grow as it is doing now, to bring the growth of the money supply back into line.

Fed officials, however, are reluctant to cut the money supply - thereby nudging interest rates up - at a time when unemployment is rising, bankruptcies are running at a record pace, and even some giant firms teeter on the financial brink.

With only weeks to go before the Nov. 2 congressional elections, the Federal Reserve Board also is under enormous political pressure to ease up on the monetary reins and allow a recovery to begin.

Against this must be measured the Fed's determination to reduce inflation and to prevent the kind of surge in the money supply that might re-ignite the wage and price spiral.

Picking a way through this political, economic, and social minefield is tough enough in any circumstances. Now, according to central bank officials, two problems make interpretation of what will happen to monetary aggregates, especially M-1, harder than usual.

One factor is uncertainty over how the new savings instrument will operate. Second is the fact that nearly $33 billion worth of All Savers certificates come due this month.

''That All Savers money,'' said a senior Fed official, ''will move somewhere else. But where?''

One guess is that many people will put at least part of their All Savers money temporarily in NOW, or interest-bearing, checking accounts, while they figure out a more permanent solution.

This could cause M-1 to balloon high above its target range. Normally this would indicate that people were planning to spend great sums of money, which could be inflationary.

Fed officials assume, however, that much of the money so placed in NOW accounts would not be used for checking transactions, but would be regarded by depositors as a form of savings. Under this theory, M-1 could be allowed to grow above its target range without threatening to re-ignite inflation.