Fed appears to be holding to inflation rein

The Federal Reserve seems determined to keep a tight rein on inflation, even if such a policy risks somewhat higher interest rates and slower economic growth.

That is how analysts read the Fed's latest targets for how fast the nation's money supply should grow. The size of the money supply helps determine the level of interest rates. In turn, interest rates play a major role in determining the level of economic growth and unemploy-ment.

The Fed released money growth targets for 1984 Monday which are just a notch tighter for one definition of money, M-2, than the relatively restrictive targets the Fed has had in place for some time. The 1984 growth targets for other definitions of the money supply remained unchanged from preliminary 1984 ranges the Fed had set in '83.

The new targets are ''confirmation that the Fed is serious about long-term control over money supply and inflation,'' says Ben Laden, chief economist at T. Rowe Price Associates.

The new objectives come on the heels of a report from the Dec. 19-20 meeting of the Fed's policymaking Federal Open Market Committee, a summary of which was released Feb. 3. At that session the committee voted to maintain ''at least the existing degree of restraint,'' and to accept ''somewhat greater restraint'' over the money supply should money growth and economic conditions necessitate.

Both the new money growth ranges and the Open Market Committee's meeting notes show Fed policymakers are ''much more willing, it seems, to accept the risk that they will be a bit too tight (in controlling credit conditions) than risk being too easy,'' adds Jeffrey Leeds, an economist and Fed-watcher at Chemical Bank in New York.

The Fed's policy stance means that there is little chance interest rates will fall significantly in the near future, Mr. Laden says.

Despite the Fed's continuing caution, its economic forecast for 1984 is only slightly less optimistic than the Reagan administration's projections (see table).

Under its revised money-supply targets, the Fed expects the growth of M-1 (basically, currency and checking accounts) to remain in the 4 to 8 percent range set for the measure's 1984 growth last year. In 1983, M-1 grew at a 7.2 percent rate, according to revised data.

M-2 (M-1 plus money market funds and savings accounts) is targeted for growth of 6 to 9 percent this year, down from the 6.5 to 9.5 percent targets for 1984 set last year. The Fed said ''technical'' factors were behind the target reduction. One such factor is that the Fed expects less disruption in this measure than last year, when money market deposit accounts for banks appeared. Last year M-2 grew 8.3 percent.

The targets for M-3 (M-2 plus large savings accounts) remain unchanged, at 6 to 9 percent. Last year M-3 grew 9.7 percent.

Once again Federal Reserve officials warned of the risks the federal government's deficit poses for the economy. The deficit is ''dominating the outlook for credit flows in the year ahead,'' the Fed warned.

By absorbing a large fraction of the private savings available for investment , the deficit will keep interest rates ''higher than they otherwise would be,'' the Fed says, thus weakening interest-rate sensitive industries like housing and autos.

And deficit reduction efforts which trim only $50 billion to $100 billion off the deficit will not produce a ''dramatic change in the credit market,'' according to a Fed official who briefed reporters.

FED VS REAGAN '84 PROJECTIONS Fed Administration Real GNP* 4 to 4.75 4.5 GNP deflator (inflation)* 4.5 to 5 5.0 Average unemployment rate 4th quarter 7.5 to 7.75 7.7 (* Percent change from 4th quarter 1983 to 4th quarter 1984) Note: Fed projections are the "central tendency" of individual forecasts of Federal Open Market Committee members.