CONSUMER PRICES have risen at an annual rate of 5.8 percent during the first seven months of this year, and the worst is yet to come. The economy is dead in the water. In the face of those two pieces of bad news, the Federal Reserve System's policy-making Open Market Committee, which convenes in Washington Tuesday, must keep its own limits in mind. It has the power to stop inflation. It does not have the power to get the economy moving again.

Inflation in the months ahead is certain to be far higher than the monthly rate of 0.4 percent recorded in July. The July figure includes a fall in petroleum prices after an increase in June; it does not take into account the $6-a-barrel jump occasioned by the Iraqi invasion of Kuwait Aug. 2. The price of gasoline at the pump is up 15 cents a gallon so far this month, and the effect on chemical prices and transportation costs is just beginning to be felt.The Fed's hold on the money supply is not tight enough to keep those price increases from passing through the entire economy. Easier Fed policy would magnify their inflationary effect, without doing much to stimulate the investment on which an economic recovery must be based.

Make no mistake - the money supply can be a very powerful economic tool. Its power, however, varies greatly at different points in the economic cycle. When the economy is running with a full head of steam, tightening the money supply can slow it down quickly by dampening investment and consumer demand. But when the economy is slow, as is the case at present, easy money is no quick fix. Knocking half a percentage point off the interest rate on 30-year corporate bonds would not cause a surge of housing construction or corporate investment. In any case, the economic impact of the Fed's money supply actions is long in coming. Boosting money supply growth now will not bring about a pre-Christmas boom, much less the pre-election recovery so badly desired by a nervous White House.

There is no denying that a recession will have serious economic consequences. The cost of bailing out the savings and loan industry, already estimated at $160 billion in 1990 dollars, will go up as the value of failed thrifts' real estate assets goes down. The number of bank failures may rise as well - a contingency the Federal Deposit Insurance Commission wisely prepared for last week by raising the deposit insurance premiums charged to banks. The federal budget deficit will increase, as tax receipts go down and demands on social programs go up.

But a major recession is not a sure bet, for the economy remains surprisingly resilient. Unemployment claims actually fell early in August, and some sectors of the economy, notably export-oriented manufacturing, are in relatively robust health. The contraction of 1990 shows no signs of being a carbon copy of the extremely painful recession of 1981-82.

There's a proven way to get the economy moving again: the much-derided

Keynesian approach of cutting taxes and increasing government spending, just as the anti-Keynesian Reagan administration did back in 1982. The inability of Congress and two successive administrations to reduce the budget deficit during times of prosperity makes that alternative unpalatable now. But that failure on the part of the nation's political leaders does not endow Federal Reserve Board Chairman Alan Greenspan with the power to wave his monetary wand and make all of the economy's problems go away.

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