Federal Reserve Board Chairman Paul A. Volcker told the Senate Banking Committee yesterday that the budget deficits proposed by President Reagan are exposing financial markets to "a major hazard today and in the future" and urged Congress to pare the red ink by at least another $20 billion by fiscal 1984.

If the public sees congressional determination to rewrite the president's budget to this extent, it "could have a dramatic influence on interest rates," perhaps leading to a quick decline of 2 to 3 points, Volcker said. An additional $20 billion cut, if all the president's proposals also are passed, would slice the fiscal 1984 deficit to $63 billion.

Volcker said that, assuming "a steady, healthy recovery," that would open up the prospect later on--he didn't say when--of "a rough budget balance with 6 percent unemployment."

His appearance before the Senate committee was to repeat, as required by the Humphrey-Hawkins Act, a presentation given the previous day to the House Banking Committee of the Fed's annual monetary targets for 1982.

He said that financial markets had to assume that the rising burden of deficits as now projected would preempt the savings available for the private economy. "What stands out to me is the very large nature of the budget numbers no matter how one puts them together," Volcker said.

There was no substantive change in his prepared testimony, which stressed the determination of the Fed to continue with a tight monetary policy, although money supply growth in the "upper half" of the target range will be acceptable this year.

But Volcker did say, in response to a question from Sen. William Proxmire (D-Wis.) that if the current recession continues and interest rates continue to rise, "We will have to take a look at our money targets." He added quickly, and stressed more than once, that "I do not expect that to happen."

He rejected a suggestion by Committee Chairman Jake Garn (R-Utah) that the Fed at this point should "reassess" its targets in view of the impact high interest rates are having on the economy. Volcker told Garn and other committee members that the Fed was not insensitive to the hardships being created by high interest rates.

But he added that if the Fed relaxed its policy, the recent improvement in inflation and "some signs of permanent improvement in the basic wage-productivity-cost nexus" would be eroded. And in a half-dozen different ways, he pleaded with the Reagan administration and Congress to take some of the burden off the Fed by tightening up fiscal policy.

The current budgetary situation "has no parallel in history, in my mind," he said. "Whether one looks at the administration's current services budget estimates, or the Congressional Budget Office's estimates, or those of private analysts, they all say the same thing : Even if you are assuming continuing recovery, you have a widening deficit beginning at a very high level."

He made clear that he was not focusing on the 1982 deficit, which is influenced by recession. "But what greatly concerns me is that the deficit doesn't decline as the recovery proceeds," Volcker said.

"If you put that in any kind of context, whether as a percentage of the gross national product or whatever, it implies a preemption of savings to finance the deficit and it leaves no room for housing, industry and so on."

He urged that Congress try to "give the markets a signal" that it is willing to deal with the deficit problem in the near term--for fiscal 1983 and 1984."

In response to Reagan administration criticism that the Fed has allowed too much volatility in money supply growth, Volcker said that the U.S. record compares favorably with most other major nations. The only "steadier" country in this respect is Italy, he said.

But in any event, challenging one of the administration's major monetarist themes, he argued that, "In the short run, we pay too much attention to stability of money supply growth . What counts is the trend over time."

On another pet administration project, the use of so-called "contemporaneous reserve accounting" to guide Fed policy, Volcker said that there may be some technical advantages to it, but that its importance "has been blown up all out of proportions."