The Federal Reserve Board yesterday released figures for its money supply targets for 1981, despite its earlier refusal to do so.
The changes are designed to reduce the target ranges for the three narrower measures of the money supply (M1-A, M1-B and M2) by one-half of a percentage point from their ranges for this year, after allowing for institutional changes which will affect the measures in 1981. The target growth ranges for M3 and bank credit measures are unchanged from their 1980 levels.
The introduction of NOW (negotiable order of withdrawal) accounts nationwide, from the beginning of next year, is expected to swell artificially one of the narrow measures of money supply, M1-B, while depressing M1-A. This is because consumers are expected to switch money from demand deposits (which are in M1-A and M1-B) and from savings accounts (which are not in M1-B) to NOW accounts, which will be in M1-B.
The Fed has made rough adjustments for the estimated effect of these shifts to its 1981 targets. These are as follows (with this year's target ranges in parenthesis): M1-A: 0-2 1/2 percent (3 1/2-6 percent); M1-B 5-7 1/2 percent (4-6 1/2 percent); M2 5 1/2-8 1/2 percent (6-9 percent); M3 6 1/2-9 1/2 percent (unchanged); bank credit 6-9 percent (unchanged).
The Fed revealed the numbers in a letter to Senate Banking Committee Chairman William Proxmire (D-Wis.). Last week Promire demanded a legal defense from Fed Chairman Paul Volcker for his refusal to give Congress the figures for next year's money supply targets when he presented the
Volcker said in his letter yesterday that the Federal Open Market Committee believed and still believes that "general statements are the clearest and most useful indication of intentions that we can make." Volcker made clear to both Senate and House Banking committees in testimony last week the Fed intends further to tighten money policy next year as part of its anti-inflation strategy.
Volcker yesterday referred to the FOMC's "broad agreement that it is appropriate to plan for some further progress in 1981 toward reduction" of the money supply targets.
He said that the FOMC had decided to publish some figures "in an attempt to clear up any misunderstanding." But the Fed fears that setting forth precise target ranges for each money measure could be "ultimately a source of confusion rather than clarity."
Volcker's letter emphasized the Fed's fear that people will think it is relaxing money policy because of artificially large growth in M1-B next year. rThe Fed estimates that shifting from savings accounts to NOW accounts could swell M1-B by between 0.5 and 2.5 percentage points next year. Shifting from demand to NOW accounts could reduce the narrowest money measure, M1-A, by between 1 percent and 5 percent.
The great uncertainty about how to interpret the money figures because of technical changes has been compounded by economic uncertainty.