In 1985, Congress passed a piece of legislation called the Balanced Budget and Emergency Deficit Control Act. Now, five years and more than a trillion dollars of debt later, Congress and the White House have once again patched together a plan to bring the nation's persistent federal budget deficits under control.

The point again is to improve prospects for economic growth by slashing the federal government's need to take a big share of the nation's savings to finance its red ink. And with more savings left over to pay for private-sector investment, future economic growth can be higher.

Alan Greenspan, chairman of the Federal Reserve Board, is expected to give the package his economic good housekeeping seal of approval and this week cut the key short-term interest rates the Fed influences by a quarter of a percentage point.

Some short-term rates already have come down in anticipation of the action by the Fed.

Whether the $492 billion package of tax increases and spending cuts succeeds in bringing down rates by more than a quarter point depends if financial markets, disturbed by rising inflation and fierce international competition for investment funds, view the plan as meeting the administration's often-repeated goals of "real, credible and enforceable" deficit reduction.

"What Congress gives you, Congress can take away," said Alan Leslie, a senior official at the government securities dealer Discount Corporation of New York. "I would make a very sizable wager with anyone that they don't get more than $250 billion in savings when the five years are done. I hate to be so cynical."

Lawmakers and budget experts argued, however, that the new budget legislation would do more than increase taxes and cut some programs. The legislation also would replace the clumsy controls of the Gramm-Rudman-Hollings law, which failed to contain deficits over the past five years.

The sweeping new budget rules are intended not only to prevent the sort of breakdown in the budget process that took place this year but also to make it tougher for Congress to overstep spending targets that are set through 1995. The rules changes, drafted largely by the Office of Management and Budget, give the president added power in future budget tussles with Congress.

Most of all, the new spending caps cannot be changed without action by both houses of Congress and the approval of the president. The requirement is a key element that has convinced a number of budget experts and, importantly, some top Federal Reserve officials, that the budget agreement is "enforceable" in future years.

Yet the mild response of the financial markets so far suggests that most other Wall Street analysts share Leslie's doubts. Long-term interest rates have eased about a quarter of a percentage point since administration and congressional leaders first reached broad agreement on the budget a month ago.

The skepticism carries an economic price because it greatly limits the ability of the Federal Reserve to lower short-term interest rates the way the Bush administration has fervently hoped it would after passage of a deficit-reduction package.

The modest size of the rate reduction reflects the dilemma facing the central bank, which is torn between fighting an economic slowdown and mounting inflation.

On one hand, the budget deal puts pressure on the Federal Reserve to significantly cut interest rates to offset the restraining effects higher taxes and spending cuts will have on an economy that already is so weak that it could slip into a recession.

On the other hand, the Federal Reserve fears a bigger cut in rates would backfire. A large rate cut could heighten investors' anxiety about inflation, now above 6 percent, particularly given the doubt about whether the outlook for reducing the deficit in future has really changed.

The attention of many investors is focused on the large amount of new money the government has to raise this quarter -- $90 billion by some estimates -- a figure so large that it makes a substantial drop unlikely in long-term interest rates, such as those on government bonds and home mortgages, analysts said.

Further, a big cut in short-term rates now could make it more difficult to woo the foreign investors the United States relies on to finance its international deficit. These investors have been forsaking the United States to seek better investment returns in Japan, Germany, Britain and other industrial nations.

The Federal Reserve's task of stabilizing the economy once the budget package takes hold would have been far easier if Congress and the White House had taken tough deficit-cutting measures two or three years ago when the economy was more robust, inflation was lower and foreign investment in the United States was hitting new highs, according to private economists and Fed officials.

"It really puts a dilemma on the Fed," said Stephen H. Axilrod, vice chairman of Nikko Securities Co. International in New York, who formerly was the central bank's chief aide on monetary policy matters. "The Fed can't be sure they will cut expenditures. Yet the possibility of big fiscal restraint means the Fed has to ease well in advance."

"The budget deal has put the whole burden of encouraging the recovery after the current period of economic weakness on the Fed," he said. "Usually after a recession or weakness fiscal policy is giving you a boost. This time it won't, and since you don't want the weak period to go on forever, you have to have a good slug of easier money to achieve a good recovery."

As bad as the timing of the budget deal may be, however, the deficit reduction package is viewed at the Federal Reserve and on Wall Street as much better than no package at all. Most economists and Fed officials believe that bringing the federal government's burgeoning deficit under control is essential to the long-term health of the economy.

The hope is that smaller deficits will leave more of the nation's limited pool of savings available to finance private investment in new homes and factories while reducing the recent reliance on foreign investors. More investment should increase productivity growth, the ultimate source of a rising standard of living.

In the long run, having a more restrictive, better balanced fiscal policy will give the Federal Reserve more leeway to bring down interest rates while still trying to reduce inflation, Fed officials said. But that is in the long run. For the next year or so the budget package gives the central bank little but headaches, the officials said.

If Wall Street can be persuaded to believe that budget deficits really have been brought under control, it would make the Fed's life much easier. The changes in the budget process could help convince them, if the changes work as planned.

Under the new plan, the military, international and domestic discretionary portions of the budget each will have separate annual spending caps for the next three years. If spending in any category exceeds the target, an automatic spending cut -- known as a sequester -- will hit each program in that category.

Any changes in entitlements, such as welfare payments to the elderly, mandatory spending programs like government employee pension benefits or taxes, would have to be handled on a pay-as-you-go basis. That means that any spending increases or tax cuts would have to be matched by offsetting measures in these categories.

"The area of the budget that sins is the area of the budget that pays," one congressional budget expert said.

Unlike the previous Gramm-Rudman law, the new legislation sets no specific deficit target that must be achieved to avoid a sequester affecting most of the budget. The cause of this year's long and rancorous budget debate was the inability to reconcile such a target, $65 billion, for fiscal 1991 with the reality of a weakening economy and huge outlays for cleaning up failed savings and loan institutions.

Now factors beyond the control of lawmakers, such as short-term swings in the economy and the crisis in the Persian Gulf, will not set off a scramble to cut programs or raise taxes. The president will have the authority to revise the specific spending caps when he presents his 1992 and 1993 budgets to Congress and to take into account how the economy may be deviating from the path assumed under the new plan. The president also can declare that spending for a national emergency, such as the U.S. buildup in the Persian Gulf, is exempt from the spending limits.

Some congressional budget experts worry that these changes put too much power in the hands of the executive branch's Office of Management and Budget. But other budget experts said the economic adjustments will avoid much of the chaos and criticism that took place this year as the administration revised its economic forecasts five times, each time heightening the deficit crisis.

"Putting aside Bush's embarrassments, I think we, not we the White House, but we the budgeteers will come out pretty well," one administration budget planner said. "The budget process stuff is real enforcement. It is considerably better than what we've got. We are getting rid of the old aggregate targets and are replacing them with realistic targets."

Even if the process changes do make as much difference as some of these experts think, the government could still miss the $492 billion deficit reduction target by a substantial amount. Achieving that total, in contrast to the meeting the specific spending caps, is dependent on avoiding a recession this year and in 1991 but still having a strong rebound in economic growth in 1992 and 1993.

Slower growth two or three years from now, which many economists and some Federal Reserve officials believe is a more likely bet, would keep deficits from falling sharply. The deficits, however, still would be on a downward track that eventually would lead to elimination.