The nation's basic money supply spurted $3.6 billion in late February, the Federal Reserve Board reported Thursday, as the measure continued to bulge above the Fed's upper growth target.
The increase was more than twice as large as forecasters had expected, but the bond market took the news in stride.
The Fed said M1 rose to a seasonally adjusted $572.7 billion in the week ended Feb. 25 from a revised $569.1 billion the previous week. The M1 figure, which includes cash in circulation, deposits in checking accounts and travelers checks, was originally reported as $569.3 billion for the previous week.
"It was a surprise on the high side," said David Jones, an economist at the government securities trading firm Aubrey G. Lanston & Co.
Forecasters had expected a $1.5-billion increase.
For the latest 13 weeks, M1 averaged $562.5 billion, an 8.3% seasonally adjusted annual rate of gain from the previous 13 weeks.
$8.6 Billion More Than Upper Target
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 range than the 4% to 8% of the previous year.
The latest figure left M1 at $8.6 billion more than the Fed's upper target.
Maury Harris, first vice president and chief economist of Paine Webber Inc., said: "Its a pretty big miss. Anyway you want to judge it, it's strong monetary growth and it's got the market spooked."
Bond prices, already down for the day, dipped on the news. But then they recovered a bit.
"Overall, the market didn't take it too hard. Already they were expecting an increase," Harris said.
The economists noted that the Fed's next policy meeting is scheduled for March 26. "They will probably wait until that meeting (to) decide what to do about the money supply," Harris said.
Other indicators included:
- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks rose $458 million in the week ended Feb. 27, compared to a decline of $295 million a week earlier.
- The federal funds rate, the interest rate on short-term loans between banks, averaged 8.63% in the week ended Wednesday, up from 8.4% the previous week.
- The Federal Reserve Bank of St. Louis reported that the monetary base, the seasonally adjusted total of member bank reserves held at Federal Reserve banks and cash in bank vaults and in circulation, was $224.3 billion in the week ended March 6, up from $221 billion a week earlier.