Money Supply Soars $6 Billion in Mid-October
The nation’s basic money supply rose a sharp $6 billion in mid-October, the Federal Reserve Board reported Thursday, but the credit markets showed little reaction to the number.
The Fed said M1 rose to a seasonally adjusted $702.6 billion in the week ended Oct. 20 from a revised figure of $696.6 billion the previous week. The previous week’s money supply was initially reported as $696.5 billion.
M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks. For the latest 13 weeks, M1 averaged $691.3 billion, a 16.6% seasonally adjusted annual rate of gain from the previous 13 weeks.
Attempt to Provide Money
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.
The bond market surged Thursday in wild trading because of a growing conviction that Japan’s discount rate would be cut soon.
A cut would mean lower Japanese interest rates and make U.S. securities more attractive, according to Jeffrey Leeds, a money-market economist at Chemical Bank.
“It was one of the most active days of trading in month and frankly left the markets pretty exhausted by the time the money supply (figures) came out,” Leeds said.
An unexpected surge in the money supply can depress the bond market, on the theory that too much money in circulation stimulates inflation and may compel the Fed to tighten its credit policy. But many economists believe the Fed pays little attention to M1 and looks at broader measures of monetary growth.
In other reports:
- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $219 million in the week ended Oct. 22, compared to a gain of $408 million a week earlier. The total rose to $58.075 billion.
- 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 $250.3 billion in the two-week period ended Wednesday.
