Money Supply Climbs $1.6 Billion

The nation’s basic money supply rose $1.6 billion in mid-June, the Federal Reserve Board reported Thursday.

The credit markets, however, shrugged off the latest report, which reflected the ninth consecutive weekly gain in the money measure known as M1.

And analysts said the economy is growing too sluggishly to expect that the central bank will take steps to tighten credit conditions, such as pushing up interest rates.

The Fed said M1 rose to a seasonally adjusted average of $668.5 billion in the week ended June 16 from $666.9 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 $653.1 billion, a 14.3% seasonally adjusted annual rate of gain from the previous 13 weeks.

Fed Seen Maintaining Policy

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.

William Sullivan, director of money-market research at the investment firm Dean Witter Reynolds, said he thinks it is unlikely that the Fed will take steps to restrain money growth.

“I think the Fed can ignore this as long as inflationary expectations remain subdued and as long as the economic picture remains uncertain,” he said. He said sluggishness reflected in the May economic reports make it “virtually impossible for the Fed to tighten credit.”

Some economists contend that rapid money growth is sowing the seeds of later inflation. But others argue that M1 is a poor indicator of future inflation.

Sullivan noted that while M1 has been growing at a more rapid pace than the Fed targets would allow over the past three months, two broader money measures, known as M2 and M3, which include M1 plus funds held in a variety of other accounts, remain within the Fed’s growth targets.

Some economists say the Fed may soon loosen credit conditions.

Maury Harris, chief economist at the investment firm Paine Webber in New York, said the Fed may cut its discount rate in July “unless the June economic data are surprisingly strong.” The discount rate is the Fed’s interest charge on loans to financial institutions.

Kathleen Cooper, chief economist for Security Pacific National Bank in Los Angeles, said she also thinks a discount rate cut may be in store. “The month of July seems a good possibility,” she said.

In other reports:

- The Federal Reserve Bank of New York reported that commercial and industrial loans at major New York City banks fell $314 million in the week ended June 18, compared to a decline of $96 million in the previous week.

- The Federal Reserve said the nation’s banking system averaged free reserves of $449 million in the two weeks ended June 18, compared to free reserves of $693 million for the previous two-week period.

- The Federal Reserve said borrowings from the Federal Reserve System averaged $193 million in the two weeks, down from $305 million in the previous two weeks.

- The Federal Reserve said total adjusted reserves of member banks averaged $49.25 billion in the latest two weeks, up from $49.18 billion in the previous two weeks.

- 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 $243.6 billion in the two-week period ended Wednesday, down from $244.7 billion two weeks earlier.