Money Supply Grows $1.3 Billion

The nation’s basic money supply expanded by $1.3 billion in late July, the Federal Reserve said Thursday, an increase that generally met credit analysts’ expectations.

The central bank said the basic supply, called M1, rose to a seasonally adjusted $596.7 billion in the week ended July 29 from $595.4 billion in the previous week. Most trackers of M1 had been looking for an increase of between $1.3 billion and $1.5 billion.

M1 includes cash in circulation, checking deposits and non-bank travelers checks. Because it represents funds readily available for spending, many analysts watch M1 closely for clues to Federal Reserve policy and hence interest-rate trends.

12% Rate of Gain

For the latest 13 weeks, M1 averaged $589.1 billion, a 12% seasonally adjusted annual rate of gain from the previous 13 weeks. The Fed has said it would like to see M1 grow between 3% and 8% from the second quarter of this year through the fourth quarter.

The central bank tries to promote sufficient money growth to foster sustained economic expansion while at the same time avoiding pumping so much money into the economy that it fuels inflation.

In recent weeks, the money supply has been expanding rapidly and is at or above the upper levels of growth sought by the Fed, according to some analysts’ estimates.

For that reason, some credit watchers worry that further sizable increases in the supply will prompt the Fed to tighten credit conditions--and drive interest rates higher--in order to slow money growth.

At the same time, there is concern that, if the economy picks up steam in the second half of 1985, as many analysts expect it will, the central bank also will decide to curb the availability of credit.

However, Maury N. Harris, chief economist of Paine Webber, said he believes that the Fed is focusing more on a broader measure of money--called M2--than it is on M1 and that M2 remains within the Fed’s desired growth targets.

M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds.

Other indicators released:

Commercial and industrial loans at major New York City banks rose $706 million in the week ended July 31, compared to a decline of $195 million a week earlier.

Commercial paper, or corporate IOUs, outstanding rose $1.092 billion in the week ended July 31, compared to a $2.077-billion decrease in the previous week.

Member bank borrowings from the Federal Reserve System averaged $345 million in the week ended Wednesday, down from $404 million in the previous week.

Total reserves of member banks averaged a seasonally adjusted $42.725 billion in the two weeks ended July 31, up from $42.514 billion in the previous two-week period.

The nation’s banking system averaged free reserves of $560 million in the two weeks ended July 31, compared to free reserves of $96 million in the previous two-week period.