Federal Reserve policy makers have agreed not to tighten monetary policy to bring the growth of the money supply back down within its target range for the second half of this year, Federal Reserve Chairman Paul A. Volcker disclosed yesterday.

Volcker's comments came in a letter to Del. Walter E. Fauntroy (D-D.C.), chairman of the House domestic monetary policy subcommittee, which was released after financial markets were closed.

Market analysts generally have not been expecting the Fed to tighten up, though an explicit statement to that effect could give bond and stock markets a substantial boost today, analysts said.

The statement also gained in significance because it came just after a meeting this week of the Fed's policy making group, the Federal Open Market Committee, to reassess monetary policy.

Volcker said that the FOMC "has agreed that growth of M1 over the second half of the year as a whole above the target range established in July would be acceptable."

Volcker wrote the letter in response to a subcommittee recommendation that the Fed put less emphasis on the money supply measure known as M1 in policy implementation; instead of setting a target for growth of M1, policy makers should merely monitor its growth because of uncertainties about the link between M1 growth and the economy, the panel suggested.

Volcker said the Fed's second-half targets for M1 growth were set in July assuming that a normal relationship would be reestablished between growth of M1 and current-dollar gross national product.

But instead of GNP growing faster than M1 -- as is normally the case -- the opposite occurred in each of the first three quarters of the year.

"In light of the current uncertainties surrounding the relationship of M1 to economic activity and prices, the FOMC, as I suggested in my [July] testimony, has continued since mid-year to evaluate the behavior of M1, and the broader [monetary] aggregates as well, against the background of incoming information on the economy and developments in foreign exchange and domestic credit markets," Volcker said in his letter, which was made available by both the subcommittee and the Fed.

"In fact," Volcker continued, "M1 growth in the third quarter was well in excess of the FOMC's rebased target.

"That, in itself, has been a matter of concern, but in light of continued declines in M1 velocity [the ratio of GNP to money], growth in broader monetary aggregates generally within longer-term ranges, and the relatively high foreign exchange value of the dollar, the committee chose not to move aggressively to tighten reserve availability to constrain M1 growth," Volcker's letter continued.

M1 includes currency in circulation and checking deposits at financial institutions. The Fed seeks to influence M1 growth by making reserves -- a share of certain deposits that institutions must set aside -- more or less readily available to the banking system.

Tightening monetary policy by making reserves less available usually means interest rates rise, and vice versa.

The broader monetary aggregates to which Volcker referred are M2, which also includes savings and small time deposits at financial institutions, most money market mutual fund shares and some other items, and M3, which also covers large time deposits and other items.

In July, the FOMC "rebased" its M1 target range by deciding to measure its growth for the second half of the year from the average level of M1 in the second quarter, rather than the fourth quarter of 1984, the original base.

It did so because a surge in M1 carried it far above the original target range and neither economic activity nor inflation rose substantially.

The target range was also widened slightly to a 3 percent to 8 percent annual growth rate.

However, from the second quarter through September, M1 grew at about a 15 percent rate.

"Slower growth in M1 is anticipated over the fourth quarter as a whole, consistent with a probable small decline in October," Volcker went on to say.