THE FEDERAL Reserve Board is now following a course that carries substantial risks. At a time when a gigantic borrowing boom is under way in this country, the Fed has decided to tolerate the recent rapid expansion of the money supply. As it argues in its midyear review this week, any other decision would be far riskier.

The Federal Reserve's intentions carry extraordinary weight currently, for it is the only moving part in the machinery that steers national economic policy. The administration, having created a gigantic budget deficit, is showing no great inclination to do much about it. Congress is struggling to bring the deficit under control, but the prospects for prog only the Federal Reserve that continues to exert direct influence on the economy from week to week, as it pushes money into the banking system or pulls it out -- with interest rates falling or rising in response.

Normally, when a borrowing boom gets under way, the Federal Reserve has a clear duty to restrain the money supply. A surge in borrowing generally comes late in the business cycle after a period of strong growth, when the economy is beginning to overheat and signs of rising inflation appear. But that isn't happening this year. One of the peculiarities of the Reagan administration's economic strategy is that it has inadvertently unlinked supply from demand in this country. Previously, when demand rose rapidly, industrial protion kept pace, and that's where the inflationary dangers became visible. But now, when demand rises, an increasing share of it is met by production in other countries. Inflation stays relatively low -- and unemployment stays high.

Paul Volcker, the chairman of the Federal Reserve Board, made that point to a congressional committee yesterday. Demand has been rising at the brisk annual rate of more than 4 percent so far this year. But the output of goods and services has been rising at only 1.5 percent or less. The difference between the two figures lies in the rising American trade deficit. It's being financed with borrowed money.

While some parts of the American economy are prospering mightily, others -- those that must compete with the imports -- are under great pressure with low profits and low production. Under these circumstances the Federal Reserve fears, with reason, that any sudden tightening of the money supply would produce a sharp recession.

The Fed would clearly like to see Congress reduce the budget deficit. It would clearly like to see the dollar's exchange rate continue to come down and the trade deficit narrow. But as long as the dollar stays high, industrial production stays sluggish and inflation stays low, Mr. Volcker says that the Fed isn't inclined to restrain money severely despite the borrowing boom. The Federal Reserve is taking chances but, as Mr. Volcker argues, it hasn't got any acceptable alternative.