WASHINGTON -- A strange thing has happened while the economy surged during the last year. The money supply -- the raw fuel for businesses and consumers -- has hardly grown at all.

Financial analysts are increasingly intrigued by this apparent contradiction, and some are warning that the slowdown in the money stock is signaling that a sour economy will set in sometime next year. "There are increasingly worrisome signs that the U.S. economy will have a hard landing in 1995, not a soft landing," says Lacy Hunt, chief economist for HSBC Holdings Inc.

In the last year, the economy has rolled along at a 4.3% clip -- well above the safe, noninflationary pace of 2.5% favored by Federal Reserve officials. The Fed has responded by raising interest rates six times this year.

At the same time, growth in the money supply has been weak as the Fed's policy of tighter credit squeezed the supply of reserves in the banking system. With demand for credit rising, banks and other financial institutions have responded by charging higher loan rates.

The total level of bank reserves was down 0.8% in October compared with a year earlier. Growth in M1, the narrowest measure of money that includes currency and checkable deposits, slowed throughout the year and was up only 3.2%. M2, a broader measure that includes small-time savings deposits, was up only 1.3%.

James Coons, chief economist for Huntington National Bank in Columbus, cautions that some of the sluggishness in the money supply reflects the drying up of home mortgage refinancings. A year ago, low rates caused a boom in refinancings that turned over cash to many home owners.

Still, Coons is keeping an eye on the money supply figures and the rise in rates. In a letter headlined "Danger Zone" that he sent out to clients, he warned that although the Fed may raise rates further, "every move beyond this point adds to the risk that monetary policy will derail economic growth."

Fed chairman Alan Greenspan and his colleagues have played down the importance of the money supply as an indicator of the economy's course because neither M1 nor M2 incorporates the money that is poured into stock and bond mutual funds.

The rise in rates has sent stock and bond investors scurrying for cover, and last week total assets in money-market funds hit an all-time high. Banks are also luring back customers with certificates of deposits paying over 6%.

But this is a recent phenomenon, and it does not explain how banks got the funds to lend readily to businesses and individuals over the last year while the money supply was weakening. One explanation is that they sold off some of the government bonds that they purchased in the past few years when credit demand was weak.

Edward Yardeni, chief economist for C.J. Lawrence, says bank holdings of Treasury securities soared from $398 billion at the end of 1989 to $763 billion in April. These holdings were down $35 billion to $728 billion by early November.

Yardeni says that despite the rapid pace of consumer borrowing and bank lending, total borrowing levels remain moderate. The large international banks have also been able to transfer funds from their overseas branches and put the money to work in the United States, he says.

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