Money Supply Climbs $8.5 Billion
The nation’s basic money supply shot up by $8.5 billion in mid-October, the Federal Reserve Board reported Thursday. The surge reversed a two-week down trend and pushed the money supply further beyond the Fed’s upper growth targets.
Analysts said the increase, although sharper than expected, probably would not affect interest rates because Fed policy-makers have been paying more attention to the overall performance of the economy than to fluctuations in the money supply.
Yields on 30-year Treasury bonds nudged up two-hundredths of a percentage point following the release of the figures.
The Fed said M1 rose to a seasonally adjusted $613.6 billion in the week ended Oct. 21 from $605.1 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 $608 billion, a 14% 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 to promote non-inflationary economic growth.
The $8.5-billion increase compared to dealer estimates of about $6 billion and pushed the nation’s money supply further above the Fed’s target figures. The money supply stands $11.3 billion above the Fed’s upper target.
“I don’t know that it (the $8.5-billion increase) had any great significance. I would imagine the money market will not take it too seriously tomorrow,” said Thomas Thomson, chief economist at Crocker National Bank of San Francisco.
Although the sharp increase came after two weeks of decline, the money supply could still decline for the entire month of October even if it rises slightly in the last week, said Harold Nathan, economist for Wells Fargo Bank of San Francisco.
“We’ve had very erratic week-to-week changes, and everyone’s aware of that,” Nathan said.
Traders will pay more attention to government figures due today on employment, hours worked and average weekly earnings, because they will be the first concrete information on how the U.S. economy is performing in the fourth quarter, said William Griggs, a partner in the investment firm Griggs & Santow in New York.
Griggs said that, if the reports indicate a weakening economy, it could give bond traders confidence that the Federal Reserve will ease credit policy to promote growth. That would bring interest rates down and make long-term bonds a more attractive investment, he said. However, Griggs said that, if the government reports show strength, it could cause bond prices to fall because of worries that interest rates will not decline further.
In other reports Thursday:
- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $388 million in the week ended Oct. 23, compared to a gain of $152 million a week earlier.
- The Fed said borrowings from the Federal Reserve System averaged $357 million in the week ended Wednesday, down from $634 million in the previous week. Borrowings averaged $469 million in the two weeks ended Oct. 23, down from $768 million in the previous two-week period.
- The Fed said reserves of member banks averaged a seasonally adjusted $43.57 billion in the latest two weeks, down from $43.60 billion in the previous two weeks.
- The Fed said the nation’s banking system averaged $333 million in free reserves in the two weeks ended Oct. 23, compared to net borrowed reserves of $106 million in the previous two weeks. When banks are net borrowers, credit is scarcer.
- 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 $231.4 billion in the week ended Wednesday, down from $231.5 billion a week earlier.
