Federal Reserve Chairman Paul A. Volcker said yesterday there was "no inconsistency" in the Fed's concern about inflation and its recent decision to lower the discount rate.

In a speech to the Harvard Alumni Association, Volcker said the decision May 17 to lower the discount rate from 8 percent to 7 1/2 percent "took place under particular circumstances."

The circumstances included "a strong dollar, ample unused production capacity and slow growth," all of which tend to reduce inflationary pressures, he said.

Volcker spoke to the Harvard group in Cambridge, Mass. A copy of his text was made available here.

Some economists who focus on the growth of the money supply as a cause of future inflation have complained that the Federal Reserve is allowing the most closely watched measure of money, M1, to expand so fast that inflation will again accelerate. The Fed has reported that M1 rose sharply in each of the latest two weeks. Details on page B9.

M1, which includes currency and traveler's checks in circulation and checking deposits at financial institutions, has grown faster this year than the central bank had targeted. And, as one senior Fed official acknowledged yesterday, the discount rate cut likely will speed money growth even more.

Apparently referring to such criticism, Volcker continued, "The sensitivity of some to any action that could be interpreted as inflationary is an understandable, if mistaken, heritage of the absence of effective, consistent governmental policies to deal with inflation over the years."

The Fed chairman attacked proposals to reduce the nation's record trade deficit through protectionist actions such as high tariffs and quotas on imports.

"There are more constructive ways to approach the problem," Volcker declared. "Most of all, we have to face up to the fact that our trade deficit and exchange rate problems in substantial measure grow out of contradictions in our own economic policies," including large federal budget deficits.

"Some of our trading partners, certainly Japan, need to face up to problems that, in important ways, are the mirror image of our own -- undue reliance on trade surpluses" to maintain high employment.

Volcker also suggested that action is needed to calm the world's currency markets, where increased volatility of exchange rates is distorting trade and financial transactions around the world.

Later this month, Volcker will attend a meeting of the finance ministers of 11 major industrial nations in Tokyo, where a report will be made on ways to strengthen the international monetary system.