NEWS ANALYSIS : Fed May End Slumber, Nudge Up Interest Rates : Economy: Faster growth brings some inflation fear. White House worries that change would harm recovery.

For more than a year, the Federal Reserve has been a sleeping giant. But now that accelerating economic growth is reviving fears of inflation, the Fed seems ready to awaken.

Although the nation’s fiercely independent central bank holds broad powers to influence the direction of interest rates--and thus the direction of the American economy--it has not exercised those powers since the fall of 1992.

The extraordinary slumber has marked one of the longest periods on record in which the Fed has left its key interest rates unaltered, and it has given the Clinton Administration badly needed time to put its controversial economic plan in place.

And, although the Federal Reserve may be ready to act, the results may not be apparent for weeks. The timetable for future rate increases may have been determined Tuesday in a daylong meeting of the Fed’s Open Market Committee.

That prospect is sending fearful shivers throughout the White House, where Administration officials acknowledge that low interest rates are about the only fuel for the nation’s economic recovery.

With most federal spending programs constrained by Clinton’s own five-year deficit reduction plan, the White House has less and less direct control over the economy. The President is gambling, instead, that deficit reduction will keep interest rates down, giving businesses and consumers an incentive to spend and invest.

That strategy has paid off handsomely for the Administration so far. While the Fed has kept its hands off the short-term rates that it controls directly, long-term rates have plunged, at least in part because of Clinton’s focus on deficit reduction.

Laura D’Andrea Tyson, who chairs the White House Council of Economic Advisers, says proudly that 100% of the economic growth in the second half of 1993 has come from industries sensitive to interest rate changes--autos and housing, for example. The political translation: Growth is coming thanks to President Clinton and his economic policies.

But in a sense, that reliance on low interest rates leaves the Clinton Administration hostage to the Fed, and Clinton’s senior economic advisers know it. For that reason, Clinton issued a preemptive warning to the Fed last week not to raise interest rates. In one of his first attempts at Fed jawboning, Clinton said that “there’s no indication that we’re facing a return of inflation.” He said it would be “inappropriate (for the Fed) to choke off growth” by raising rates until there was “some real threat of inflation.”

Treasury Secretary Lloyd Bentsen quickly joined in, saying that with inflation so low and economic growth stable, he failed to see a reason for a Fed rate increase before spring.

“I don’t see (the need) in the current quarter or the next quarter,” Bentsen said.

Those new fears about the direction of Fed policies also explain why Administration officials are working so hard to find a reliable Democratic candidate to fill an upcoming vacancy on the Fed’s seven-member board, the first opening since Clinton took office.

Alice Rivlin, deputy director of the White House Office of Management and Budget, appears to be a leading candidate to replace board member Wayne Angell, a Republican whose term expires Jan. 31. Currently, the Fed’s board is made up entirely of members appointed during the Ronald Reagan and George Bush administrations.

Despite the Fed’s nervousness about inflation, many analysts believe that, in view of recent signs that prices are not rising as fast as feared, Fed officials may decide to hold off a little longer before raising rates for the first time since September, 1992.

Recent declines in oil prices have underscored the belief among many economists that consumer prices are not about to surge.

“I think they are looking at the same figures I am that say inflation should stay rather tepid, and so I think they will wait a little while before they move to raise rates,” said Robert Hormats, vice chairman of Goldman Sachs International and an economist with close ties to the Clinton Administration.

Still, officials of the Federal Reserve historically have seen their prime duty as guarding against inflation, and even the slightest hints that pressures on consumer prices are reviving could lead the Fed to act.

With the economy expected to grow by more than 4% in the fourth quarter of 1993 and at least 3% next year, inflation is unlikely to remain in check for more than a few months.

So the question, many analysts believe, is not whether the Fed will announce a rate increase in the near future, but when.

“The consensus on Wall Street is that the Fed is preparing the way to raise rates,” said Pierre Ellis, senior economist at Lehman Bros. Global Economics, a New York research firm.

“I think there are Fed officials who believe that some regions of the country, like the area from Denver to Chicago, are booming and so it may be time to start to show some restraint on interest rates,” said David Hale, chief economist at Kemper Financial Services in Chicago.

In fact, analysts widely believe that during Tuesday’s meeting of the Open Market Committee, which sets interest rate policy for the central bank, members voted to give Federal Reserve Chairman Alan Greenspan the power to raise interest rates by at least one-quarter of one percentage point.

That would represent a slight shift from the passive stance at the Fed’s September meeting, the last for which minutes are publicly available.

Still, within the arcane world of the Federal Reserve, leaning toward higher rates is very different from actually raising them, and analysts believe that Greenspan might not use that power for weeks or months.

Guessing the direction of Fed policy is an inexact science at best and is something akin to Kremlinology during the Cold War.