The Federal Reserve more than doubled its targets for a key measure of money growth in the third quarter, according to the record of the July 6 meeting of the policy-setting Federal Open Market Committee released yesterday.
However, the move did not represent an easing of the overall tightness of Fed policy this year because the money measure had been growing at below-target rates in earlier months.
Federal Reserve Chairman Paul Volcker said this week that credit should be easier for the rest of this year because one key measure of money growth has been below target so far. The FOMC decided at the July meeting to let M1-B -- which includes cash in circulation and checking accounts at all banks and thrifts -- grow at a 7 percent annual rate in the June-to-September period compared with a 3 percent target for the second quarter.
Despite this decision, interest rates have remained high in the current quarter. Credit demand has been extremely strong, and so the Fed's easing of money-growth limits for this quarter has not been reflected in a drop in rates.
Money supply numbers released yesterday showed that M1-B has started to expand again, after successive drops earlier this year. This measure of money climbed by $800 million in the week ending August 12, after a $5.3 billion climb the previous week. This put it 1.4 percent higher than the average level for June. In the latest three months M1-B still shows a decline.
The Fed has been very wary of easing up on money growth this year for fear of repeating its mistake of last year when credit expanded rapidly for several months after a sharp decline during the recession. Market analysts yesterday were still gloomy about the prospects for an early fall in interest rates.
However, commercial and industrial loans at major New York banks were down, according to yesterday's report. After a jump of $3.7 billion in the previous week, these loans fell $135 million in the week ending Aug. 12.
The narrower measure of money, M1-A, also rose in the latest week, the Fed reported. This climbed by $300 million to $354.3 million.