Broader Money Measures Rise; M1 Falls $400 Million

The nation’s basic money supply fell $400 million in late October and early November, but two broader money measures rose, the Federal Reserve Board reported Thursday.

The credit markets showed little reaction to the late-afternoon release of the report.

Analysts said they expected that the report will have no impact on the central bank’s credit policy. Some members of the Fed’s policy-making board have expressed concern in recent weeks about excessive money growth.

Most analysts had been looking for a decline in the basic money measure, known as M1. The rise in the broader money measure known as M2 was larger than expected, but the gain in the third, even broader money gauge, M3, matched most analysts’ expectations.

Harold Nathan, senior financial economist at Wells Fargo in San Francisco, said the report “is neutral in terms of Fed policy.”

“They will look at the report and say, ‘We are following the correct course and there is no need to alter it,’ ” Nathan said.

The Fed tries to allow enough money growth to enable the economy to expand steadily but without high levels of inflation.

The Fed said M1 fell to a seasonally adjusted $703.4 billion in the week ended Nov. 3 from a revised $703.8 billion in the previous week. The previous week’s figure was originally reported as $704.2 billion.

M1 includes cash in circulation, deposits in checking accounts and non-bank travelers’ checks.

For the latest 13 weeks, M1 grew at an annual rate of 15.9% from the previous 13 weeks and 13.8% from 52 weeks earlier.

Those growth rates exceed the Fed’s M1 growth targets of between 3% to 8% from the fourth quarter of 1985 through the final quarter of 1986.

But most analysts say the Fed is paying little attention to growth in M1 and is paying closer attention to the broader money measures.

The money measure known as M2 rose $24.2 billion to a seasonally adjusted $2.764 trillion in October, the Fed said. That was about $4 billion more than many analysts had expected. M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds.

The Fed said M3 rose $18.7 billion to a seasonally adjusted average of $3.444 trillion in October. That gain matched most analysts’ expectations. M3 is the sum of M2 plus less liquid accounts, such as certificates of deposit in minimum denominations of $100,000.