Money Supply Edges Up Only $100 Million
The nation’s basic money supply, known as M1 and representing funds readily available for spending, edged up $100 million in the second week in May, the Federal Reserve Board reported Thursday.
The increase, which was in line with analysts’ expectations, still left M1 above the upper limits of the Fed’s growth targets. But economists said the Fed demonstrated last week that it was paying more attention to the economy than money supply growth when it reduced its discount rate to 7.5% from 8% a day after reporting an unexpectedly large $2.1-billion upward surge in M1. The discount rate is the interest on loans by the Fed to banking institutions, and it now stands at the lowest rate in nearly seven years.
“Since the Fed dropped the discount rate, there’s very little reason to believe it is willing to change policy anytime soon,” said Maury Harris, chief economist at the securities firm Paine Webber.
The Fed said M1 rose to a seasonally adjusted $577.8 billion in the week ended May 13 from $577.7 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
9.7% Annual Growth Rate
The Fed has said it would like M1 to grow between 4% and 7% between the fourth quarter of 1984 and the fourth quarter of 1985 in an attempt to keep the economy growing without rekindling higher rates of inflation.
For the latest 13 weeks, M1 averaged $573.8 billion, a 9.7% seasonally adjusted annual rate of gain from the previous 13 weeks.
Elliott Platt, an analyst at the investment firm Donaldson, Lufkin & Jenrette, said that, in light of the Fed’s discount-rate cut last Friday, Thursday’s report “does not change the outlook for interest rates.”
In the credit markets, the report was virtually ignored, with interest rates barely changing after the figures were released.
“This report should not give anybody any genuine concerns,” Platt said.
Harris said the report also calmed some concerns that the distribution of income tax refund checks would send M1 sharply higher throughout May.
In other reports:
- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $1.291 billion in the week ended Wednesday, up from $839 million in the previous week. For the two-week period ended Wednesday, borrowings from the Fed averaged $1.065 billion, up from $557 million in the previous two weeks. The Fed cited “special situations” for more than a quarter of the borrowing in the latest two weeks, which analysts interpreted as loans to troubled savings and loan associations in Maryland.
- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $561 million in the week ended May 15, compared to a gain of $499 million a week earlier. It said commercial paper--short-term corporate IOUs--outstanding nationwide increased $752 million in the week ended May 15 after rising $1.486 billion in the previous week.
