The Washington Post Monday, August 5, 1985 A13  
The recent decision by the Federal Reserve BoardÛªs Open Market Committee not to apply monetary brakes despite a surge in the money supply since last winter is not only a major shift in monetary strategy but also a daring gamble.</br></br>The strategy may provide just the stimulus the economy will need to maintain the recovery in 1986. But it carries with it the risk of a sharp increase in inflation, especially if significant deficit reduction is not forthcoming.</br></br>In testimony to the House Banking Committee, Fed Chairman Paul Volcker sketched out the background conditions leading to the policy change. During the first half of this year, the basic measure of the money supply. MlÛÓor currency and checkable depositsÛÓhas increased much more rapidly than anticipated. And after April that increase became even more pronounced.</br></br>The response of the Fed to this increase in the money supply has been unusual, though not unprecedented. The normal Fed reaction to unexpectedly rapid growth in money should be to take counteractive, contractionary measures. Instead, the Fed has said, in effect, letÛªs start all overÛÓletÛªs keep the same general target range for the money growth rate that was set at the beginning of the year, but start that growth from the new, higher level of the money stock that resulted from the rapid increase of money since the year began.</br></br>For the rest of this year, the Fed will aim to keep the annual rate of increase of Ml in a range of 3 to 8 percent. But because that increase is now starting from a higher level, the increase in the money stock for 1985 as a whole will be more than 8 percent, even if the Fed is able to stay at the midpoint of its target range for the remainder of the year.