The nation's money supply increased a record $6.9 billion last week, the Federal Reserve reported today.
The sharp increase probably means the central bank will not ease its monetary policy as some analysts had hoped.
Henry Kaurman, chief economist for the investment banking firm Salomon Brothers, said the steep rise in the money supply - checking accounts and currency in circulation - also "suggests there is more underlying strength in the economy than the data for the last couple of weeks" would indicate.
While the federal reserve tries to control the growth of the money supply by its actions in buying and selling government securities on the open market, money growth also is influenced by the demand for currency and checking accounts among businesses and consumers.
Nearly all economists agree that the rate of growth of the money supply is important both to production and inflation.
Measurement of money supply has been causing the Federal Reserve problems recently because businesses and consumers are making increasing use of techniques that allow them, in effect, to earn money on deposits that in earlier years they would have kept as checking, or demand deposits.
But another, broader measure of themoney supply that includes bank saving deposits as well as checking accounts and currency rose $8 billion in the week ended June 6, also a record one week increase.
William Sullivan, of Bank of New York, said part of the increase had been anticipated and was due to technical factors.
Because the normal payment day for Social Security recipients fell on a Sunday, the government paid benefits two days early this month. Since many Social Security payments are made directly to a recipient's checking account, that artificially swelled deposits and made money supply growth seem bigger than it is.
Nevertheless, Sullivan said, at least $2 or $3 billion of the $6.9 billion increase was not a statistical fluke that will be reversed when the Fed reports money data next week.
Few analysts expect the Fed to take steps to tighten monetary policy further, however, because the central bank seems concerned that day tightening steps might precipitate a recession.
Meanwhile, at the same time that the money supply was growing sharply and business demands for credit remained strong, some short - term interest rates continued to fall, making the current financial picture even more puzzling.
Two more major banks - Bank of America in San Francisco and Chase Manhattan in New York - cut their prime lending rate from 11 percent to 11 1/2 percent.
Earlier in the week, Morgan Guaranty Trust of New York and Continental Illinois of Chicago also cut their prime rate - the interest they charge their best corporate customers for short - term loans. Several smaller banks also have cut their prime rate.