As economic expansion progressed, financing
in the credit markets rose, along with the
demand for transactions balances. Growth in
the narrow money supply (M-1) was close to
71/2 percent for the year, the largest since 1972.
In an effort to reduce monetary growth to a
pace consistent with a lower rate of inflation,
the Federal Reserve supplied the reserves that
supported the deposit expansion at only a
slightly higher cost to the banking system.
Although short-term interest rates moved up
from the cyclical lows reached late in 1976,
funds were in plentiful supply as evidenced
by the record amount raised in the credit
market. I ntermediate- and long-term interest
rates ended the year at levels inside or below
their range of fluctuation in 1976.