Bond Traders Still Fear Hike in Interest Rates : Money Supply Falls $400 Million
The nation’s basic money supply contracted by a modest $400 million in early March, the Federal Reserve said Thursday, a drop that was in line with most credit analysts’ expectations.
But the report did little to ease fears in the bond market that the money supply and the economy overall are growing so briskly as to increase the upward pressure on interest rates.
Bond prices, already lower on the day, fell further after the Fed released its report in late afternoon, and short-term interest rates added to their gains in the money markets.
The Fed also reported increases in two broader measures of money--M2 and M3, which it reports only monthly--for February that also generally met Wall Street forecasts.
The basic supply, called M1, fell to a seasonally adjusted average of $572.4 billion in the week ended March 4 from a revised $572.8 billion in the previous week, the central bank said. The previous week’s figure originally was reported as $572.7 billion. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
A broader yardstick called M2--which includes M1 plus certain types of savings, such as money-market deposit accounts--expanded $21.3 billion to $2.4206 trillion in February from $2.3993 trillion in January.
A still wider aggregate called M3--which includes M2 plus large time deposits and other investments--climbed $20.6 billion to $3.0427 trillion in February from $3.0221 trillion the previous month.
For the latest 13 weeks, M1 averaged $563.9 billion, a 9.1% 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.
Other indicators released included:
- The Federal Reserve Bank of New York said commercial and industrial loans at major New York City banks rose $788 million in the week ended March 6, compared to a revised decline of $131 million a week earlier. The previous week’s figure originally was reported as a $458-million gain.
- Commercial paper outstanding rose $1.421 billion in the week ended March 6, compared to a $827-million decline the previous week.
- The federal funds rate, the interest rate on short-term loans between banks, averaged 8.52% in the week ended Wednesday, down from 8.63% in the previous week.
- Member bank borrowings from the Federal Reserve System averaged $640.5 million in the two weeks ended Wednesday, up from $571 million in the previous two-week period.
