The Federal Reserve Board reported yesterday the nation's industrial production rebounded by 1.6 percent last month for the first increase since July, a strong indication the economic decline is slowing.

But a number of economists continue to doubt whether the expected recovery will be sustained. Henry Kaufman, one of Wall Street's top analysts, warned Congress yesterday the nation may be headed into "unnecessary economic tragedy" under current fiscal and monetary policy.

Also yesterday, four major banks and several smaller ones, including Riggs National Bank here, raised their prime lending rates back from 16 percent to the 16 1/2 percent rate that now prevails industry-wide. Many economists fear that persistent high interest rates threaten to put off the economic recovery predicted by President Reagan.

The American Business Conference, an organization of mid-sized, fast-growing corporations, called for immediate action to reduce expected budget deficits, saying that all corporate tax cuts passed last year should be reviewed.

After meeting with administration and congressional leaders this week, the conference members issued a statement yesterday backing Reagan in general, but expressing deep concern over the deficits.

In addition to reconsideration of the corporate tax cuts, they called for slower growth in defense spending and reductions in the automatic increases in federal entitlement programs, including Social Security.

Kaufman told the House Budget Committee the economic recovery will remain "blocked" if Congress does not trim the huge budget deficits projected by the administration. He predicted the recovery in the second half of this year will be of "subnormal proportions" followed by real growth of only 1 percent next year, compared to the administration's growth forecast of 5.2 percent. Inflation next year, as measured by the gross national product deflator, will be about 7 percent, he said.

Administration officials agree that high interest rates could slow the recovery, but they predict rates will soon start to fall. The Commerce Department's chief economist, Robert Ortner, said yesterday that it would be "troublesome" if interest rates do not "come down fairly quickly and substantially."

Kaufman and other economists pointed out that industrial production figures for February were "distorted." The weather in January was so bad that both production and sales were pushed down more than is usual for that time of the year. This meant that the usual seasonal adjustment to the figures for January probably was not sufficient. As a result, there was then a corresponding recovery in both industrial production and retail sales for February.

"I believe the recession was not quite over in February," Ortner said. However, because of the effect of the weather on the statistics, "there is a small possibility" that the January figure for industrial production will prove to be the low point, he said.

Both home building and autos--the two sectors that led the economy into recession--are now stabilizing, Ortner said.

During February auto assemblies were up by 14 percent from January's level, the Federal Reserve reported yesterday. Production held up in the early part of March, but, as car sales have dipped again, this may not continue.

Otto Eckstein, head of the private forecasting group Data Resources Inc., said yesterday it would be a "gross mistake" to interpret February's rise in industrial production as the bottom of the recession.

Taking the two months--January and February--together, he said it would appear the economy was still declining at an annual rate of about 5 percent.

In January, industrial output fell by 2.5 percent, the Fed said, rather than the 3 percent drop first reported. The February level was 6.6 percent below that of a year earlier. Although the economy is no longer sliding as rapidly as it was at the end of last year, the "chances are that it will take another couple of months" before firms have completed the inventory shake-out now going on, Eckstein said.

Most economists expect that the recovery will really get under way after the personal income tax cuts due in July. "If that fails, we will all be in big trouble," Eckstein said.