Nearly all the issues that generated turmoil at the Federal Reserve in the past month, and that contributed to the resignation of Fed Vice Chairman Preston Martin, are still on the table for this week's regular meeting of the central bank's top policy makers.
About the only one that is not is Martin's challenge to Chairman Paul A. Volcker. When White House chief of staff Donald T. Regan would not give Martin any assurance that he would succeed Volcker when the latter's term as chairman expires next year, Martin quit effective the end of April.
Fed policy makers still will have to sort out some confusing economic signals and forecasts. According to most forecasters, the economy will begin to grow more strongly later this year, but for the moment, it is not doing so. Most predictions are that the gross national product, adjusted for inflation, grew at only a 2 percent to 3 percent rate in the first quarter.
That growth is much better than the 0.7 percent rate of gain eked out in fourth quarter of last year. It is also still well below the 4 percent growth predicted for this year by the Reagan administration, a pace many economists think would not lead to any significant increase in inflation if it were achieved.
Financial markets, bouyed by falling oil prices and the apparent end to the immediate challenge to Volcker's remaining as Fed chairman, have continued to rally. Late last week, 30-year U.S. government bond yields dropped to about 7.6 percent, the lowest level in nine years. That rate was also a scant 0.2 percentage point above the rate financial institutions were charging one another for overnight loans of reserves, so-called federal funds.
The federal funds rate is heavily influenced by the readiness of the Federal Reserve to supply cash to the nation's banking system. Normally, the Fed acts to hold the federal funds rate above the level of the discount rate, which is currently 7 percent.
But the market rally has also carried most other short-term interest rates to their lowest levels in several years. For example, the yield on three-month Treasury bills dropped below 6 1/2 percent.
In short, the market has moved rates to a level consistent with another discount rate cut. Some financial analysts believe that continued evidence of slow economic growth and little if any current inflation could persuade Fed policy makers to take that step this spring. Few expect such a cut or even any more modest easing of policy to come in the wake of this week's meeting.
Close Fed watchers think there is no reason to argue that any easing is urgently needed. And after all the turmoil of the past month, the most important thing for the Fed's policy-making group, the Federal Open Market Committee, or FOMC, to do is to give the financial world no further reason to question that Volcker's basic anti-inflationary stance has support, these analysts believe.
Some senior Federal Reserve officials indicated that they share that view.
Moreover, in an interview before the challenge to Volcker became known, Martin himself suggested that it could take several months to assess the impact of the latest rate reduction on the economy. The vice chairman and Governor Martha Seger had been pressing for a cut in the discount rate since last November. "At that time, I did feel some slight additional stimulus was needed," Martin said. "It is here now."
The uproar over the attempt by Martin and three other board members to push through a cut in the central bank's discount rate over Volcker's objections brought such an overwhelmingly adverse reaction from financial market participants that last week Regan went out of his way in an interview at the White House to settle things down.
Any differences between the administration and Volcker over the proper stance for monetary policy are minor, Regan said, and then went on to raise the possibility that Volcker would be appointed to a third four-year term should he wish one. President Reagan reappointed the chairman in 1983.
Martin said he does not plan to attend this week's meeting of the FOMC. Federal Reserve officials who are leaving often skip such meetings so there can be no question about their having information about the latest unannounced policy decisions while they are seeking or assuming jobs in the private sector. The vice chairman said he will be looking for a private-sector position.
Martin's absence will mean that there will be at most 11 voting members at the session on Tuesday, the other six board members and five regional Federal Reserve Bank presidents. Another seven presidents may attend and take part in the discussions, but cannot vote.
No new challenge to Volcker is expected at the meeting, particularly since the chairman has more support among the ranks of the regional bank presidents than he proved to have on the board, most Fed observers believe.
In addition, the basic policy issue on which Volcker and his supporters first lost a vote and later prevailed -- after Governor Wayne Angell changed his mind -- is little different that it was Feb. 24 when the recent drama began.
Volcker did not want the Fed to lower its discount rate -- the rate it charges on loans it makes to financial institutions -- before the West German and Japanese central banks lowered theirs, to avoid the risk of undermining confidence in the dollar on foreign-exchange markets. He also was anxious that lower rates be used to stimulate domestic demand for goods and services in both countries. Faster growth abroad could help improve markets for U.S. exports, reducing the huge U.S. trade deficit.
After the other central banks acted, the Fed board voted 6 to 0 to reduce its discount rate from 7 1/2 percent to 7 percent.
At various times in the negotiations that led to the coordinated rate cuts, both the Germans and the Japanese indicated reluctance to act. Now there are signs another Japanese rate cut might be in the cards.
Industrial production has fallen there for two months in a row, a clear sign of slowing economic growth that has brought calls for cuts in Japan's already very low interest rates. The discount rate there is only 3 1/2 percent.
Meanwhile, the Bank of Japan has intervened in currency markets to prop up the U.S. dollar and weaken the yen slightly. One reason for the decline in industrial production is that the yen's value has risen so high that demand for Japanese exports is falling. Thus, rates might be lowered both to weaken the yen a bit and boost the domestic economy.
On the other hand, the West German economy is moving ahead strongly and officials there likely would be very reluctant to reduce rates again.
While the policy makers continue to face that international constraint, reports from the 12 Federal Reserve districts indicate that the economy is still growing in a relatively non-inflationary way.
The summary of conditions prepared for this week's meeting stated, "Moderate economic expansion has continued in most regions of the country in recent weeks, despite unevenness across sectors. Recent improvements in economic activity are noted by New York, Cleveland, Kansas City and Philadelphia districts . . . .
"The major sectors of strength included construction and selected manufacturing industries. Although industrial activity varied across districts, general improvements were noted for energy-intensive manufacturers such as the lumber, paper, aluminum and steel industries. . . .
"Major economic weaknesses continue to be concentrated in the agricultural and energy-producing sectors . . . ," the summary said.