President Carter is involved in a debate among his top economic advisers on whether to tighten the government's fiscal and monetary policies for 1979 and 1980 to help cool the overheated economy.
The two sides presented their proposals last Monday in a policy session at Carter's Camp David, Md., mountain retreat. Sources and Carter listened to arguments for and against such a shift, but apparently made no decisions.
Officials said the push to trim fiscal policy further was being led by Treasury Secretary W. Michael Blumenthal, who urged Carter to slash spending to trim the budget deficit below the administration's $29 billion target.
Blumenthal also wants the administration to press the independent Federal Reserve Board to tighten money and credit policies, primarily by raising interest rates, to help slow business activity.
Meanwhile, the administration continued to temper its earlier sharp reaction to the fourth quarter profits figures, with inflation fighter Alfred Kahn telling a Senate subcommittee high profits don't necessarily mean violation of the guidelines.
The anti-inflation chief also predicted that profits would grow less robustly in coming months. Kahn said he thought business earnings had hit a peak at the top of the current cycle.
Meanwhile, new figures on the profits of Virginia-based corporations showed key firms' net earnings rose between 1 percent and 202 percent during 1978, with one company -- Royster Co. of Norfolk -- reporting an 11 percent decline.
It was not immediately clear how large a cutback Blumenthal has advocated, but insiders indicated it was relatively modest -- more for the psychological impact on business and consumers than for actual economic effect.
Opponents have argued that even if Carter agreed to further spending cuts, it would not have a significant impact on the economy any time soon. A tightening of money and credit policits would be faster, but still have delays.
Officials said Blumenthal's arguments were not shared fully by other key advisers. Charles L. Schultze, chairman of the Council of Economic Advisers, was said to be wary of further budget-cutting, preferring higher interest rates instead.
And Carter was urged to stand pat by two other advisers, Commerce Secretary Juanita N. Kreps and Labor Secretary Ray Marshall, both of whom argued conditions did not justify a further tightening.
Although the economy was proceeding at a rapid pace earlier this year, there have been some initial signs recently that it may be beginning to slow down. Retail sales have been Iackluster. And housing starts have declined.
Carter has been under new pressure to do something more to combat inflation in the wake of unusually sharp increases in prices lately, combined with a robust performance of corporate profits.
However, several advisers, including Schultze, are not eager to shift gears until it's known for sure whether a policy change is needed. The administration has been accused of changing too frequently in previous years.
The developments came as, separately, the administration disclosed yesterday it has begun the first major enforcement action of its new wageprice program -- notifying four large companies they are violating the new price guidelines.
Presidential inflation-fighter Kahn declined to name either the corporations or the industries in which they are involved. The firms now have several days to respond before the White House makes their names public.