Federal Reserve officials disclosed yesterday yet another major error in their money supply figures.
Last week the Fed announced that a massive $3.7 billion mistake had been made in the weeks ending Oct. 3 and 10 because of faulty numbers submitted by Manufacturers Hanover Trust Co. of New York. Yesterday, the Fed revealed that the same bank had since made an $800 million mistake. Both errors were on the high side.
But the new error was different from those reported for the two previous weeks.
The disclosure came during a hearing at which members of the House Banking Committee excoriated the Fed for releasing erroneous information at a tme financial markets were already unsettled because of changes in Federal Reserve policy.
Committee Chairman Henry Reuss (D-Wisc.) called the errors "monumental goofs" that had hurt the money and bond markets in which the "panic selling reached serious proportions on Friday, Oct. 19," the day after the money supply numbers containing the largest mistake were released.
Frederick Schultz, vice chairman of the Federal Reserve, told the committee the errors had no effect on Fed policy. "We do not carry out monetary policy on the basis of these week-to-week figures."
Charles Partee, another Fed governor, said the Federal Reserve did not rely on the weekly numbers because of their "notorious volatility." The errors were corrected, he added, before they became incorporated in monthly or quarterly numbers on which the Fed does rely.
However the Fed discounted the wrong numbers, financial markets reacted to the spurious surge in the money supply by assuming the Fed would tighten credit availability again. As a result, short-term interest rates soared, and both stock and bond prices fell sharply.
Several committee members asked whether someone might have deliberately misstated the numbers after having positioned themselves in the market to take advantage of the sort of reaction that, in fact, occurred.
"We have no indication of any wrong doing at this time," Schultz replied.
The larger errors, which affected the money supply reported for the weeks ending Oct. 3 and 10, were of the same type. Manufacturers Hanover correctly reported the toal of their depostis, but mistakenly put some into the category of personal or corporate deposits when they were actually deposits by other banks. Inter-bank deposits, by definition, are not part of the money supply.
Last week the bank apparently made a more fundamental error in that the total of its assets, such as loans, government securities and so forth, did not equal its total for liabilities, checking account deposits and the like, Peter Fousek, a vice president of the New York Federal Reserve Bank, told the committee.
Officials said the next largest revision in money supply numbers due to reporting errors during the past three years occurred last Jan. 3, when a $1.8 billion change was made.
Schultze assured the committee the Fed is "certainly looking at all of our editing procedures" for verifying the accuracy of numbers submitted by banks.
The Fed vice chairman, in saying the errors had no effect on monetary policy, said the first report that the numbers might be wrong was coincidentally received during a "consultation" meeting of the policy-setting Federal Open Market Committee on Oct. 22. At that meeting, he said, no policy change was made.
Chairman Reuss used the occuasion of the hearing to urge the Fed officials to make several major changes in its procedures, including abandoning altogether a set interest rate on loans to member banks -- the discount rate -- and ending the two-week lag between matching deposits and required reserves.