The Federal Reserve Board decided yesterday to stop publishing seasonally adjusted weekly money supply numbers, indicating that erratic fluctuations in these weekly reports have misled financial markets and harmed the Fed's credibility.
A number of financial market experts said they think that the change would have little, if any, impact on the level of interest rates or on the markets' behavior.
The Fed, instead, will report a seasonally adjusted four-week average figure each week for M-1--the measure of money that includes currency in circulation and checking deposits at financial institutions. The averaging will reduce the reported weekly variations in M-1. The Fed also will continue to make public the present weekly figure that is not seasonally adjusted.
No date was set for the switch, which will require the Fed staff to create the new series of numbers for past years and work out seasonal adjustment factors.
Fed Governor Lyle Gramley, who offered the specific proposal the board accepted, said "I think people have been misled into thinking that monetary policy is highly erratic" because the weekly numbers are erratic. Added another governor, Charles Partee, "We don't want to be misleading people" with a "spurious accuracy" that some may attach to the weekly numbers simply because the Fed makes them available.
"It's just playing a game," declared Charles Lieberman of Morgan Stanley & Co., a New York investment banking house. "You hide information by averaging.
"The very first thing we will try to do is to break up the four-week numbers into weekly numbers. If the Fed does not provide seasonal adjustment factors for the weekly numbers, we will calculate our own," Lieberman said.
Economist Allen Sinai of Data Resources Inc. said "the decision symbolically emphasizes what the Fed has said all along: The weekly numbers are not the determinant of monetary policy. They are full of noise."
Echoing Lieberman, Sinai added, "Practically, the change will make very little difference . . . in interest rates or speculative behavior by market participants."
Instead of trying to provide a set of numbers that, because they are averages, will move more smoothly than the present weekly figures, Sinai said the board ought to be providing even more data than is now available. "Really, the right answer is to provide all the information, including the interim money growth targets from the Federal Open Market Committee," the group that sets monetary policy for the Fed, he said. "One could argue this will increase the paranoia in the marketplace."
More than half of the 72 comments received from financial institutions, corporations and others asked that the Fed continue to publish the present numbers. Twenty respondents supported publishing monthly or moving averages.