Once again Paul A. Volcker occupies center stage in Washington as he prepares to unveil the Federal Reserve Board's money growth target for 1983. This week Fed chairman Volcker will tell Congress how fast he and his fellow governors think the money supply should grow to help the US economy avoid the pitfalls of inflation or recession.
Fed officials are probing for a balance. They need to feed enough money into the system to nurture recovery, but not so much that inflation makes a comeback.
President Reagan says he believes that Mr. Volcker is ''fully aware of the dangers of reigniting inflation and he (Volcker) intends to take a middle course.''
Good advice, but what is the middle course?
At the heart of the problem lie huge budget deficits that the President and Congress are piling up through their combinations of tax cuts and spending increases.
As the financial markets see it, the bulk of the nation's private savings pool will be swallowed by the US Treasury to finance the deficits. This will leave a meager amount of capital for the private sector.
The Fed can do nothing about the deficits. Volcker urges Congress and the White House - so far largely in vain - to dry up some of that red ink.
Meanwhile, the Federal Open Market Committee (FOMC) - policymaking arm of the Federal Reserve - must decide what the economy will need in the way of money to promote sustained, noninflationary growth.
The Fed divides the nation's money supply into categories. M-1 consists of the cash in circulation and all types of checking accounts. M-2 includes the above, plus savings accounts, small certificates of deposit, and some other things. Large time deposits, balances held in Keogh and individual retirement accounts (IRA), and some other accounts belong to M-3.
To each of these categories the FOMC assigns a growth target for the year. Periodically these targets are adjusted, as circumstances change.
This year the job of defining targets is harder than ever because deregulation of the banking industry unleashed a blizzard of new checking and savings accounts. Hundreds of billions of dollars are on the move, like loose ballast on a ship, as savers and investors search for the best return on their money.
A thousand dollars, for example, held in a passbook savings account belongs to M-2. If the saver shifts that money to a NOW, or interest-bearing checking account, it becomes part of M-1. But has anything really changed?
Multiply that example by hundreds of billions of dollars and the dimensions of the Fed's problem - trying to determine what people are doing with their money - become clear.
Apart from technical problems, top officials of the Fed must decide whether monetary policy this year should be geared to fighting inflation or to fostering economic growth.
Over the past few years, when inflation ran rampant, there was no question about the Fed's priority. Inflation was to be squeezed out of the system, by tightly curbing monetary growth.
The Fed succeeded. Consumer prices last year rose less than 4 percent. But in terms of economic stagnation, bankrupties, and lost jobs, the cost was high.
So last summer the Federal Reserve switched priorities, allowing the money supply to exceed 1982 targets. The goal was to halt the worst recession since World War II and prod the economy back toward growth - even at the risk of some inflation.
That risk is held to be small, because - with factories operating at less than 70 percent of capacity - the economy should have some room to grow before inflationary pressures develop. Producer prices, which rose a modest 3.5 percent in all of 1982, actually declined by 1 percent in January.
The risk of inflation was thought by Fed officials to be the lesser of two evils. The greater danger, in their view, was that the economy might slip over the brink into real depression, compounding unemployment and human suffering.
Federal Reserve Board officials insist they will not risk losing the hard-won gains against inflation. At the first sign of acceleration in inflation, they say, monetary brakes will be applied.
All this is a prologue to Volker's appearance before Congress, when he will tell the nation what the central bank intends to do this year in its search for that illusive ''middle course.''