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Money Supply Fell $3.2 Billion

December 19, 1985

NEW YORK (AP) _ The nation’s basic money supply fell $3.2 billion early this month, the Federal Reserve Board said Thursday, but the drop was largely viewed as a technical correction and the overall growth figure remained above government targets.

The Fed said the measure of money readily available for spending, known as M1, fell to a seasonally adjusted $623 billion in the week ended Dec. 9 from a revised $626.2 billion the previous week. The previous week’s figure originally was reported as $626.1 billion.

M1 includes cash in circulation, checking deposits and non-bank travelers checks, and can be an indicator of federal monetary policy. The Fed tries to provide enough money to stimulate the economy without reviving high inflation.

For the latest 13 weeks, M1 averaged $614.7 billion, a 9.7 percent rate of gain from the earlier 13-week period. The Fed has said it wants to see M1 grow betwen 3 percent and 8 percent from the second through the fourth quarter.

Analysts had anticipated the latest drop and interpreted it mainly as a compensation for an unusually large $5.3 billion surge reported for the week ended Dec. 2. They said the decline had no effect on the credit markets.

″It was primarily a correction of last week’s number,″ said Lance Brofman, chief economist at Donald Sheldon Inc., a New York investment firm. ″Whenever you have a weird number one week, you get a correction the next.″

The previous weekly figure was bloated because of Thanksgiving, when many corporate money managers skipped work the Friday after the holiday and left a large amount of money in checking accounts instead of weekend investments.

Some analysts saw more significance in banking reserve figures, which showed borrowings from the federal reserve system averaged $317 million in the two-week period ended Wednesday, the lowest in several months.

″In my opinion, this is indicative of the Fed’s inclination to add more reserves to the banking system and alleviate pressure on the cost of money,″ said Maria Ramirez, an analyst at the investment firm Drexel Burnham Lambert Inc. in New York.

In other reports:

-The Federal Reserve Bank of New York reported commercial and industrial loans at major New York City banks fell $981 million in the week ended Dec. 11, compared with a gain of $1.097 billion a week earlier.

-The Federal Reserve said that the federal funds rate, the interest rate on short-term loans between banks, averaged 8.05 percent in the week ended Wednesday, up from 8.03 percent the previous week.

-The Federal Reserve said bank borrowings from the Federal Reserve System averaged $471 million in the week ended Wednesday, up from $163 million the previous week.

-The Federal Reserve said total adjusted reserves of member banks averaged $44.732 billion in the two weeks ended Wednesday, down from $45.034 billion in the prior two-week period.

-The Federal Reserve said the banking system averaged free reserves of $480 million in the two weeks ended Wednesday, compared with net-borrowed reserves of $1.377 billion for the previous two weeks.

-The Federal Reserve Bank of St. Louis reported that the monetary base, the seasonally adjusted total of member bank reserves held at Federal Reserve banks and cash in bank vaults and in circulation, was $234.3 billion in the week ended Wednesday, down from $236.3 billion a week earlier.

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