Stage is set for great Federal budget drama; The President and the Fed: Can anyone keep Reagan and Chairman Volcker in step?

A long line of politicians have regarded the Federal Reserve as if it were an assemblage of sulfurous magicians, indispensable but somehow not quite trustworthy.

Occasional efforts have been mounted to curtail some of the Fed's independence and bring it to heel. President Truman waged a fierce battle against the Fed's Board of Governors, with more minor skirmishes occuring under Presidents Johnson and Nixon.

Now the issue has been raised again. In recent weeks administration officials have been carefully criticizing the Fed, while Sen. Alan Cranston (D) of California has introduced a bill to give the President more leverage over the central bank. And some economists are saying the administration's fiscal plans and the Fed's monetary policies would work against each other -- like horses trying to pull a cart in opposite directions.

Both President Reagan and Fed chairman Paul A. Volcker want to reduce inflation. But they differ over what is the most important part of monetary policy.

"We have no quarrel with the Federal Reserve Bank's goals," said Treasury Secretary Donald Regan recently. "It's their methods. Perhaps there are other methods they can use."

Specifically, the administration is worried the Fed loses sight of the money supply (the amount of cash in circulation plus quickly usable bank deposits) by staring too hard at interest rates.

"We do not presume to dictate monetary policy procedures to the Federal Reserve," said Beryl Sprinkel, undersecretary of the Treasury for monetary affairs, before a subcommittee of the Joint Economic Committee. But, after the caveat, Mr. Sprinkel went ahead and criticized the fed, saying that by trying to peg interest rates it was "interfering" with the slowing of money supply growth.

Sprinkel, tough former tank gunner, can say what he likes, but the Fed doesn't have to listen. The seven members of the Board of Governors are appointed by the president to 14-year terms. They cannot be removed by the president during that term. So they do not have to answer to the White House for their decisions. Thus, they are somewhat removed from the elbow-bending of political pressure.

The president also picks the chairman and vice-chairman from among the governors. But the way terms are currently arranged, each new President must work with the old chairman for two years before he can name a successor. President Carter dealt with Nixon appointee Arthur F. Burns until Burns resigned; now Reagan is paired with Paul Volcker, the man Carter appointed, until 1983.

Back in 1961, the Commission on Money and Credit recommended that the President and the Fed chairman start their terms at the same time. On the heels of Sprinkel's testimony, Senator Cranston has introduced a bill which would do just that -- make the White House and the Fed march to the same political cycle.

"Chairman Volcker's insistence on high interest rates as the only way to combat inflation threatens to imperil prospects of success the President's economic program may have," said Cranston.

Some economists share his concern, pointing out that the Fed's money supply targets wouldn't give enough cash to fuel the growth of the gross national product (GNP) which Reagan is predicting for 1982.

"The overall thrust of the Reagan budget is well designed to produce stronger economic growth and reduce inflation," said Courtenay Slater, former chief economist at the Department of Commerce, to a meeting of statisticians. "But it won't achieve those goals if it is in fact coupled with the restrictive monetary policies" the Fed is planning to follow.

To achieve a 3-to-3.5 percent growth in real GNP, Mr. Slater said, M1B (the most commonly watched money supply figure) would have to grow 6.5 to 7 percent annually.

But the Reagan administration is predicting a 5 percent spurt in real GNP. And the Fed is predictipng an average growth of less than 6 percent in M1B, over the next four years.

According to Slater, the figures don't match. Depending on your point of view, there's either too much growth, or not enough money.

The administration explains the difference by saying that the money supply's velocity (the speed with which it changes hands) will increase. In effect, this makes the money supply larger.

Lawrence Kudlow, chief economist of the Office of Management and Budget, recently admitted that the administration's velocity estimates are "on the high side," though he defended them as feasible.

A former Federal Reserve economist says his calculations show there should be enough money to power Reagan's growth projections.

"It's a tight fit," said the source, "but I think the monetary brackets are high enough."

And a report issued by the US Chamber Forecast Center claims it is wrong to focus on how much monetary growth restraint would slow GNP growth.

"I'm not worried about it," says Richard Rahn, the chamber's chief economist.