Money Supply Drops $6.8 Billion

Associated Press

The nation's basic money supply fell a sharp $6.8 billion in mid-January, the Federal Reserve Board reported Thursday. The decline was greater than analysts had predicted but caused little reaction in the credit markets.

The Fed said the basic money supply, known as M1, fell to a seasonally adjusted $622.3 billion in the week ended Jan. 13 from $629.1 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 $620.4 billion, an 11.7% 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% in 1986. The latest decrease brings the money supply down to within the Fed's target range.

Investors in the credit markets paid little attention to the money supply drop because it appears the Fed has not been paying close attention to the numbers in setting its credit policies. Yields on Treasury bonds and bills remained about flat after the Fed's late-afternoon announcement.

Analysts had predicted a drop in M1 of about $4.1 billion.

Jeffrey R. Leeds, a money-market economist at Chemical Bank, said the sudden drop may have been related to distortions in the money supply because of a flood of municipal debt issues before the end of 1985. He noted that the money supply had climbed steeply, by $3.9 billion, a week earlier.

In other reports the Federal Reserve Bank of New York said:

- Commercial and industrial loans at major New York City banks fell $572 million in the week ended Jan. 15, compared to a $214-million gain a week earlier.

- Bank borrowings from the Fed system averaged $447 million in the week ended Wednesday, up from $130 million in the previous week.

- Total adjusted reserves of member banks averaged $45.743 billion, up from $45.627 billion a week earlier.

- 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 $236.3 billion in the week ended Wednesday, down from $237.8 billion a week earlier.

- Net free reserves totaled $1.235 billion in the two weeks ended Jan. 15, up from net free reserves of $457 million in the previous two-week period.

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