Would a bit of higher interest help or hurt the recovery?

Wall Street is preparing itself for a shift in Federal Reserve Board policy. This shift could tighten interest rates a notch, allowing the nation's central bank to get firmer control over the money supply.

''Secretly, I think Wall Street is hoping the Fed takes notice of what is happening with the money supply,'' says Monte Gordon, director of research at the Dreyfus Corporation, a mutual fund manager, ''and begins to lean slightly against the wind.''

Mr. Gordon says the dominant concern is that the Federal Reserve act now. ''If the Fed does not go after the money supply now,'' Mr. Gordon says, ''then it may have to be done later in a much stronger fashion.'' Also, as Dr. Robert Barbera, an economist at E.F. Hutton, notes, during the first quarters of an economic recovery the velocity of money supply (the speed with which money exchanges hands) traditionally accelerates. Thus, he says, ''the Fed could slowly taper money growth as the economy improves'' without hurting the recovery.

Recently the supply of money, as represented by M-1 (currency, checking accounts, and traveler's checks), has been growing at a rapid rate. In February, it rose at a 21.2 percent annual rate. In January it had risen 10 percent. Through the week of March 14-18, it was up 16.5 percent on an annual basis. This is considered to be much greater than is desirable. Rumors that the Fed would ''snug'' up interest rates have been circulating on Wall Street for days. And even though the prices of bonds have softened, increasing their yields, stocks have not reacted negatively. ''Easier money was the catalyst for the market's early rise,'' says Mr. Gordon. ''Now Wall Street could be comfortable with slightly higher rates.''

Naturally, not everyone agrees with him. Frank Mastrapasqua, chief economist at Smith Barney, Harris Upham & Co., argues that it's too early in the economic recovery for the Fed to start tightening interest rates. ''You don't want to starve the recovery,'' he says. Robert Schwartz, vice-president and senior financial economist at Merrill Lynch & Co., agrees: ''There are clear signs the economic recovery lost momentum and faded some in February. A sharp spike in interest rates now would damage the economy.''

Mr. Schwartz further contends that the Fed has some leeway, since the inflation rate remains under control. ''It will take a lot of monetary growth to reignite inflation,'' he says. But Mr. Gordon counters that food prices are already starting to rise. ''The President's plan to help the farmer, which benefited the farm equipment manufacturers, will also add to the inflation rate, '' he says.

Mr. Mastrapasqua also believes the banking system still has too many problems to handle for the Fed to begin to tighten. First, there were problems with loans to oil companies; now, he says, banks will begin to write off loans to companies involved in commercial office construction. And the international loan picture has yet to begin to brighten.

Furthermore, he believes there are too many crosscurrents at play to interpret correctly what is going on with the nation's money supply. ''If you look at the numbers supplied by the Federal Reserve Board,'' he points out, ''you see reserves declining. But if you look at the numbers supplied by the St. Louis Fed, you see an explosive growth of reserves.'' When making policy decisions concerning interest rates, the Fed must take bank reserves into consideration.

Behind this confusion lies the new money market accounts allowed by Congress late last year. These are skewing the weekly money supply numbers. So the Fed has said it would ignore the numbers until it felt it had a better grasp of them. Further confusing the picture is the fact that consumers are not spending money as fast as they normally would. With high real interest rates, they are saving instead. Mr. Gordon of Dreyfus asks: ''Does this slowing of monetary velocity justify the Fed's allowing the money supply to rise faster?''

On Wall Street this debate comes at a critical time. The government has been a heavy borrower in the financial markets. If the community of dealers in government markets believes the Fed is tightening interest rates, it will be less inclined to bid for these new government issues. Thus, Mr. Schwartz says, ''the Fed is trying to achieve the best of all possible worlds by not saying anything.'' By allowing interest rates to drift upward, it's placating the monetarists, who are concerned with the fast growth of M-1. By not taking any overt actions to raise rates, however, it's satisfying the dealer community, which has a lot of money at risk.

In a recent report, Merrill Lynch & Co. highlighted a score of companies that should benefit from cost cutting. Among those paring back, Merrill said, is Apple Computer, Fleming Companies, Trans World Airlines, Ford Motor, Standard Motor Products, Sun Electric, National Gypsum, Owens-Corning Fiberglas, Scovill, and Zenith Radio. In its weekly Market Letter, Merrill said these cuts should help contribute to ''above-average earnings gains over the next few years.''

The Big Apple bites back. Mayor Edward Koch has moved ahead with his threat to reimpose the stock transfer tax on securities transactions done in New York. When it was first proposed, the New York exchanges claimed it would chase customers to exchanges in other cities. But the mayor says he doesn't take the exchanges seriously. Mr. Koch says that at initial hearings held in the state capital last month, the securities industry only sent up a ''lightweight official.'' Almost none of the brokerage houses sent up representatives.

Now, the New York Stock Exchange says it is preparing to fight the tax. In two weeks it hopes to fly officials from most of the major brokerages to Albany to testify. One exchange official says, ''We're going to fight this thing tooth and nail.''

The stock market spurted upward last week as selling pressures eased. Volume accelerated on the New York Stock Exchange, where the Dow Jones industrial average closed at 1,140.09, up 22.35 points for the week.