U.S. M-1 Money Supply Surge Expected Next Week

The U.S. M-1 money supply number to be announced next Thursday is expected to show one of the largest one-week increases in history, analysts said.

The average forecast of economists polled by Reuters calls for a 17.7 billion dlr M-1 jump for the week ended April 20. Estimates of the increase range from five billion dlrs to 26.3 billion dlrs.

“The M-1 surge will be very temporary. About two thirds of the increase is likely to be washed out in the following week,” said Kim Rupert, an economist at Money Market Services Inc.

Rupert said a huge increase in M-1 for the April 20 week is implied by very strong deposit survey data and by an unexpectedly sharp gain in required reserves in Federal Reserve data released Thursday.

Those numbers, covering the two-week bank statement period that ended on April 22, show a 2.5 billion dlr jump in basic required reserves. Economists said this largely reflected the parking in checking accounts of the proceeds from stock market sales and mutual fund redemptions to pay annual income taxes. Fed seasonal adjustments do not adequately compensate for these and other special factors.

Analysts noted that income tax refunds from the Treasury also appear to be coming earlier than usual.

They also are not adequately compensated for by the Fed’s seasonal adjustment factors to the money supply.

The Federal Reserve is no longer targeting M-1 because the link between M-1 and economic growth has largely been severed by financial market innovation and deregulation.

As such, there is likely to be little financial market reaction to the huge M-1 increase that is expected to be announced next week.