Money Supply’s $1.7-Billion Rise Jolts Analysts
The nation’s basic money supply rose $1.7 billion in mid-May, the Federal Reserve Board reported Thursday, giving the credit markets a surprise.
Traders had been expecting the money supply to show little change. Bond prices, which were up a bit for the day, dipped on the news but recovered quickly. Interest rates remained mixed.
The Fed said the basic money supply, known as M1, rose to a seasonally adjusted $660.5 billion in the week ended May 26 from $658.8 billion in the previous week. M1 represents money readily available for spending and includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
For the latest 13 weeks, M1 averaged $646.1 billion, an 11.6% 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.
“It was another surprise on the upside,” said Ray Stone, chief financial economist for the investment firm Merrill Lynch.
Stone attributed the increase to households being more willing to hold their assets in cash now that interest rates have fallen. In addition, consumers would rather pay with cash than with credit cards, which still carry relatively high interest rates, he said.
The latest increase leaves the measure $14.4 billion above the Fed’s target, Stone said.