Bond Prices Fall on News of Big Jump In Money Supply for Week and Month
NEW YORK -- Bond prices slumped yesterday after the Federal Reserve System reported an unexpectedly large increase in the nation's money supply.</br></br>Prices of some actively traded Treasury bonds fell about 1/2 point, or around $5 for each $1,000 face amount. But most short-term interest rates were little changed.</br></br>The basic money supply, known as M1, jumped $1.4 billion in the week ended Sept. 2, leaving it far above the Fed's target. The Fed also reported M1 soared at a 20.5% annual rate in August. Most analysts had expected little or no change in M1 in the Sept. 2 week.</br></br>The $1.4 billion spurt "was a major disappointment," said Elliott Platt, senior vice president and economist at Donaldson, Lufkin & Jenrette Inc. The growth of money is a "definite negative" for the credit markets, he said.</br></br>With the economy showing signs of rebounding from a sluggish first-half performance, many analysts argue that the Fed may soon tighten credit conditions, pushing up interest rates, in an attempt to slow money growth. "If the economy continues to strengthen, the Fed will have to pay attention to the money supply," Mr. Platt said.