U.S. Money Supply Jumps $6.1 Billion
The nation’s basic money supply jumped $6.1 billion earlier this month, the Federal Reserve Board said Thursday.
Despite the magnitude of the increase, the credit markets took it in stride. The supply of money in the economy had been growing very sluggishly this year, which tempered the impact of the latest week’s sharp increase.
The market’s reaction was also subdued because analysts had predicted that M1, which consists of cash in circulation, deposits in checking accounts and non-bank travelers checks, would expand substantially in the week ended Feb. 10.
The Fed said M1 rose to a seasonally adjusted $630.7 billion in the week ended Feb. 10 from $624.6 billion in the previous week. For the latest 13 weeks, M1 averaged $625.8 billion, a 9.2% seasonally adjusted annual rate of gain from the previous 13 weeks.
The Fed, in its attempt to provide enough money to stimulate non-inflationary economic growth, has said it would like to see M1 grow in a range of 3% to 8% from the fourth quarter of 1985 through the final quarter of 1986.
But the central bank has been playing down the importance of M1, and, in an appearance before Congress this week, Fed Chairman Paul A. Volcker repeated that policy-makers appraise an array of information before setting a monetary policy course.
William H. Gross, an analyst with Pacific Investment Management in Newport Beach, said bond prices actually improved a bit in late trading after the Fed’s 4:30 p.m. EST release of the money supply report. “Volcker has repeatedly indicated that the Fed will continue to focus on a number of monetary aggregates, not just M1,” Gross said.
Among the other things the Fed considers in formulating its strategy are broader money measures known as M2 and M3. M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds. M3 is the sum of M2 plus less-liquid accounts, such as certificates of deposit in minimum denominations of $100,000.
Volcker also said this week that the Fed is paying close attention to the dollar. The dollar’s value has fallen about 30% against other major currencies over the past year, and a continued decline could add to inflationary pressures by raising the cost of imported goods.
Gordon B. Pye, a senior vice president with Irving Trust in New York, said the $6.1-billion increase in M1 brings the money measure much closer to the upper limit of the Fed’s growth target than it was in January when it expanded at a meager 1.1% annual rate. The increase left M1 $700 million under the upper limit.
In other reports:
- The Federal Reserve Bank of New York reported that commercial and industrial loans on the books of the 10 leading New York City banks rose $255 million in the week ended Feb. 12, compared to a decline of $186 million a week earlier.
- The Federal Reserve said the federal funds rate, the interest rate on short-term loans between banks, averaged 7.84%, compared to 7.85% in the previous week.
- The Federal Reserve reported that bank borrowings from the Federal Reserve System averaged $182 million a day in the two weeks ended Feb. 12, down from $374 million a day in the previous two-week period.
- The Federal Reserve said borrowings from the Fed averaged $632 million a day in the week ended Wednesday, up from $124 million a day in the previous week.
- The Federal Reserve said total adjusted reserves of member banks averaged $45.7 billion in the two weeks ended Feb. 12, up from $45.1 billion.
- The Federal Reserve said net free reserves averaged $1 billion in the two weeks ended Feb. 12, compared to free reserves of $544 million for the previous two weeks.
- 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 $237.8 billion in the two weeks ended Feb. 12, up from $235.1 billion in the previous period.
