Federal Reserve Chairman Paul A. Volcker said yesterday that the central bank is continuing an "accommodative" monetary policy to bolster the sluggish U.S. economy, but he warned that there are limits to what the Fed alone can accomplish.

"We are dealing with a situation marked by gross imbalances that can neither be sustained indefinitely nor dealt with successfully by monetary policy alone, however conducted," Volcker told a House subcommittee to which he presented the Fed's midyear report on monetary policy. The chairman then ticked off six such imbalances:

*"We are borrowing, as a nation, far more than we are willing to save internally.

*"We are buying abroad much more than we are able to sell.

*"We reconcile borrowing more than we save and buying more than we sell by piling up debts abroad in amounts unparalleled in our history.

*"Our key trading partners, directly or indirectly, have been relying on our markets to support their growth, and even so, most of them remain mired in historically high levels of unemployment.

*"Meanwhile, our high levels of consumption and employment are not being matched by the expansion in the industrial base we will need as we restore external balance an service our growing external debt.

*"And, after 2 1/2 years of economic expansion, too many borrowers at home and abroad remain under strain or overextended."

Volcker said that the change most needed to begin an attack on these problems is a substantial reduction in federal budget deficits, through higher taxes, preferably on consumption rather than income, if enough cuts cannot be made on the spending side.

In the meantime, with economic growth lagging in goods-producing sectors and few, if any, signs of higher inflation ahead, the Fed has chosen to continue to accommodate rapidly rising demands for credit even though it has meant a faster rise in the most closely watched measure of money, M1, than had been intended.

"Taking account of current and likely economic developments, the downward pressures on commodity prices and the high level of the dollar that has prevailed in the foreign exchange markets, the growth in M1 and total nonfinancial debt has not in itself justified a more restrictive approach toward the provision of reserves to the banking system," Volcker said.

Instead, as disclosed in the midyear Fed report released Tuesday, central bank policy makers decided to incorporate the rapid growth of M1 in the first half of this year into the base from which its future growth will be measured. Previously, the target for M1 growth was 4 to 7 percent between the fourth quarter of 1984 and the fourth quarter of this year.

The new target for M1 -- which includes currency in circulation and checking deposits at financial institutions -- is 3 to 8 percent from the second quarter to the fourth quarter. A tentative target of 4 to 7 percent was set for 1986.

The Fed chose to rebase M1 rather than simply raise this year's target range because the new growth range is more in line with the longer-term expansion of money the central bank would like to see, Volcker explained.

He repeatedly stressed the uncertainties surrounding the link between money growth and the economy, which he said "imply the need for a considerable degree of judgment rather than precise rules in the current conduct of monetary policy." His remarks prompted one subcommittee member, Rep. Buddy Roemer (D-La.), to ask if Volcker wouldn't like a replacement for M1.

"Conceptually, I would like to find one," Volcker replied, "but I don't know where to look."

Noting the damage that foreign competition here and in other countries has done among U.S. manufacturers and farmers, Volcker said one objective of policy is a decline of the dollar for the "right" reasons, such as a smaller budget deficit and lower interest rates. He added that foreign competition has helped reduce U.S. inflation, and a decline in the dollar could add to it.

"The larger the external deficits and the longer they are prolonged," he said, "the more severe the subsequent adjustments in the exchange rate and in our economy are apt to be. We will have paid dearly indeed for any short-term benefits."

Volcker said that even with the dollar's sharp drop in recent days, it remains about the same level as last summer and far above its lows of 1979 and 1980. The decline so far, he said, probably has not been large enough to have much impact on inflation or the U.S. trade balance.The profit margins of many foreign exporters are high enough that they can and probably will absorb most of the recent decline and not increase their prices, he said.

In the midyear report, forecasts from the 19 members of the policy-making group, the Federal Open Market Committee, indicate they expect a rebound in economic growth in the second half of this year to more than a 4 percent annual rate but dipping again in 1986 to the neighborhood of 3 percent. The expectations for inflation are for 4 percent or a little less this year, perhaps rising somewhat in 1986.

Volcker said that the economy is not in a "growth recession" -- a period in which output keeps growing but at such a slow rate that unemployment rises. And he added, "The chances are at least as good that we will do better than the forecasts as that we will do worse.

"I personally think we will do better than that on inflation. The FOMC in its majesty has overestimated inflation in each of the last four years."

Treasury Secretary James A. Baker III, commenting on the Fed action on the "Today" show yesterday, said, "We're pleased with it, and we certainly have no problem with it. We can understand why they adjusted their target range when you look at what has happened in the first half of this year" and that, despite the increase in M1, inflation has not accelerated.