Money Supply Up $2 Billion in Week

Associated Press

The nation's basic money supply expanded by $2.1 billion in early January, the Federal Reserve said Thursday, giving a boost to long-term bond prices in a market that had expected a slightly bigger increase.

Many credit analysts had expected a rise of about $3 billion.

The Fed said M1 rose to a seasonally adjusted $559.4 billion in the week ended Jan. 7 from a revised $557.3 billion the previous week. The previous week's figure originally was estimated as $557.2 billion.

M1 includes cash in circulation, checking deposits and non-bank travelers checks. Since M1 represents funds readily available for spending, it is closely watched as an important influence on the economy and interest rates.

The money supply has swelled in recent months--thanks in part to a more accommodative Federal Reserve--after showing only meager expansion between June and October.

Since the economy has shown recent signs of renewed strength, credit analysts are now debating how long the central bank will allow such monetary expansion to continue.

The Fed wants to provide enough money to promote moderate yet sustained economic growth but avoid pumping so much money into the economy that it fuels inflation.

Some observers said the Fed might begin a gradual tightening of the money supply should the economy continue picking up steam. But others said the economy is still providing room for the Fed either to hold a steady course or ease its credit reins further.

"The increase (in the money supply) is too recent to dictate any kind of change in policy," said Maury N. Harris, vice president of the investment firm of Paine Webber Inc.

William V. Sullivan Jr., senior vice president of Dean Witter Reynolds Inc., said that there is "virtually no chance of the Fed becoming less accommodative" with money because of the dollar's current strength.

Such a tightening of credit availability would lift U.S. interest rates, making the dollar--which is already hovering near record highs against some currencies--even more attractive to investors.

With inflation remaining moderate, "the Fed's options are to stabilize policy or perhaps consider some additional accommodation," Sullivan said.

Other indicators released included:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $266 million in the week ended Jan. 9, compared to a decline of $1.19 billion in the previous week.

- Member bank borrowings from the Federal Reserve System averaged $275 million in the week ended Wednesday, up from $245 million the previous week.

- The closely watched interest rate on federal funds--overnight loans between banks--averaged 8.23% in the week ended Wednesday, down from 8.27% the previous week.

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