President Bush and his economic advisers, turning thumbs down on new federal spending or tax cuts to boost the U.S. economy out of the current recession, said yesterday that the Federal Reserve and natural economic forces can do the job.

In the president's annual economic report to Congress and the accompanying report of the Council of Economic Advisers, however, there are plenty of suggestions that the Fed was not providing the nation with enough money and credit before last summer's oil price shock and did not move quickly enough to do so after the Iraqi invasion of Kuwait triggered it on Aug. 2.

Like the administration, few economists, liberal or conservative, believe these days in the usefulness of the sort of tax cuts, rebates and public works and jobs programs that used to be a staple of federal anti-recession efforts. Whether congressional Democrats will propose anti-recession initiatives is not clear, although Senate Democrats have formed a task force to study the issue.

The reports released yesterday emphasized repeatedly that federal economic policies should have a long-term focus.

"When unemployment increases or inflation seems to be accelerating, fiscal and monetary policies can alleviate the economy's immediate problems," Bush said.

"But a sequence of short-sighted ... reactions can produce poorer performance on average than adherence to well-designed credible, systematic policies. ... Frequent ... changes in policy impede long-term planning {in the private sector} and thus undermine the economy's performance."

Fiscal policy response should be limited to letting the federal budget's "automatic stabilizers" increase the budget deficit and help cushion the current blow to personal and business incomes, the administration officials argue, referring to the drop in taxes that follows a fall in paychecks and profits and to higher payments for unemployment insurance, welfare and some other programs during a recession.

Last year's changes in the Gramm-Rudman-Hollings balanced budget law gave the administration and Congress more leeway to let this happen by allowing a higher federal deficit target when the economy falters.

While the actual deficit is rising to an estimated $318.1 billion this fiscal year, the long-term spending cuts laid out in last year's budget bill remain in place. That way, the so-called structural deficit eventually will fall, meaning less of the nation's savings will have to be used to finance the deficit rather than private investment in housing and new plants and business equipment.

But if fiscal policy should be left essentially on automatic pilot, in the administration's view, monetary policy should not be.

The reports praised the Federal Reserve's efforts to keep inflation under control during the long economic expansion that ended last summer, arguing that the central bank's gradual increase in interest rates in 1988 and early 1989 headed off an acceleration of inflation. That success, however, gave the Fed more freedom to act last summer, the reports said.

"This tightening successfully contained inflationary pressure and left monetary policy with much more latitude" than it had in the inflationary 1970s to deal with the adverse effects of the oil price shock, the president said in the economic report. Under the circumstances, the Fed could have cushioned "the downturn without leading businesses and households to expect higher future rates of inflation," he added.

In other words, had the Fed pumped enough money into the economy to allow households and businesses to pay the higher oil prices without having to cut back on other spending, the increases in inflation would have been temporary and would not have raised investors' expectations of future inflation. In that case, long-term interest rates would not have gone up because investors would have disregarded the higher current inflation rate as temporary.

Federal Reserve officials last fall, on the other hand, were not nearly as confident that their anti-inflation stance has that much credibility with the investing public. In fact, as a chart in the CEA report showed, long-term interest rates rose in the two months following the Iraqi invasion, even though the Fed gave no indication it intended to try to keep the oil price shock from reducing already slow U.S. economic growth.

As confidence grew that Iraq could not seriously damage Saudi Arabian oil fields and as oil output increased to offset lost Iraqi and Kuwaiti production, oil prices began to decline, substantially reducing fears that inflation would be higher in the future. By that point, the economy was also slipping into recession. All of these forces combined to push down long-term interest rates.

The extent of the Fed squeeze on the economy before the invasion and its performance last fall did not make the administration very happy.

"With the benefit of hindsight, they might have been too restrictive and moved ... sooner" to reduce interest rates and support the economy, CEA Chairman Michael Boskin said of the Fed at a briefing. The recent, much more aggressive reduction in rates was much more to Boskin's liking.

"We've been pleased that the Federal Reserve has begun to take some stronger steps to deal with mitigating the downturn in the context of its longer-term desire to keep inflation low and stable," Boskin said. "Lower interest rates, whether brought about in the market or through monetary policy or whatever, generally operate in the economy with a lag of several quarters and we expect those to be kicking in more forcefully by mid-year."

At that point, Boskin said, the relatively mild recession ought to be over and a recovery underway.

But the argument with the Fed probably will not be. Given an opportunity, most Federal Reserve officials tend to prefer a policy that leans against inflation, while the administration will prefer one that supports a more speedy economic recovery -- especially since Federal Reserve actions in the second half of this year will do a lot to determine the shape of the American economy as the 1992 presidential campaign heats up next year.