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Money Supply Contracts by $900 Million

Associated Press

The nation’s basic money supply fell $900 million in late April, the Federal Reserve Board said Thursday, and analysts said the report indicated that the Fed has yet to start a new move to push interest rates lower.

Analysts continued to say that economic activity still was carrying a greater weight in determining Fed policy than the growth of the basic money supply, known as M1 and representing funds readily available for spending.

Both economist David Jones at the New York securities firm Aubrey G. Lanston & Co. and economist Harold Nathan at Wells Fargo Bank in San Francisco said that no shift in Fed policy is likely until after the May 21 meeting of its policy-making Federal Open Market Committee.

“They are watching the economy closely and waiting for a better fix on the second-quarter gross national product before they consider a shift in policy,” Jones said.

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Nathan predicted, however, that, with signs of a weakening economy continuing to surface, the Fed would cut its discount rate after the committee meets. The discount rate, the interest on Fed loans to banking institutions, has stood at 8% since last December.

In its report, the Fed said M1 fell to a seasonally adjusted $575.2 billion in the week ended April 29 from $576.1 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $571.8 billion, a 10% seasonally adjusted annual rate of gain from the previous 13 weeks.


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