Only a $3 billion error
Never had a clerical goof come at so inopportune a time. Less than a month after the Federal Reserve Board unfurled harsh new measures to whip inflation by holding down the money supply, chagrined Fed officials last week revealed that previously reported money figures had been overstated by $3 billion. Instead of surging in the past two weeks, the money stock had actually declined.
New York’s Manufacturers Hanover admitted to causing the error. The bank blamed employees’ unfamiliarity with a new form used for deposit reports to the Fed. Despite its cluster of computers, the multinational giant was as fallible as any citizen trying to balance a checkbook.
The foul-up was not amusing to people who lost millions during October in stocks and bonds. When the overly inflated money numbers were first published, markets plunged for fear that the Fed would rapidly tighten credit and push up interest rates. The nation’s central bank responded on cue by draining reserve funds from the banking system.
The Reserve Board insists that it puts little emphasis on weekly figures, which have always been subject to revision. But investors may logically wonder how the Fed can smoothly control money if its economists cannot be sure—within several billions—what the supply is from week to week.
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