M1 More Than $4 Billion Above Fed’s Upper Growth Target : Money Supply Climbs $2.2 Billion

NEW YORK —  The nation’s basic money supply rose $2.2 billion in mid-February, the Federal Reserve Board reported Thursday, but the increase to more than $4 billion above the Fed’s upper growth target had been anticipated.

Bond prices and interest rates showed little change in the financial markets after the report’s release.

Analysts said the increase fit into a 3-month-old pattern of strong money growth that might soon merit the Fed’s attention. But few of them expected any overt moves soon by the Fed to tighten credit conditions.

“I think the Fed is on hold for the moment--they are looking the other way on the money supply,” said Maury Harris, chief economist for Paine Webber Inc. “But this can’t keep up for much longer.”

The Fed said M1 rose to a seasonally adjusted average of $567.4 billion in the week ended Feb. 11 from a revised $565.2 billion the previous week. The previous week’s figure had originally been reported as $565 billion.

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

10.8% Annual Growth Rate for Week

For the latest 13 weeks, M1 averaged $560.4 billion, a 7.6% seasonally adjusted annual rate of gain from the previous 13 weeks. The annual growth rate for the week was 10.8%, according to Money Market Services Inc., an economic research firm based in Belmont, Calif. The Fed has said it would like to see M1 grow between 4% and 7% from the fourth quarter of 1984 through the fourth quarter of 1985.

On Wednesday, Fed Chairman Paul A. Volcker told a Senate committee that the Fed had stopped relaxing its monetary policy last month, but he added that it had not started tightening, either.

Harris said he expected the Fed to maintain its current posture on monetary policy for the moment. “The markets may be anticipating the Fed tightening a little, but I think that may be a little premature,” he said.

Other indicators released Thursday included:

- Commercial paper outstanding nationally rose $1.106 billion in the week ended Feb. 13, bringing the total to a record $245.637 billion. In the previous week, commercial paper increased $2.66 billion.

- The federal funds rate, the interest rate on short-term loans between banks, averaged 8.57% in the week ended Wednesday, up from 8.44% the previous week.

- The nation’s banking system averaged free reserves of a revised $641 million in the two weeks ended Feb. 13. That number had been reported last week as $632 million.

- Borrowing from the Federal Reserve System, excluding extended credit, averaged $381 million in the two weeks ending Feb. 13, down from $383 million in the previous two-week period. Borrowing from the Fed for the week ended Feb. 20 averaged $460 million a day, up from $360 million a day 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 $218.7 billion, down from $219.2 billion a week earlier.