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Money Supply Falls $1.5 Billion

June 28, 1985

NEW YORK (AP) _ The $1.5 billion decline in the nation’s money supply in mid-June was the first weekly drop since April, but analysts expect it will have little impact on the conduct of the Federal Reserve’s monetary policy.

The decline, which had been widely anticipated, left the money measure above the Fed’s growth targets.

″It’s steady as you go,″ William Sullivan, director of market research at Dean Witter Reynolds Inc., said after Thursday’s report.

″This particular decline was helpful. It was a welcome break, but it should have no policy significance,″ he said.

The late-afternoon report had little impact on bond prices, which were up strongly for the day.

Raymond Stone, manager for financial economics at Merrill Lynch Capital Markets, said, ″We think the worst of the money news is behind us, and that money growth will be slower ahead than it has been in recent months. It sets the stage for slower money growth in July.″

The Fed said M1 fell to a seasonally adjusted average of $589.3 billion in the week ended June 17 from $590.8 billion the previous week. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

It was the first decline in the M1 measure since a $900 million fall in the week ended April 29, the Fed said.

For the latest 13 weeks, M1 averaged $579.7 billion, a 9.5 percent seasonally adjusted annual rate of gain from the previous 13 weeks.

The Fed has said it would like to see M1 grow between 4 percent and 7 percent from the fourth quarter of 1984 through the fourth quarter of 1985.

It has set the growth targets in an effort to assure steady, non- inflationary economic growth.

But the money supply has been growing much more rapidly than the Fed’s targets in recent weeks. Analysts have blamed late tax refunds this year for part of the recent money bulge.

″The number doesn’t change anything,″ said Elliott Platt, a fixed-income analyst for Donaldson Lufkin & Jenrette Securities. ″We had 13.8 percent money growth for May and we’ll probably have close to that in June.″

In other reports:

-Commercial and industrial loans on the books of the leading New York banks rose $317 million in the week ended June 19, according to the New York Federal Reserve Bank. That compared with a decline of $350 million the previous week.

-Commercial paper outstanding nationally rose $63 million in the week ended June 19, following a decline of $130 million the previous week.

-The nation’s banking system averaged free reserves of $208 million in the two weeks ended June 19, compared with free reserves of $202 million in the previous two-week period.

-Borrowings from the Federal Reserve System averaged $511 million in the two-week period ended June 19, down from $604 million in the previous two-week period.

-Total reserves averaged a seasonally adjusted $41.98 billion in the two weeks, up from $41.57 billion in the prior two-week period.

-Borrowings from the Fed averaged $242 million in the week ended Werdnesday, down from $620 million the previous week.

-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 $226.2 billion, down from $227.0 billion a week earlier.

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