Money Supply Grows $200 Million

NEW YORK — The nation’s basic money supply inched up $200 million in early July, the Federal Reserve Board reported Thursday.

Credit analysts had been looking for essentially no growth in the money supply. The tiny rise caused some additional deterioration of prices in the bond markets, which were already sharply lower for the day.

The Fed said its M1 measure of the money supply rose to a seasonally adjusted average of $596.2 billion in the week ended July 8 from $596 billion in the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $584.5 billion, a 10.9% seasonally adjusted annual rate of gain from the previous 13 weeks.

Growth Targets Revised

William Sullivan, director of money-market research for Dean Witter Reynolds, said the small gain “may be the start of a trend towards a more moderate pattern of monetary growth, which should take the pressure off the Fed to consider tightening its credit policy.”

But Maury Harris, chief economist for Paine Webber Inc., said he didn’t think that this week’s money supply figure would make much difference to the Fed.

“We have new targets, and this number is still over target. It doesn’t make a great deal of difference at this point,” he said.

Earlier this week, the Fed announced that it had revised both its target for M1 growth this year and the base from which it was measuring it. Under the new targets, the Fed said it would like to see M1 grow between 3% and 8% from the second quarter through the fourth quarter. The old targets had been growth of between 4% and 7%, but the money supply had grown far in excess of those targets.

In expanding the target range, the Fed also said it would measure growth from the second quarter rather than from the fourth quarter of 1984.

Other indicators released Thursday included:

- Commercial and industrial loans on the books of New York’s large banks fell $511 million in the week ended July 10, according to the Federal Reserve Bank of New York. That compared to a gain of $18 million in the previous week.

- The nation’s banking system averaged free reserves of $203 million in the two weeks ended Wednesday, compared to free reserves of $634 million for the previous two-week period.

- Borrowings from the Federal Reserve System averaged $801 million in the two-week period, up from $547 million in the previous two-week period.

- Total reserves of member banks averaged a seasonally adjusted $42.466 billion in the two weeks, down from $42.671 billion in the previous two-week period.

- Borrowings from the Fed averaged $648 million in the week ended Wednesday, down from $953 million in the previous week.

- 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 $228.4 billion, down from $229.2 billion a week earlier.