Money Supply Falls $1 Billion in Mid-Month

The nation’s basic money supply fell $1 billion in mid-July, the Federal Reserve Board reported Thursday.

The decline had been expected, but the money supply measure known as M1 remains well above the growth targets that the Fed has set in its effort to provide enough money for steady, non-inflationary economic growth.

The report had little impact in the credit markets.

Traders have been paying little attention to movements in M1 in recent weeks because they believe the Fed has been paying more attention to broader money measures that are reported only once a month in setting its credit policy. Those measures, known as M2 and M3, have been within the Fed’s growth targets.

For example, the Fed cut its discount rate earlier this month despite above-target growth in M1. The discount rate is the interest charged on the Fed’s loans to financial institutions.

Last week, the Fed said in its midyear report to Congress that it was de-emphasizing M1 in setting its credit policy.

Falls to $673.1 Billion

The Fed said M1 fell to a seasonally adjusted average of $673.1 billion in the week ended July 14 from a revised $674.1 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks. M1 for the previous week was revised from $673.9 billion.

For the latest 13 weeks, M1 averaged $661.7 billion, a 17% seasonally adjusted annual rate of gain from from the previous 13 weeks.

The Fed 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 said in its report to Congress last week that above-target growth in M1 “would be acceptable.”

William V. Sullivan Jr., director of money-market research at Dean Witter Reynolds, noted that the decline in M1 was the second in four weeks but only partially reversed last week’s reported increase. That advance had been initially reported as $7.4 billion in the week ended July 7. The upward revision meant it actually rose $7.6 billion that week.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks rose $73 million in the week ended July 16, compared to a decline of $1.024 billion a week earlier.

- The Federal Reserve said total adjusted reserves of member banks averaged $50.229 billion in the two-week period, up from $49.820 billion in the previous two weeks.