Basic Money Supply Up $10 Billion in Week

The nation’s basic money supply jumped $10 billion in the final week of December, the Federal Reserve Board reported Thursday.

The increase was far beyond the predictions of most analysts, who expected the money supply to remain at the same level or increase by no more than $3 billion. However, it had a minimal effect on the credit markets.

The Fed said M1 rose to a seasonally adjusted $741 billion in the week ended Dec. 29 from $731 billion the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $713.9 billion, a 16.7% 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 grow in a range of 3% to 8% from the fourth quarter of 1985 through the final quarter of 1986.

Supply Curb Unlikely

Marshall Front, an economist at the Chicago investment and mutual fund management firm of Stein Roe & Farnham, said it was unlikely the Fed would take any action to curb the money supply because of the jump in M1.

“I think the Fed is largely ignoring M1 for the time being,” and giving more weight to broader money measures issued monthly, Front said.

The median estimate of economists surveyed before the M1 report by the research firm Money Market Services Inc. of Redwood City, Calif., called for a rise of about $1 billion.

Jay Goldinger, an investment banker with the Beverly Hills firm of Cantor, Fitzgerald & Co., said the M1 figures were a surprise, but had “a very minor effect” on the bond market. Traders were selling mainly on the possibility of negative news when December producer price and unemployment reports are issued Friday, he said.

Without the impending release of those figures, the M1 jump “would have been a big yawn,” Goldinger said.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks rose $3.611 billion, compared to a gain of $1.85 billion a week earlier.

- The Federal Reserve said discount window borrowings from the Federal Reserve System averaged $463 million a day in the week ended Wednesday, compared to $1.546 billion in the previous week.