The federation's chairman Mark Lindsay said the PSNI's ability to deal with terrorist threats was being put at risk by "balance sheet politics".
His comments follow warnings that the Stormont executive's failure to implement welfare reform will leave its finances unsustainable.
That could create a "black hole" in budgets for public services.
A total of 171 bombings, shootings and paramilitary-style attacks were carried out in the last year, according to the PFNI.
"Every resource should be devoted to the task, with no short cuts or skimping," Mr Lindsay told the PFNI's 43rd annual conference.
"We have to remain vigilant as we continue with a decade of centenaries, which are highly emotive and could potentially fuel an upsurge in activity.
"The job of combating terrorism, and keeping officers safe, will not be served well by an adherence to best accounting practices."
Mr Lindsay said fewer officers, restricted opening times at inquiry offices and a reduced number of stations would have "dire" consequences for the PSNI's overall level of service.
"There is a harsh reality here," he said.
"We will continue to do our best for people in their hour of need - that's in our police DNA.
"But far from being more responsive to the needs of the community, we will see a worrying reduction in service.
"Officers are caught up in an unprecedented shake-up, with members forced to gather statistics instead of being out on the ground serving the public."
Mr Lindsay said police officers are owed over 33,000 rest days and would find it increasingly difficult to deliver the service the community had a right to expect.
"People will soon see an impaired service. The future of policing is uncertain," he added.
But PSNI Chief Constable George Hamilton played down the impact of current budget cuts.
"We need to focus on what resources we do have available - we have 6,800 police officers," he said.
"I don't share the (PFNI) chairman's view that we will be incapable of keeping people safe because of budget cuts.
"What we'll have to do is prioritise the resources that we have in a way that maximises the benefit and community safety of Northern Ireland.
"We'll do that, we're good at it and we've been doing it for a long time."
Budget cuts could severely erode police anti-terrorism resources, the Police Federation (PFNI) has warned.