The nation's money supply rose by a record amount in the week ended Aug. 6, the Federal Reserve Board announced yesterday.
The rises in the basic measures of the money supply, M1-A and M1-B, far outstripped the previous record weekly increases in May this year. M1-A, which is cash and demand deposits, went up by $8.2 billion in the week to a seasonally adjusted average of $381.5 billion. The broader M1-B, which includes other checking accounts at banks and other thrift institutions, shot up by $8.9 billion to $403.1 billion. [Tables on F10]
The money supply report came too soon to affect the stock market, although it did have an impact on bond and money markets in New York. Treasury bill rates went up by 20 basis points, while some bond prices dropped by a full point after the announcement.
When the markets open again on Monday, analysts expect interest rates to be up and bond prices down unless there is some convincing explanation of why the money figures went up so much.
The Fed refused to comment on the figures except to stress that "special caution" should be taken in interpreting week-to-week changes in the money data.
The surge in the money supply shown in the figures, unless they are corrected, will "put additional pressure on the Fed to tighten reserve availability to stop the summer money bulge," said Lawrence Kudlow, chief economist at Bear Stearn brokers in New York yesterday.
The administration and the Fed believe that interest rates have reached their trough and are likely to move upwards. It will be bad politicial news for President Carter if rates move up significantly in the coming months.
But as corporate loan demand revives and consumers start to increase their borrowing again, there is bound to be pressure on the money supply and on interest rates.
Money analysts gave two main technical reasons for the exceptional rise reported yesterday, but they do not explain the whole of it. The first is that this month's Social Security payments were paid in on a Friday, and thus stayed in people's bank deposits for longer than usual, over the weekend.
There was also an increase in Social Security payments effective last month. However, that was a genuine increase and not just a technical quirk because it did increase bank deposits and therefore the money supply.
The other technical reason was that the seasonal adjustment factors that are supposed to correct the figures for movements that are purely cyclical appeared to be pushing up the early August figures more than in the past.
Commercial and industrial loans on the books of the nation's largest banks rose by $1.379 billion in the same week, the Fed also reported yesterday. This compared with a decline of $349 million in the previous week.
The Fed Open Market Committee reported yesterday that it voted at its July 9 meeting to stick to its money targets. The target for the third quarter calls for growth of 7 percent in M1-A, 8 percent in M1-B and 8 percent in M-2.