Cindy Skrzycki {Business, Jan. 24} wrote that "the direction of monetary policy will be decided at the hands of new Federal Reserve Board Chairman Alan Greenspan and Treasury Chief James A. Baker III."

The direction of monetary policy will be decided by the Open Market Committee of the Federal Reserve System. It won't be decided solely by the chairman. The Treasury secretary will have nothing to say about it other than perhaps to suggest action.

The Treasury secretary will have a lot to say about fiscal policy.

It is not well understood that the Federal Reserve System is a creature of Congress and derives its power from the congressional authority in the Constitution with regard to money and credit.

If, as William Greider opines in his recent book, the Fed took its direction from the president through the secretary of the Treasury, we would have galloping, runaway inflation without any question. Every time a politician wanted to be reelected, he would pump up the money supply in order to energize the economy.

Nearly every president in recent memory has wanted to control monetary policy while he was in office but wrote in his memoirs later that he was quite happy to have an independent central bank. JOHN E. SHEEHAN Johnston, Pa. The writer was a member of the board of governors of the Federal Reserve from 1972 to 1975.