Money Supply Off $4.4 Billion During Week

The nation’s basic money supply dropped $4.4 billion in mid-September, the Federal Reserve Board said Thursday in reporting a larger decline than anticipated by private forecasters.

The central bank’s weekly report said M1 fell to a seasonally adjusted average of $691.3 billion in the week ended Sept. 15 from a revised $695.7 billion the previous week. The previous week’s figure originally was estimated by the Fed at $695.3 billion.

M1, the narrowest of the Fed’s money measures, represents funds readily available for spending. It includes cash in circulation, money in accounts to which people have easy access and non-bank travelers checks.

A survey by the Redwood City, Calif., consulting firm Money Market Services found that the median estimate of 33 private analysts called for a $2.6-billion decrease in M1 for the latest week.

John Doyle, vice president of Money Market Services, said M1’s growth rate was expected to cool from the torrid pace set earlier in the year.

People eager to put their money where they can get the best returns seemed to be shifting funds from interest-bearing checking accounts to more conventional savings accounts that are not included in M1, Doyle said.

For the latest 13 weeks, M1 averaged $681.3 billion, a 17.3% 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 expand in a range of 3% to 8% from the fourth quarter of 1985 through the final quarter of 1986.

Modiocre Economic Results

Based on recent government reports, analysts are increasingly convinced that economic activity continues to be only mediocre while inflation remains mild.

Federal monetary authorities met this week in Washington to review the economy’s recent performance and to set a credit course for the autumn.

The Federal Open Market Committee was not expected to make any radical policy changes, but any actions will not be disclosed for about six weeks, as usual.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks rose $517 million in the week ended Sept. 17, compared to a decline of $633 million a week earlier.

- The Federal Reserve said commercial paper outstanding nationally rose $6.9 billion in the week ended Sept. 17, bringing the total to $329.3 billion. In the previous week, such corporate IOUs rose $526 million.

- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $544 million in the week ended Wednesday, up from $280 million in the previous week.

- The Federal Reserve said total adjusted reserves of member banks averaged $51.7 billion in the two weeks ended Wednesday, down from $51.8 billion in the previous two-week period.

- The Federal Reserve said net free reserves totaled $237 million in the two weeks ended Wednesday, compared to free reserves of $243 billion for the previous two weeks.

In a related development, a federal judge upheld the constitutionality of the way the Federal Reserve system regulates the nation’s money supply.

Sen. John Melcher (D-Mont.) challenged the makeup of the membership of the policy-making Federal Open Market Committee because Congress does not get to vote on the appointment of five of its 12 members.