Money Supply Falls for First Time Since April
The nation’s basic money supply fell $1.5 billion in mid-June, the Federal Reserve Board reported Thursday. It was the first weekly decline since April but still left the money measure well above the Fed’s growth targets.
The decline had been widely anticipated, however, and analysts said the afternoon report had little impact on bond prices, which were up strongly for the day.
“This was about what had been expected,” said Raymond Stone, manager for financial economics at Merrill Lynch Capital Markets.
“We think the worst of the money news is behind us and that money growth will be slower ahead than it has been in recent months,” he said.
But Stone and other economists said they did not expect the decline to prompt any change in the Fed’s current credit policy.
The Fed said M1 fell to a seasonally adjusted average of $589.3 billion in the week ended June 17 from $590.8 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
It was the first decline in the M1 measure since a $900-million drop in the week ended April 29, the Fed said.
For the latest 13 weeks, M1 averaged $579.7 billion, a 9.5% 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.
It has set the growth targets in an effort to assure steady, non-inflationary economic growth.
But the money supply has been growing much more rapidly than the Fed’s targets in recent weeks. Analysts have blamed late tax refunds this year for part of the recent money bulge.
“The number doesn’t change anything,” said Elliott Platt, a fixed-income analyst for Donaldson, Lufkin & Jenrette Securities. “We had 13.8% money growth for May, and we’ll probably have close to that in June.”
William Sullivan, director of market research at Dean Witter Reynolds, said: “It’s steady as you go.
“This particular decline was helpful. It was a welcome break, but it should have no policy significance,” he said.
In advance of the announcement, Money Market Services Inc. of Belmont, Calif., said its survey of 42 analysts found a consensus for a decline of $1 billion. The gains in the past six weeks had amounted to $15 billion.
In other reports:
- Commercial and industrial loans on the books of the leading New York banks rose $317 million in the week ended June 19, according to the Federal Reserve Bank of New York. That compared to a decline of $350 million in the previous week.
- Commercial paper outstanding nationally rose $63 million in the week ended June 19, following a decline of $130 million in the previous week.
- The nation’s banking system averaged free reserves of $208 million in the two weeks ended June 19, compared to free reserves of $202 million in the previous two-week period.
- Borrowings from the Federal Reserve System averaged $511 million in the two-week period ended June 19, down from $604 million in the previous two-week period.
- Total reserves averaged a seasonally adjusted $41.98 billion in the two weeks, up from $41.57 billion in the prior two-week period.
- Borrowings from the Fed averaged $242 million in the week ended Wednesday, down from $620 million in 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 $226.2 billion, down from $227 billion a week earlier.