Money Supply Drops $2.6 Billion in Week

NEW YORK — The nation’s basic money supply fell $2.6 billion in the week ended Jan. 19, the Federal Reserve Board reported Thursday.

The drop was in line with estimates made by most analysts and had no effect on credit markets.

The Fed said the basic money supply, known as M1, fell to a seasonally adjusted level of $732.2 billion from a revised $734.8 billion the previous week. The money supply for the week ended Jan. 12 was reported originally as $734.4 billion.

M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.

For the latest 13 weeks, M1 averaged $723 billion, an 18.5% seasonally adjusted annual rate of gain from the previous 13 weeks.

The decline was in line with expectations and had no effect on the bond markets, said William Sullivan, director of money market research at Dean Witter Reynolds.

Most analysts surveyed before the Fed’s announcement by Money Market Services Inc. of Redwood City, Calif., predicted that the money supply would decline between $1.5 billion and $3.5 billion, with an estimated median of $2.8 billion.

Sullivan said there was some negative reaction to another Fed announcement that discount window borrowings averaged $744 million in the week ended Wednesday, up from $180 million in the previous week. Sullivan said the figure set off some selling in the Treasury bill market as traders speculated that the Fed would tighten credit after the jump in borrowings.