In the face of a flat economy and declining pressure from inflation, the Federal Reserve is prepared to ''ease'' the supply of money and credit -- though not as quickly and clearly as the White House would like.
Seldom has a meeting of the Federal Open Market Committee generated so much conflicting advance speculation as its July 3 session. Decisions, made as usual in deep secrecy, will not be obvious at once. The central bank's policy body is likely to set procedures that will move later in the month toward easier and lower interest rates.
That won't satisfy Bush officials, who want faster action. They have privately warned that Alan Greenspan can kiss goodbye any hopes he has for reappointment as Federal Reserve Board chairman if he does not act and if a recession then results. Still, next week's session constitutes a showdown at the Fed, where the hard-line, anti-inflation bloc may back off a little.
The seeds of trouble were planted over a year ago in the Bush administration's early weeks when the Fed, frightened by transitory inflation indicators, overreacted with money-tightening steps culminating in late February 1989. The board's supply-siders, Vice Chairman Manuel Johnson and Wayne Angell, objected behind closed doors but decided against a public dissent that would roil markets.
Last year's excessive tightening is seen by critics, including some inside the Fed, as a major cause for today's flat economy. But the central bank sees itself primarily as a designated inflation fighter and has resisted a year's prodding from the administration, first in public, later in private.
Treasury Secretary Nicholas Brady discreetly makes known the Bush team's desire for easier money at every opportunity, including regular meetings with Greenspan. But the more menacing messages are floated elsewhere out of the administration.
If and when the record Reagan-Bush economic expansion is ended by a recession, Greenspan and the Fed will be blamed. To prevent that and to guarantee reappointment next year, senior administration officials confide, Greenspan must move quickly toward easier money.
Greenspan has not taken that cue, and his capability to do so is dubious. He is one of the least dominant Fed chairmen ever, his tenure coinciding with the rise of the Federal Reserve Bank presidents. They are the anti-inflation hawks most responsible for last year's overtightening and are currently in the vanguard resisting any loosening.
Nor is the Fed congenial to White House desires for advance assurance that one result of a successful budget summit will be easier money. Lee Hoskins, Cleveland Fed president and leader of the hawks, is sensitive to any hint of manipulation by the White House.
But there is little sympathy even from Fed governors normally friendlier to the president's desires. Greenspan's modest prediction that market forces would lower interest rates if a budget pact were reached is not shared by many colleagues.
Bush's hand at the Fed is certainly not strengthened by the resignation of Johnson, the Fed governor most highly valued at the White House. Although the president's men were disappointed in his recent refusal to ease, they still talked privately of Johnson as Greenspan's successor -- perhaps next year.
Instead, Johnson will not even be voting in the FOMC at the showdown. His resignation won't take effect until one month later, but the central bank's lawyers decided he should not vote even though he is returning to academic life rather than going into the big bucks financial world.
Nevertheless, all signs point to easing. Inflation, as measured by both commodities (especially gold) and other price indices, is under control. While the Fed insists there is no credit crunch, nobody can call this a robust economy.
The regional bank presidents may delay immediate easing next week, but sources at the Fed see the FOMC authorizing action that will be triggered within the month. Bush advisers fear that may be too little, too late. If they are right, the bye-bye Greenspan crowd will start moving.