Fed to Shorten 'Lag' in Money Supply Report: Fed Shifts Accounting Method Of Short-Term M
The Federal Reserve Board, in an attempt to improve short-term control of the money supply, yesterday decided to eliminate most of the two-week lag between the time a financial institution receives a deposit and the time it must place a portion of it with the Fed as a reserve.</br></br>Some Reagan administration officials, including Treasury Secretary Donald T. Regan, have heen pressing the Fed to shift from the present lagged reserve accounting approach to so-called contemporaneous reserve accounting. The officials and most monetarist economists maintain the switch will greatly improve the FedÛªs ability to hit its money supply targets on a month-to-month or quar-ter-to-quarter basis.</br></br>Secretary Regan, who called yesterdayÛªs action ÛÏwelcome news,Û has blamed the FedÛªs inability to control money growth month-bv-month for causing the current severe recession.</br></br>However, none of the five Fed governors who voted for the change ÛÏin principle,Û including Chairman Paul A. Volcker, claimed it would provide more than a small marginal improvement in money control. Two governors, Lyle E. Gramley and Nancy H. Teeters, opposed the change on the grounds it would increase the volatility of interest rates and would cost financial institutions many millions of dollars to implement.</br></br>The purpose of the change is to make financial markets respond more quickly to Fed efforts to bring money growth back on track if it starts increasing either too rapidly or too slowly.