WASHINGTON - Further cuts in short-term interest rates might not do much to boost the money supply or the economy, according to a report by Federal Reserve staff researchers that has been forwarded to policymakers and members of Congress.

The report, a technical review of explanations behind the sluggish growth in the money supply, comes as members of the Federal Open Market Committee meet today to review monetary policy.

Market analysts say they expect that the 12-member panel will opt to leave rates unchanged amid recent indications that the economy is gaining ground. In addition, the widely watched M2 measure of money supply has picked up recently, although it is still below the bottom of the targeted growth range of 2.5% to 6.5% set by Fed officials.

The report, called "The Continuing Weakness in M2," contains a section that takes a hypothetical look at what would happen if the Fed moved boldly and slashed short-term market rates by 100 basis points. "One may draw the conclusion that additional declines in short-term interest rates may precipitate very little in the way of an increase in M2 growth," it says.

The M2 measure of money includes currency in circulation, checkable deposits, money market mutual funds, and certificates of deposit over $100,000. It is watched by the Fed as an indicator of economic growth.

"The weak money growth that we've seen, taken by itself, has really overstated the weakness in the economy," said one Fed official familiar with the report who did not want to be identified. "The economy has bcen doing considerably better than M2."

Federal Reserve Board Chairman Alan Greenspan has frequently attributed the slowdown in the money supply to a shift by investors out of low-yielding bank deposits into stock and bond funds, where rates have stayed high despite the central bank's many easings of monetary policy. Stock and bond funds are not counted as part of M2.

Now, the impact of any cuts in short-term rates seems to be "less clear than we had thought," especially if long-term rates remain high, the Fed source said. "If you make subsequent cuts in short-term interest rates but long-term interest rates do not follow suit, you're not as likely to get much of a kick to M2 growth as you might have thought."

In fact, investors are just as likely to "accelerate their shift out of money balances and into longer-term instruments," taking more money out of M2. the official said.

The report caps a review of the relationship between the money supply and economic activity that Fed officials have been investigating for at least two years.

In July, a preliminary report submitted to the Federal Open Market Committee talked about alternative measures of the money supply that suggested the central bank was providing plenty of liquidity to the banking system.

Those alternatives were reviewed again in the latest paper and found to be useful in measuring liquidity but not necessarily preferable to the broader M2 as a predictor of economic activity. The broad measure of money was found to be the most stable over time in its relationship with the economy.

The alternatives studied include the narrow M1 measure of money and the so-called MZM model, which is essentially M2 minus small-time deposits plus institution-only money funds. The study also looks at M2 plus bond funds, and M2 plus stock and bond funds.

In general the report finds that the slowdown in M2 reflects major structural changes in the financial system and changes in the behavior of debt-laden businesses and households as they have sought to improve their balance sheets. And, it says, Fed officials apparently underestimated the shrinking role of banks and thrifts as financial intermediaries, or suppliers of credit.

Eventually, as the economy gains strength and interest rates rise and banks start making more loans, growth in M2 could pick up again and be a better proxy for economic activity, the report says.

Economic data have bolstered the case for a neutral position on monetary policy by the Fed. The Commerce Department reported last week that retail sales jumped 0.9% in October, the fourth straight monthly rise, suggesting consumers are becoming more willing to spend. In addition, a preliminary survey from the University of Michigan found a sharp increase in consumer confidence.

A report yesterday from the Fed said industrial production increased 0.3% in October, the first gain after declines in August and September.

However, President-elect Clinton said yesterday in Little Rock that he remains committed to pushing an economic stimulus program after he takes office on Jan. 20. There is "no evidence" of any strengthening of the manufacturing sector, said Clinton, adding, "I have seen nothing which so far makes me believe we should do anything less than what I've recommended in the campaign."

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