News of Slower Economic Growth, Drop In Money Supply Drive Up Bond Prices
NEW YORK -- Bond prices rallied yesterday amid fresh signs of slower economic growth and an unexpected $2.1 billion drop in the nation's money supply.</br></br>Analysts say these developments increase the chances that the Federal Reserve System will keep its credit policy unchanged. Until recently, many investors had feared that vigorous economic activity and rapid money growth would prompt the Fed to tighten its credit hold and drive up interest rates.</br></br>The Commerce Department yesterday estimated that the economy is growing at only a 2.1% annual rate this quarter, down from a 4.3% clip in last year's fourth quarter. The department's preliminary, or "flash," estimate was well below the rate of about 4% that many analysts had been expecting.</br></br>Prices of some Treasury bonds rose almost 3/4 of a point, or nearly $7.50 for each $1,000 face amount. Most short-term interest rates declined. The economic and money-supply figures are "good news for the bond markets because they mean, at least for the short term, that there is no real threat the Fed is going to be cranking up interest rates," said Robert A. Brusca, a vice president and economist at Irving Trust Co.</br></br>Donald E. Maude, chief economist at Refco Partners, agreed that the figures "take a little pressure off the Fed" to tighten credit conditions. But he argued that all they do is "buy the Fed more time." He contended that the economy and money-supply growth will reaccelerate, forcing the central bank to adopt a tougher credit policy by late next month.