NEW YORK — The nation's basic money supply fell $2.8 billion in mid-January, the Federal Reserve Board reported Thursday, a larger decline than generally expected and one that gave a further boost to a rally in bond prices.
Analysts said the latest report should cause no changes in the Fed's monetary policy and should reassure those concerned that the growth in the money supply in November and December would force the Fed to tighten credit conditions.
"It came as a pleasant surprise, and the markets reacted favorably to it," said Maury Harris, chief economist for the investment firm Paine Webber Group Inc. "The decline arrested what would have been a bad trend if it had continued."
But Harris added that, while the drop relieved pressure on the Fed to tighten credit conditions, "it's premature to talk about the Fed easing."
Averaged $551.4 Billion
The Fed said M1, its measure of money readily available for spending, fell to a seasonally adjusted average of $556.8 billion in the week ended Jan. 14 from a revised $559.6 billion the previous week. The previous week's figure had originally been reported as $559.4 billion.
M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
For the latest 13 weeks, M1 averaged $551.4 billion, a 3.2% seasonally adjusted annual rate of gain from the previous 13 weeks.
Frank Mastrapasqua, chief economist for Smith Barney, Harris Upham & Co., said the decline "probably increases people's comfort factor that the basic direction of Fed policy will remain unchanged--it is accommodative and will remain accommodative."
The Fed has said that it would like to see M1 grow between 4% and 7% from the fourth quarter of 1984 through the fourth quarter of 1985, a slightly narrower growth range than the 4% to 8% of the previous year. The money supply had been growing at an annual rate of 8.5%.
Other indicators released Thursday included:
- Commercial and industrial loans on the books of the leading New York banks rose $479 million in the week ended Jan. 16, compared to a decline of $266 million in the previous week, according to the Federal Reserve Bank of New York.
- Commercial paper outstanding nationally rose $3.664 billion in the week ended Jan. 16, bringing the total to $239.657 billion.
- The interest rate on federal funds averaged 8.19%, down from 8.23% the previous week.