Advertisement
YOU ARE HERE: LAT HomeCollections

Money Supply Climbs $100 Million

July 11, 1986|Associated Press

NEW YORK — The nation's basic money supply edged up $100 million in late June, the Federal Reserve said Thursday.

The modest increase, together with gains in two broader measures of money that the Fed also reported, were in line with credit analysts' expectations.

The Fed released its money supply data shortly before announcing a half-point cut in its discount rate to 6%. That put the rate that the Fed charges on loans to financial institutions at its lowest level since late 1977.

In the week ended June 30, the basic money supply--known as M1--rose to a seasonally adjusted $666.3 billion from $666.2 billion in the previous week, the Fed said.

M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks. Because it represents funds readily available for spending, many credit analysts previously had regarded M1 as a key determinant in interest rate and overall economic trends.

For example, some economists feared that if the money supply grew too fast, it would push up inflation and interest rates.

However, although M1 has been growing at a rapid pace, the economy has remained sluggish and interest rates and inflation have not shot higher. Thus, many analysts lately have discounted the role of M1 in trying to estimate the economy's swings.

"The relationship between M1 and economic performance has just become increasingly unstable," said Elliott Platt, an economist with the securities firm Donaldson, Lufkin & Jenrette Inc.

The Fed, in an 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 this year. But for the latest 13 weeks, M1 averaged $657.1 billion, a 15.7% seasonally adjusted annual rate of increase from the previous 13 weeks.

Analysts have noted that two broader measures of money--called M2 and M3, which are published only monthly--have been growing more gradually than M1 and remain within the growth targets set by the Fed. In its report, the Fed said M2 climbed $20.3 billion last month to a seasonally adjusted average of $2.6673 trillion from $2.6470 trillion in May. M3 rose $19.7 billion to $3.3269 trillion in June from $3.3072 trillion in May.

M2 is made up of M1 and such accounts as savings deposits and money-market mutual funds. M3 is the sum of M2 plus less-liquid accounts such as certificates of deposit in minimum denominations of $100,000.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $16 million in the week ended July 2, compared to a decline of $788 million a week earlier.

- The Federal Reserve said bank borrowings from the Federal Reserve System averaged $299 million a day in the week ended Wednesday, down from $455 million in the previous week.

- The Federal Reserve said the nation's banking system averaged free reserves of $963 million in the two weeks ended July 2, compared to free reserves of $430 million for the previous two-week period.

Advertisement
Los Angeles Times Articles
|
|
|