$4.4-Billion Growth in Money Supply Posted

The nation’s basic money supply rose $4.4 billion in mid-July, the Federal Reserve Board reported Thursday.

The Fed said M1 rose to a seasonally adjusted average of $677.7 billion in the week ended July 21 from a revised $673.3 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 $664.3 billion, a 17.7% seasonally adjusted annual rate of gain from the previous 13 weeks.

The rise was bigger than market watchers expected but had little effect in the credit markets.

“The only judgment is: We’ve been told--at least for the time being--that ‘money doesn’t matter,’ to use the colloquial term (for money supply) used in the market. And so these quantum leaps in M1 aren’t taking their toll as they normally would,” said William Sullivan, an analyst at Dean Witter.

“The latest reading is $24 billion over the Fed’s growth limit,” he said. “But the market is calm because the Fed is not using it as an active policy criteria.”

The Fed, in its attempt to provide enough money to stimulate non-inflationary economic growth, had 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.

All year, however, the money supply has overshot that mark, causing some to worry that the Fed might react by raising interest rates.

In a report to Congress, however, Fed officials recently said they are de-emphasizing the role of the money supply in setting credit policy. The report said above-target growth “would be acceptable” and that it would leave its 3% to 8% target unchanged.

Ray Stone, an analyst at Merrill Lynch Capital Markets, also saw little immediate significance reaction to the figures.

“If you had to ask for one reason, it’s related to the drop in interest rates and households and businesses responding to that drop,” he said.

Earlier Thursday, the median prediction for the money supply increase made by economists polled by Money Market Services of Belmont, Calif., was $3 billion.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $485 million, compared to a gain of $73 million a week earlier.

- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $408 million in the two-week maintenance period ended Wednesday, up from $316 million in the previous two-week period. In the week ended Wednesday, borrowings averaged $404 million, down from $413 million in the previous week, the Fed said.

- The Federal Reserve said free reserves totaled $774 million, up from a revised $382 million 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 $246.4 billion in the two-week period ended Wednesday.