Federal Reserve Chairman Alan Greenspan assured Congress yesterday that if it and the Bush administration reach agreement on significant cuts in the federal budget deficit, the central bank would pump enough money into the economy to keep it from tipping into a recession.

Greenspan spoke only hours before President Bush and congressional leaders met for another budget negotiating session, and his comments were a clear signal that the independent central bank would do its part in making a budget deal possible. {Details on Page A7.}

The nation has been registering persistent sluggish growth and economists have expressed fears that a combination of a cut in federal spending and higher taxes could remove enough buying power to cause a recession.

One way to guard against that is for the Fed to push down short-term interest rates, making it easier for businesses and consumers to borrow and spend. This is a role Greenspan was publicly acknowledging yesterday.

At the same time, however, the Federal Reserve Board's semiannual report to Congress on monetary policy underscored that the Fed remains worried about the level of inflation and, while it intends to stave off a recession, it has no plans to boost the economy to the extent the administration has sought.

Greenspan told the Senate Banking Committee that top Fed policy makers believe current economic conditions call for keeping monetary policy unchanged, except to offset either a growing reluctance of banks to make loans or to offset the potential short-term negative impact on the economy from a budget deal.

On the budget deal, Greenspan was clear but cautious.

"Major, substantive, credible cuts in the budget deficit would present the Federal Reserve with a situation that would call for a careful reconsideration of its policy stance," he said, speaking on behalf of the seven-member Fed board.

"What adjustment might be necessary, and how it might be timed, cannot be spelled out before the fact. ... I can only offer the assurance that the Federal Reserve will act, as it has in the past, to endeavor to keep the economic expansion on track."

At the White House, spokesman Marlin Fitzwater welcomed Greenspan's comments, saying it was "helpful just in knowing that others see the goal of this process {the budget negotiations} the same as we do, which is to get interest rates down and to keep the economy growing."

Unlike the White House, financial markets reacted negatively to Greenspan's comments, which came shortly after the Labor Department reported that consumer prices rose 0.5 percent in June, primarily as a result of higher costs for food, shelter and gasoline. Since the beginning of the year, the report said, the consumer price index has gone up at a 5.9 percent annual rate.

Greenspan's testimony, coupled with the bad price news, apparently left an impression among some investors that the Fed is less eager to fight inflation than it has been.

As a result, long-term interest rates, which are heavily affected by changes in expectations about future inflation, rose by about one-tenth of a percentage point, analysts said.

Some short-term rates, however, continued to decline, partly because some investors now expect the Fed to ease rates downward again soon, analysts said, a development Greenspan indicated could occur if the availability of credit at banks worsens.

The Fed chairman refused to describe the current situation as a "credit crunch," which he said is a phrase used to describe conditions that occurred in the 1960s and 1970s during which many would-be borrowers were unable to get loans.

Rather, he said, financial institutions are under stress from bad loans made during the 1980s, increased requirements that stockholders have more of their own money invested in the institutions and problems in a number of sectors of the economy, particularly commercial real estate.

This has led many lenders to cut back on some types of business loans, forcing borrowers to turn to other sources for credit, such as direct loans from investors.

"It is difficult to discern the dividing line between lending standards that are still healthy and those that are so restrictive as to be inconsistent with the borrower's {creditworthiness} and the best interests of the lender in the long run," he told the committee. "In recent weeks, however, we may have slipped over that line."

Slipping over that line is the reason the Fed acted last Friday to reduce a key short-term interest rate by a quarter of a percentage point, he explained. If the difficulty in getting loans faced by creditworthy borrowers does get worse, the Fed would respond again, he said.

Greenspan said the risk that the nation will slip into a recession and the risk that inflation will get worse were roughly in balance during the first half of this year. During that period, Fed policy was unchanged.

Now, with the added problem of an unusual degree of credit restraint at banks, he said, the risk of recession has increased slightly. Nevertheless, there is no evidence an economic downturn is about to occur, he added.

"The rate of growth is slow, and when the rate of growth is slow, you are closer to the edge," Greenspan observed.

Despite being closer to the edge, as he put it, Fed policy makers decided at a meeting earlier this month to lower by half a percentage point the Fed's range for expansion next year of the most closely watched measure of the money supply, M2. The measure includes currency in circulation, checking and savings deposits at financial institutions, most money market mutual fund shares and some other items.

Most of the Fed's top policy makers -- the seven board members themselves and the 12 presidents of the system's regional banks -- believe M2 growth in the lower range, 2.5 percent to 6.5 percent, would be consistent with an increase in the gross national product, adjusted for inflation, of between 1.75 percent and 2.50 percent during 1991. It also would be consistent with a rise in consumer prices of between 3.75 percent and 4.50 percent, according to the policy report.

For this year, the Fed officials generally expect real GNP to gain between 1.5 percent and 2.0 percent and the consumer price index to rise between 4.5 percent and 5.0 percent.

In contrast, the administration this week updated its economic forecast to show a similar inflation prediction but a gain in real GNP next year of 2.9 percent.