Federal Reserve Chairman Paul A. Volcker had a difficult chore last week: announcing that the Fed had raised its 1985 money growth target substantially without at the same time quickening the already swift slide of the U.S. dollar on foreign exchange markets.

He appears to have succeeded.

Short-term interest rates rose and the dollar firmed as many market participants became convinced that, despite the higher money target, the Fed plans no further overt easing moves any time soon -- moves such as a cut in its 7 1/2 percent discount rate. There seemed to be little concern that the central bank had abandoned its basic anti-inflation stance.

Once again it appeared that Volcker's immense credibility in financial markets allowed the central bank to have its cake and eat it, too.

"They have taken the pressure off themselves and the markets" by raising the target range for growth of M1, which had gotten far above the old target, one financial analyst said. At the same time, Volcker's congressional testimony the day after his Tuesday announcement indicated that "he expects the economy to revive, and that if the Fed was going to cut the discount rate, it would already have done it."

These "warning shots," as the analyst described, turned the dollar around by convincing foreign exchange traders that interest rates may not be coming down any more unless the economy remains weak.

In Volcker's prepared testimony and in his responses to questions from members of the House domestic monetary policy subcommittee and the Senate Banking Committee, he stressed the dangers of an overly easy monetary policy.

"As things now stand," he said, "some policy actions that might seem, on their face, to contribute toward easing one problem could aggravate others."

In other words, the Fed apparently feels it can go only so far in responding to the distress in manufacturing and other sluggish sectors of the economy without inflationary consequences. Volcker said the biggest danger lies with the dollar.

"The possibility at some point that sentiment toward the dollar could change adversely, with sharp repercussions in the exchange rate in a downward direction, poses the greatest potential threat to the progress we have made against inflation. Those risks would be compounded by excessive monetary and liquidity creation," Volcker told Congress.

The interest rate consequences of a big drop in the dollar could be felt even more quickly than any inflationary impulse, the Fed chairman warned. "I don't think we're in any position to look at appreciable declines in the dollar as a good thing if we haven't gotten our domestic house in order" by reducing the continuing large federal budget deficits, Volcker told the Senate committee.

The problem is that the nation is consuming and investing more than it is producing. In terms of real goods and services, the difference is being made up by imports from abroad. Meanwhile, the resulting trade deficit is being financed by a matching inflow of foreign capital.

Reducing the trade deficit would help American firms competing against the import flood. With so much idle productive capacity in the United States, buyers of foreign goods could switch to American products.

But a decline in the trade deficit would also mean a drop in that capital inflow even though there had been no offsetting decline in the American appetite for credit. That could push up interest rates if the Federal Reserve did not make more money available as the foreign flow slowed down, something Volcker was arguing could lead to more inflation.

While manufacturing would be helped by a drop in the value of the dollar as the trade deficit was trimmed, that would put "new pressures on interest rates and a squeeze on other sectors of the economy," he said. Housing and business investment would bear the brunt of the squeeze.

"We either have to increase our savings or reduce the deficit," Volcker said. "We can't increase savings, so we have to reduce the deficit . . . That clearly is within your power," he told the senators.

That's the only way out of this box, in the opinion of Volcker and many other economists.

Congress and President Reagan remain at loggerheads over how to reduce the deficit. Meanwhile, more and more legislation is being introduced to combat the effects of the rising trade deficit by offering protection from imports -- a "witches' brew of protectionism," Volcker termed it.

The persuasiveness and the credibility of the Fed chairman once again calmed the markets even though changes of meaningful action on deficits seemed as far away as ever.

Nevertheless, Volcker and other senior Fed officials are uncomfortably aware that at some point the whole game could get out of hand.

The economy could easily slip into another recession rather than pick up as the Fed expects. And that would only compound the long-run budget problem, and the Fed's dilemma, by reducing budget receipts and increasing the deficit.

Some economists don't have much faith in the projections of faster economic growth as it is. "The economy is still in lousy shape," said a Wall Street analyst. "All the anecdotal evidence we have says that."