Steady-as-she-goes likely to be money policy set by Fed. Neither tighter nor looser money supply expected in near future

The policymakers of the Federal Reserve System are unlikely to change monetary policy when they meet in Washington today and Wednesday. ``We expect the Federal Reserve to hold monetary conditions stable,'' say the consulting economists of Data Resources Inc. in their latest weekly report. So interest rates, which have fallen again over the past three months, will remain about the same.

Gathering in their marble temple on Constitution Avenue, the seven Fed governors and five voting presidents of regional Fed branches will be pulled in two directions by statistics.

On one side, the economy shows persistent signs of weakness. Payroll employment was up only 80,000 in June after a large May increase of 266,000. A monthly survey of purchasing managers shows that production weakened and prices fell in June.

On the other side, the growth of the money supply -- the fuel for the nation's economy -- has been extremely rapid. Figures released late Friday showed another $2.6 billion jump in the basic money supply, known as M-1, which consists of currency in circulation and checkable accounts, in the week ended June 24.

Over the the last three months, M-1 has grown at a 9.9 percent annual rate and over six months at a 10.4 percent annual rate. The Fed is not expected to either tighten or substantially enlarge growth in the money supply.

Many economists say this money growth should stimulate business activity later this year. For example, Michael W. Keran, chief economist of the Prudential Insurance Company of America, predicts the nation's output of goods and services will be increasing at a 4.0 to 4.5 percent annual rate in real terms in the second six months.

At the moment, however, such solid growth has not shown up in the statistics. Many economists maintain that the Fed watches the latest economic trends at least as much as the money numbers, and reacts according to these trends.

``The Fed doesn't really have an operating plan,'' complains H. Erich Heinemann, chief economist of the New York brokerage firm of Ladenburg, Thalmann & Co. ``It is an ad hoc, seat-of-the-pants operation.'' Mr. Heinemann expects no immediate change in Fed policy, but he believes the Fed will tighten money growth as the economy picks up steam.

Nonetheless, at this week's meeting of the Federal Open Market Committee (FOMC), the 12-voting members must decide on a policy, including money-supply targets, to present to Congress. The policy covers the rest of this year and, tentatively, 1986.

``They have no choice but to do it, even if they would rather not,'' notes Mr. Keran, who, as research chief at the Federal Reserve Bank of San Francisco until last year, sat through many FOMC meetings. ``It is mandated by the Humphrey-Hawkins bill.''

Fed chairman Paul A. Volcker is scheduled to report to the House Banking Committee's subcommittee on domestic monetary policy July 17; the next day he meets with the Senate Banking Committee.

Keran expects the FOMC to reestablish a new money-supply target for the second half of this year based on the average of the money supply in the second quarter. This could be the same as the current target range of 4 to 7 percent, or perhaps 1 percent higher. The Fed will thereby ignore the large overshoot of its range so far this year, he predicts, perhaps attributing it to ``special factors.''

If the Fed does take this step, it will indicate it is serious about holding to its target and preventing inflation from being reborn, Keran says. Higher interest rates usually follow higher inflation.

One ``special factor'' is a fall in what economists call the ``velocity'' of money -- that is, how many times it turns over per year. GRAPH:Prime rate's decline 1984 March 19 April 5 May 8 June 25 Sept. 27 Oct. 17 Oct. 29 Nov. 9 Nov. 28 Dec. 20 1985 Jan. 15 May 15 June 18 11.5 12.0 12.5 13.0 12.75 12.5 12.0 11.75 11.25 10.75 10.5 10.0 9.5 Source: Federal Reserve System 30{et