Mid-February Rise Within Analysts’ Expectations : Money Supply Grows $1.7 Billion

The nation’s basic money supply expanded by $1.7 billion in mid-February, the Federal Reserve said Thursday, an increase that generally met Wall Street’s expectations.

As a result, the bond market showed little reaction to the report.

Many analysts had expected an increase in the basic money supply, called M1, of between $1.5 billion and $2.5 billion.

Yet, while the latest one-week change provided no surprises, it did extend the recent rapid growth of M1. And that has spawned debate over whether the Fed might soon tighten credit, thereby lifting interest rates.

The Fed said M1 rose to a seasonally adjusted $569.3 billion in the week ended Feb. 18 from a revised $567.6 billion the previous week. The earlier week’s figure was originally reported as $567.4 billion.

M1 includes cash in circulation, checking deposits and non-bank travelers checks. Since it represents funds readily available for spending, many credit analysts consider it an important factor in future economic and interest-rate trends.

For the latest 13 weeks, M1 averaged $561.5 billion, an 8% seasonally adjusted annual rate of gain from the previous 13 weeks.

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.

Some credit analysts believe that the Fed, given the recent strong growth of the money supply, has no choice but to pull in its credit reins so as to prevent higher inflation.

“Sometime this spring they’re going to have to tighten; they have to control money growth,” said Thomas D. Thomson, senior vice president of Crocker National Bank in San Francisco.

Thomson also said it appeared that the bond market “already has anticipated some tightening.”

Other credit observers said, however, that the Fed is reluctant to curb money supply growth because the resultant rise in interest rates would further bolster the dollar, which has been hovering near record highs against many currencies.

Other indicators released included:

- Commercial and industrial loans at major New York City banks fell $312 million in the week ended Feb. 20, compared to a decline of $123 million in the previous week.

- Commercial paper outstanding nationally rose $2.412 billion in the week ended Feb. 20, compared to a $974-million increase in the previous week.