Money Supply Jumps $4.7 Billion

The nation’s basic money supply jumped a larger-than-expected $4.7 billion in mid-January, the Federal Reserve Board reported Thursday, pushing M1 over the Fed’s upper target and prompting a decline in bond prices.

The Fed said M1 rose to a seasonally adjusted $561.6 billion in the week ended Jan. 21 from a revised $556.9 billion the week before. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

The previous week’s figure was originally reported as $556.8 billion.

For the latest 13 weeks, M1 averaged $552.8 billion, a 4.2% seasonally adjusted annual rate of gain from the previous 13 weeks.

“It was a substantially greater-than-expected increase,” said David Jones, an economist with the government securities trading firm Aubrey G. Lanston & Co.

A $2-billion to $2.5-billion increase had been expected.

‘Raises a Red Flag’

“It also pushes the money supply over the upper limit of the Fed’s target and raises a red flag for the monetary authorities,” Jones said.

The Fed has said it would like to see M1 grow between 4% and 7% from the fourth quarter of 1984 through the fourth quarter of 1985, a slightly narrower growth range than the 4% to 8% of the previous year. The latest figures left M1 $5.3 billion above the upper target, with the money supply growing at an annual rate of 12.6% in the latest week.

“We’re seeing the acceleration of money growth mainly because the economy is gaining speed and people need higher money balances to spend for cars and other goods,” Jones said.

“The Fed had stopped--oh, maybe a couple of weeks ago--stopped erring on the side of ease and began to try and gain a tighter grip on reserve growth,” Jones said.

“And, actually, more likely than not, the next Fed policy shift will . . . be in the direction of restraint. That probably won’t come immediately. I think it would be a couple of weeks.”

Thomas Thomson, chief economist at Crocker National Bank in San Francisco, said: “I think it’s fairly clear that money supply is going to stay over targets for the next couple of months.”

Maury Harris, an economist at Paine Webber Group Inc., was more bullish. He said: “I think the Fed is going to wait to see some more numbers. Inflation is so slow, they’re not going to have to tighten.”

These statistics were also released:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York banks fell $1.011 billion in the week ended Jan. 23, compared to a revised gain of $436 million a week earlier.

- The federal funds rate averaged 8.45% in the week ended Wednesday, up from 8.19% the previous week, the Fed said.