U.S. MONEY GROWTH SLOWS SHARPLY, ECONOMISTS SAY

  U.S. money supply growth is slowing
  down rapidly, and some economists believe that all three of the
  Federal Reserve's main monetary aggregates may even have
  contracted in February.
      A contraction is unlikely to be a major concern for the
  Fed, especially as it would follow a long period of torrid
  growth, but it could give the central bank extra leeway in the
  weeks ahead if it decided that a relaxation of monetary policy
  was justified on account of weakness in the economy.    
      M-1 money supply for the week ended February 23, reported
  today, rose 1.9 billion dlrs to 738.5 billion, but preliminary
  forecasts call for a drop next week of around two billion dlrs.
  The monthly average in January was 737.1 billion dlrs.
      M-1 makes up about a quarter of M-2 and a fifth of M-3.
  With other components of M-2, such as money-market deposit
  accounts and small time deposits, also falling, the stage is
  set for falls in the broader aggregates too, economists say.
      M-1 has been largely discredited because its traditional
  link to economic growth has disintegrated under the impact of
  falling interest rates and banking deregulation.
      But the consistent behavior of all three aggregates is
  likely to impress the Fed, said Ward McCarthy of Merrill Lynch
  Economics Inc.
      "The Fed has confidence in the aggregates when they're all
  sending the same signal. This is going to raise some eyebrows
  at the Fed," McCarthy said.
      Stephen Slifer of Shearson Lehman Brothers Inc added, "We
  have some very good-looking monetary aggregate data. It's
  coming in a lot weaker than I thought."    
      The economists were quick to caution that one month's data
  prove nothing, especially because money growth previously had
  been so rapid. M-1 in the last 52 weeks has grown at a 16.7 pct
  rate and at a 19.1 pct rate in the past 13 weeks.
      Moreover, some of the contraction in M-2 can probably be
  explained by a shift of funds from savings vehicles into the
  booming stock market and is thus not an indication of a
  slowdown in the business expansion.
      But the data raise the tantalizing possibility for the bond
  markets that the slowdown in money growth is partly a
  reflection of a weaker economy that needs more Fed stimulus.
      McCarthy noted that the slower money growth coincides with
  signs that the economy is losing momentum as the quarter
  progresses. "Some of the economic indicators are not as rosy as
  they were a month ago," he noted.
      He expects only five to six pct M-1 growth in March and
  rises in M-2 and M-3 of about four pct.
      Slifer sees stronger growth of 10 pct in M-1 and five pct
  or less for M-2 and M-3, but the rates would still be moderate
  enough to encourage the Fed to ease policy if gross national
  product for the first quarter proved to be weak. "You'd
  certainly be more inclined to ease than you would in the past."
      There was certainly nothing in the Fed's latest balance
  sheet, however, to suggest a change of policy is already under
  way, economists said. Discount window borrowings were in line
  with expectations at 233 mln dlrs a day.
      Robert Brusca of Nikko Securities Co International Inc
  argued that an easier Fed policy is unlikely to do much to
  solve America's most urgent economic problem, its massive trade
  deficit. Because of the possibility that further dollar
  depreciation - and thus rising inflation - may be needed to
  close the trade gap, Brusca said "I'm not prepared to be all
  that optimistic about the bond market."
  

