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Strictly Confidential (FR) Class I FOMC MONETARY POLICY ALTERNATIVES Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System STRICTLY CONFIDENTIAL August 12, 1988 Class I - FOMC MONETARY POLICY ALTERNATIVES Recent Developments (1) In accordance with the Committee's decision at its meeting in late June, the allowance for adjustment plus seasonal borrowing was raised immediately from $550 to $600 million. Actual borrowing, however, averaged about $1.3 billion in the first complete reserve maintenance period following the meeting, reflecting a surge in borrowing over the long July 4 weekend and some subsequent difficulties in assessing reserve availability and demand. In the next two reserve maintenance periods, borrowing averaged close to $600 million.1 Over much of the intermeeting period, federal funds traded primarily in a range of 7-3/4 to 7-7/8 percent--about 1/4 point over the level at the time of the last Committee meeting and also above Desk expectations and the level consistent with previous relationships between borrowing and interest rate spreads. Contributing to upward pressures were market expectations of further near-term restraint on reserve provision in light of strength in incoming economic data. In addi- tion, reserve management by banks turned more cautious in the aftermath of the earlier bulge in borrowing. On August 9, the discount rate was raised 1. Seasonal borrowing has increased to a record level of around $400 million in recent weeks; in addition to the effects of the wider spread between the federal funds and discount rates, agricultural banks are reported by Reserve Banks to be experiencing stronger loan demand, though this is said not to be related substantially to the drought. to 6-1/2 percent. 2 Federal funds, which were trading around 7-3/4 percent at the time of the increase, have risen to around 8-1/8 percent most recently. (2) Other interest rates also have risen substantially over the intermeeting period. Before the discount rate hike, short-term rates generally were up 1/4 to 1/2 of a percentage point--including a 1/2 point increase in the prime rate--somewhat more than the increase in the funds rate. Bond yields, held down to an extent by the effects of a reduced supply of long-term issues in several markets, were unchanged to 1/4 point higher. With some further firming of policy already built into the structure of interest rates, private short-term market rates rose only about 1/4 percentage point more following the discount rate increase, although the prime rate was raised another 1/2 percentage point. Bond yields also have risen by about 1/4 of a percentage point in recent days and broad measures of stock prices have fallen around 3 percent. Some of the initial reaction in capital markets seemed to reflect uncertainty about the eventual extent of policy firming and concern about the response of foreign markets and authorities; these were mirrored in the relatively damped adjustment in Treasury bill rates, which increased only about 15 2. Consistent with incoming data suggesting considerable strength in the economy and pressures on wages and prices, the borrowing objective was increased to $700 million on August 8. However, it was returned to $600 million the next day after monetary policy was firmed through the increase in the discount rate. basis points. Judging from the behavior of risk premiums and the stock prices of banking and thrift organizations, the failure of First RepublicBank and the deepening thrift crisis appeared to have had little overall effect on market assessments of the risk of advancing funds to depository institutions and their holding companies. (3) Responding in part to the firming of monetary policy and to better-than-expected U.S. trade figures for May, the dollar's weighted average exchange value climbed by about 2-1/4 percent over the intermeeting period, . At its peak just following the rise in the discount rate, the dollar was nearly 4 percent above late-June levels, but it has eased off a little in recent days. Some of the strength in the dollar reflected a more general weakness in the mark, even in the face of Bundesbank action that pushed short-term market rates up by nearly a full percentage point over the period. Short-term interest rates in the United Kingdom rose even more, as the Bank of England moved to restrain further a U.K. economy threatening to overheat. Japanese short-term rates increased only slightly. the Desk sold about $3 billion against marks, all before the discount rate increase, divided equally between System and Treasury accounts. 3. In the Treasury's mid-quarter refunding, bidding was reasonably good for 3-year notes on the day of the discount rate increase, but less robust for the 10-year notes the next day. These issues yielded 8.77 and 9.27 percent, respectively, about 15 to 20 basis points above yield levels in when-issued trading prior to the discount rate action. MONETARY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) QIV '87 May June July to July Money and credit aggregates M1 9.8 9.1 5.8 M2 5.2 3.0 6.5 M3 6.3 5.4 6.7 Domestic nonfinancial debt 7.6 7.3 8.3 8.2 13.0 11.1 4.8 Nonborrowed reserves -2.2 4.3 4.7 Total reserves -0.2 5.4 12.1 6.2 10.6 Bank credit Reserve measures Monetary base Memo: (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves 1040 529 902 888 1009 1. Includes "other extended credit" from the Federal Reserve. NOTES: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. Reserve data incorporate adjustments for discontinuities associated with changes in reserve requirements. -5- (4) Money and credit flows in July were affected by the previous tightening of monetary policy and by some short-term adjustments in assets and liabilities by banks, their depositors, and borrowers, partly in anticipation of rising rates. Growth of M2 and M3 slowed last month to 3 and 5-1/2 percent annual rates, respectively, both somewhat less than the Committee's specifications of 5-1/2 and 7 percent for the June-to-September period. The weakness in M2 was concentrated in its overnight RP and Euro- dollar components. Both overnight and term RPs declined last month in conjunction with declines in commercial bank holdings of Treasury securities in trading accounts in late June and early July. The drop in over- night Eurodollars was partly mirrored in a jump in term Eurodollar instruments; banks began issuing term Eurodollars at relatively more attractive rates, perhaps to lock in funding costs. Reflecting the rise in market interest rates and opportunity costs since early spring, growth of retail assets in M2--that is, M2 less demand deposits and overnight RPs and Eurodollars--was around 5-1/2 percent, considerably less than in the first few months of the year. In view of the fairly steep retail deposit yield curve, expansion of retail instruments was surprisingly tilted in favor of liquid deposits--especially other checkable deposits--and may have reflected expectations that time deposit rates would continue to rise. M3 slowed only moderately in July despite a sharp deceleration in bank credit; issuance of managed liabilities in this aggregate was buoyed by substitutions for other sources of funds. Through July, M2 and M3 expanded at 6-1/2 and 6-3/4 percent annual rates from their fourth-quarter bases, leaving them a little above the midpoints of their annual ranges. (5) M1 expanded at a 9 percent annual rate in July, boosted by the strong growth in other checkable deposits. Since the fourth quarter of 1987, M1 has increased at a 5-3/4 percent annual rate. The monetary base accelerated to a 10-1/2 percent annual rate in July, bringing growth for the year to 8-1/4 percent. Strength in the base mainly reflected a surge in total reserves, to a 12 percent rate, partly as excess reserves rebounded. (6) Borrowing by domestic nonfinancial sectors moderated in July, especially in bond markets, where offerings by state and local governments and corporations fell substantially following a surge in June. Business borrowing from commercial banks slowed only a bit last month, but commercial paper of nonfinancial business dropped off sharply. Judging from bank data, consumer borrowing also appears to have slowed last month. Federal borrowing was seasonally light, as the Treasury funded operations in part by a sizable drop in its cash balance; however, the Treasury announced financing plans consistent with a large increase in borrowing in coming months. From the fourth quarter of 1987, domestic nonfinancial debt is estimated to have expanded through July at an 8-1/4 percent rate, below the midpoint of its 7 to 11 percent annual range. Policy Alternatives (7) Two policy alternatives are presented below. Alternative B maintains the current $600 million assumption for adjustment plus seasonal borrowing and alternative C increases intended borrowing to $800 million. Under alternative B, a federal funds rate of around 8 percent would be consistent with the average relationship that prevailed over the first half of this year between borrowing and the funds rate-discount rate spread. However, expectations of a further tightening of policy could persist under alternative B, causing funds to trade somewhat higher, in an 8 to 8-1/4 percent range. Federal funds likely would trade between 8-1/2 and 8-3/4 percent under alternative C, perhaps more toward the lower end of this range if the additional firming acted to dispel expectations of still further near-term policy moves. (8) The table below gives expected June-to-September growth rates of the monetary aggregates under the two alternatives, as well as the implied growth rates from July to September. Also shown are the associated federal funds rate ranges that trigger Committee consultation; both are higher than the current 5 to 9 percent range, to center them more around the expected level of federal funds trading. (More detailed data are shown on the table and charts on the following pages.) As discussed below, under either alternative, growth in M2 and M3 is projected to fall short of the rates specified for June to September at the last FOMC meeting, mainly reflecting the effects of the rise in interest rates over the last six weeks, which was not assumed in constructing the money paths at the last -8- meeting, and the unexpected weakness in bank credit along with associated funding needs. Both alternatives would leave M2 near the midpoint of its long-run range by September, and M3 a little above the midpoint of its range. Alt. B Alt. C Growth from June to September M2 M3 M1 3-1/2 5-1/2 5-1/2 3 5-1/4 4-3/4 Implied growth from July to September M2 M3 Ml 3-3/4 5-1/2 3-3/4 3 5 2-3/4 Associated federal funds rate range 6 to 10 6-1/2 to 10-1/2 (9) Financial markets in recent days have largely built in a federal funds rate of around 8-1/8 percent, although some further adjustments may occur under alternative B. For example, the 3-month Treasury bill rate might edge higher to around 7-1/8 percent as some of the remaining uncertainties about any further responses of capital markets in the U.S. and financial markets and policies abroad are resolved. Bond yields should remain around current levels, especially if the dollar, as expected, continues fairly firm. The dollar could come under downward pressure, however, and bond yields resume their rise, if incoming data suggested that the pace of international adjustment was proceeding considerably less Alternative Levels and Growth Rates for Key Monetary Aggregates M2 M3 M1 Alt. B Alt. C Alt. B Alt. C Alt. B Alt. C 2991.7 3003.3 3016.4 2991.7 3003.3 3016.4 3767.0 3780.7 3800.6 3767.0 3780.7 3800.6 770.1 770.2 776.5 770.1 770.2 776.5 3024.0 3033.6 3042.8 3024.0 3033.1 3039.0 3817.6 3834.8 3852.0 3817.6 3834.4 3849.6 782.4 785.0 787.4 782.4 784.8 785.9 9.8 4.7 5.2 9.8 4.7 5.2 7.2 4.4 6.3 7.2 4.4 6.3 11.3 0.2 9.8 11.3 0.2 9.8 3.0 3.8 3.6 3.0 3.6 2.3 5.4 5.4 5.4 5.4 5.3 4.8 9.1 4.0 3.7 9.1 3.7 1.7 Quarterly Ave. Growth Rates 1987 Q3 Q4 1988 Q1 Q2 Q3 2.8 3.9 6.7 7.8 4.0 2.8 3.9 6.7 7.8 3.8 4.5 5.4 7.0 7.1 5.5 4.5 5.4 7.0 7.1 5.4 0.8 3.9 3.8 6.3 6.5 0.8 3.9 3.8 6.3 6.3 Mar. 88 to June 88 June 88 to Sept 88 July 88 to Sept 88 6.6 3.5 3.7 6.6 3.0 3.0 6.0 5.4 5.4 6.0 5.2 5.0 7.1 5.6 3.8 7.1 4.8 2.7 Q4 Q4 Q4 Q4 7.3 6.3 6.6 6.0 7.3 6.2 6.6 5.9 7.1 6.6 6.7 6.5 7.1 6.6 6.7 6.4 5.1 5.6 5.8 5.4 5.1 5.5 5.8 5.2 Levels in billions 1988 April May June July August September Monthly Growth Rates 1988 April May June July August September 87 87 87 87 to to to to Q2 88 Q3 88 July 88 Sept 88 1988 Target Ranges: 4.0 to 8.0 4.0 to 8.0 Chart 1 ACTUAL AND TARGETED M2 Billions of dollars 3200 Actual Level * Short-Run Alternatives 3150 -- 3100 -- 3050 -4 3000 ^ I O I N 1987 I D I J I I F M I A I M I ^ ^ "I J J 1988 I I A I S I O -1 2950 -1 2900 -- 2850 I N D 2800 Chart 2 ACTUAL AND TARGETED M3 Billions of dollars 4050 Actual Level S * Short-Run Alternatives -- 4000 - 3950 3900 - 3850 - 3800 3750 3700 3650 -1 I O I N 1987 I D I J I F I M I A I M I J 1988 I J I A I S I O I N 3600 3550 D Chart 3 M1 Billions of dollars Actual Level ------ Growth From Fourth Quarter * Short-Run Alternatives - -- 880 15% , -- 860 840 ,'' 10% -- 820 I V -- 800 -- -- -- -- - - -------~,---5% r- -1 780 -4 760 -1 740 I O I N 1987 I D I J I F I M I A I M I J I J 1988 I A I S I O I N D Chart 4 DEBT Billions of dollars 9400 ---Actual Level * Projected Level - 9200 9000 7% - 8800 8600 4. 4. 8400 8200 I O I N 1987 I D I J I F I M I A I M I I J J 1988 I A I S I O I N 8000 D -10- rapidly than previous trade reports had suggested, other data were seen as portending greater odds of inflation pressures, or foreign monetary authorities tightened aggressively. In any case, the long-term Treasury bond yield would tend to move higher, perhaps by 10 to 20 basis points, if the Treasury receives authority to issue more of such securities. (10) M2 under alternative B is expected to increase at a 3-3/4 percent pace over the last two months of the quarter, slightly higher than in July. This speedup is associated with a strengthening in overnight RPs and Eurodollars, already evident in recent weekly data, in part as banks rebuild their government security positions. The retail component of M2 should decelerate in response to wider opportunity costs. Within M2, liquid household deposits, which have begun to soften in early August, are expected to be relatively weak. Small time deposit growth should quicken as the public takes advantage of the more attractive returns offered on fixed-maturity accounts, but not by enough to offset the moderation in liquid deposits. Slower OCD growth, along with weakness in demand deposits as compensating balance requirements are scaled back, should damp M1 expansion over the next two months to an average of just under 4 percent. (11) On a quarterly average basis, M2 growth in the third quarter would be only 4 percent, implying a 3 percent rate of increase in its velocity given the staff's income projection, after a 1 percent rate of decline in the first half of the year. This rebound in velocity largely reflects the turnaround in market interest rates and opportunity costs since early spring. Even if short-term rates remain near current levels, -11- velocity still would be expected to rise further in the fourth quarter. Under these circumstances, M2 would be likely to continue growing at around its third-quarter pace, and to end the year near, though perhaps a bit below, the midpoint of its annual range. While the drought is reducing second-half growth in nominal GNP in the staff forecast, it is not expected to affect appreciably the relationship of money demand to GNP and interest rates. Nonetheless, this relationship is more uncertain than usual, given the effects of the drought in boosting the ratio of final sales to current income; on the one hand, for a given level of income, higher nominal purchases would tend to increase transactions demands for money and depress income velocity; on the other, in order to finance these purchases saving flows and associated acquisitions of financial assets, including those in the monetary aggregates, would be reduced, tending to raise income velocity. (12) Under alternative B, average M3 growth over August and September is projected to stay at its 5-1/2 percent July pace, despite a pickup in bank and thrift credit. Outflows from institution-only money funds are expected to follow the recent rise in market rates, and inflows to Treasury deposits will be holding down needs for managed liabilities. With credit at depository institutions projected to continue in the fourth quarter at around the rates of August and September, M3 could grow at close to a 6 percent rate over the balance of the year, bringing its growth for the year to around 6-1/2 percent. The debt of domestic nonfinancial sec- tors is projected to grow at around an 8 percent annual rate over the -12- remainder of the year, placing it a little below the midpoint of its monitoring range by year-end. (13) The tightening of reserve positions under alternative C immediately following the discount rate hike would be somewhat surprising to market participants and the associated 1/2 percentage point increase in the funds rate probably would show through nearly fully in private money market rates. Nominal bond yields probably would rise by less. This action might allay market concerns about future inflation, implying that the rise in nominal interest rates would reflect at least as large an increase in real rates. The higher real rates would boost the dollar on foreign exchange markets, at least for a time, and the greater foreign demand for dollar assets could cushion somewhat the effects on bond and stock prices. (14) With the higher interest rates of alternative C, M2 is projected to record only 3 percent growth over August and September. The upward movement of rates would slow M2 even further in the fourth quarter, moving this aggregate appreciably below the midpoint of its annual growth range. Growth of M3, by contrast, would probably not be damped enough under alternative C to move below its midpoint, even by year-end. Long- term debt issuance by businesses likely would be more restrained under alternative C, shifting some business credit demands to banks, despite a probable further increase in the prime rate. -13- Directive language (15) Draft language for the operational paragraph, with the usual alternatives for varying degrees of reserve pressure, is presented below. The draft language on possible intermeeting adjustments also has the usual options for symmetry and asymmetry; in the ordering of the factors affecting such adjustments, it retains the implicit emphasis on resisting inflationary pressures adopted at the June meeting. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE SLIGHTLY (SOMEWHAT)/MAINTAIN/increase slightly (SOMEWHAT) the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, developments in foreign exchange and domestic financial markets, and the behavior of the monetary aggregates, somewhat (SLIGHTLY) greater reserve restraint would (MIGHT), or slightly (SOMEWHAT) lesser reserve restraint might (WOULD), be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from June through September at annual rates of about ____AND ____ 5-1/2-and-7] [DEL: percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions -14- during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a [DEL: percent. range of ____TO ____ 5-to-9] August 15, 1988 SELECTED INTEREST RATES (percent A4 -nort-i -- • -U.S. Gov't. constant--- maturity yields-cds federal funds ieme .n- Treasury billssecondary market--- 3 month 6 month 12 month sec mkt 3-month comm. paper 1-month money market mutual fund bank prime loan 3-year --- conventional home--- -mortgages-sec mkt primary market 10-year 30-year corp. A utility rec off muni. Bond Buyer fixedrate fixedrate ARM 87--High Low 7.62 5.95 6.84 5.24 7.36 5.36 7.64 5.40 8.49 5.83 8.12 5.88 6.70 5.28 9.25 7.50 9.29 6.37 9.96 7.03 9.97 7.34 11.50 8.79 9.59 6.92 11.98 8.97 11.58 9.03 8.45 7.47 A--Migh Low 7.84 6.38 6.93 5.61 7.27 5.81 7.48 6.15 8.17 6.58 7.91 6.50 6.97 6.03 9.50 8.50 8.65 7.33 9.21 8.16 9.33 8.40 10.73 9.63 8.34 7.76 10.86 9.98 10.58 9.84 7.90 7.49 HAY 88 JUN 88 JUL 88 6.73 7.22 7.29 6.69 6.77 6.83 6.58 6.58 6.87 7.09 7.51 7.75 6.04 6.40 6.13 5.69 5.77 5.81 5.66 5.70 5.91 6.26 6.46 6.73 6.15 6.64 6.69 6.19 6.36 6.25 5.93 5.91 6.21 6.56 6.71 6.99 6.54 7.11 7.05 6.50 6.69 6.52 6.21 6.28 6.56 6.90 6.99 7.22 6.75 7.37 8.02 7.24 7.66 6.92 6.60 6.63 6.92 7.24 7.94 7.72 6.00 6.22 6.57 6.45 6.57 6.57 6.22 6.04 6.09 6.20 6.51 6.77 8.25 8.70 9.07 8.78 8.75 8.75 8.51 8.50 8.50 8.84 9.00 9.29 8.03 8.67 8.75 7.99 8.15 7.87 7.38 7.50 7.83 8.24 7.51 6.62 7.26 7.38 6.77 7.76 6.76 6.55 6.57 6.80 7.07 7.41 8.44 8.76 9.42 9.52 8.86 8.99 8.67 8.21 8.37 8.72 9.09 8.92 9.06 8.97 9.59 9.61 8.95 9.12 8.83 8.43 8.63 8.95 9.23 9.00 9.14 10.37 10.84 11.07 10.39 10.42 10.05 9.75 9.91 10.23 10.61 10.41 10.40 8.11 8.61 9.06 8.39 8.43 8.11 7.83 8.08 8.22 8.30 8.14 8.15 10.39 11.01 11.42 10.73 10.82 10.43 10.02 10.12 10.44 10.73 10.62 10.64 10.33 10.89 11.26 10.65 10.65 10,43 9.89 9.93 10.20 10.46 10.46 10.43 7.76 7.95 8.25 8.00 7.96 7.85 7.61 7.52 7.58 7.71 7.85 7.84 Meekly HAY 4 88 HAY 11 88 HAY 18 88 MAY 25 88 6.82 7.02 7.04 7.14 6.06 6.28 6.22 6.26 6.39 6.48 6.48 6.65 6.70 6.83 6.85 7.00 7.05 7.17 7.24 7.28 6.89 6.98 7.08 7.08 6.13 6.14 6.27 6.e8 8.50 8.57 9.00 9.00 8.00 8.17 8.20 8.34 8.89 9.02 9.07 9.21 9.13 9.18 9.19 9.33 10.56 10.51 10.73 10.70 8.27 8.26 8.34 8.32 10.68 10.58 10.79 10.86 10.32 10.40 10.52 10.58 7.63 7.66 7.79 7.77 9.27 8.21 8.15 8.10 8.10 8.12 10.73 10,57 10.65 10.53 10.43 10.58 10.51 10.35 10.40 10.39 7.90 7.88 7.79 7.83 7.81 Honthly AUG 87 SEP 87 OCT 87 NOV 87 DEC 87 JAN 88 FEB 88 MAR 88 APR 88 8.22 JUN JUN JUN JUN JUN 1 88 8 88 15 88 22 88 29 88 7.41 7.37 7.43 7.54 7.63 6.44 6.44 6.40 6.42 6.55 6.82 6.71 6.61 6.74 6.75 7.11 7.01 6.89 7.02 7.01 7.47 7.46 7.43 7.53 7.58 7.34 7.36 7.34 7.41 7.50 6.37 6.41 6.50 6.56 6.62 9.00 9.00 9.00 9.00 9.00 8.41 8.25 8.11 8.27 8.23 9.17 8.99 8.84 8.97 8.88 8.95 9.05 8.91 10.43 10.46 10.47 10.36 10.25 JUL JUL JUL JUL 6 88 13 88 20 88 27 88 7.81 7.59 7.83 7.80 6.55 6.65 6.70 6.84 6.72 6.93 7.05 7.10 7.02 7.21 7.26 7.27 7.67 7.85 8.00 8.06 7.58 7.64 7.77 7.79 6.68 6.70 6.83 6.91 9.00 9.00 9.50 9.50 8.18 8.40 8.49 8.53 8.83 9.04 9.11 9.11 8.89 9.09 9.21 9.22 10.39 10.44 10.44 10.41 8.14 8.15 8.16 8.13 10.65 10.65 10.75 10.73 10.38 10.44 10.46 10.49 7.79 7.82 7.89 7.87 AUG 3 88 AUG 10 88 7.84 7.75 6.93 6.93 7.12 7.27 7.33 7.48 8.10 8.17 7.86 7.91 6.94 6.97 9.50 9.50 8.54 8.65 9.08 9.15 9.17 9.18 10.31 10.53 8.05 8.18 10.66 10.97 10.44 10.57 7.90 8.00 7.74 8.15 8.15p 6.92 7.01 7.01 7.24 7.44 7.44 7.47 7.66 7.65 8.14 8.35 8.42 7.85 8.13 8.19 8.62 8.82 8.82p 9.12 9.35 9.36p 9.14 9.40 9.42p Daily AUG 5 88 AUG 11 88 AUG 12 88 9.50 10.00 10.00 9.09 NOTE: Heekly data for columns 1 through 11 are statement week averages. Data in column 7 are taken from Donoghue's Honey Fund Report. Columns 12, 13 and 14 are 1-day quotes for Friday, Thursday or Friday, respectively, following the end of the statement week. Column 13 is the Bond Buyer revenue index. Column 14 is the FNMA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for fixed-rate mortgageslFRHs) with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial contract rate on new commitments for 1-year, adjustable-rate mortgageslARHsI at SILs offering both FRHs and ARHs with the same number of discount points. Strictly Confidential (FR) Class Money and Credit Aggregate Measures Seasonally adjusted AUG. Money stock measures and liquid assets Bank credit nontranactions M1 Period 2 3__ 4 s. 5 Domestic nonfinancial debt1 total loans U.S. and government' other' totar 0 10 12.0 15.6 6.2 8.9 9.4 4.0 7.9 7.4 3.3 3.4 8.1 10.8 7.7 9.1 5.4 0.8 3.9 3.8 6.3 2.8 3.9 6.7 7.8 3.6 3.9 7.7 8.4 11.0 11.3 7.9 4.2 2.4 4.7 1.6 14.0 -5.6 -3.0 2.7 4.7 4.8 5.7 0.8 1.9 2.8 4.9 5.8 2.8 3.0 3.6 12.8 1.1 5.4 11.3 0.2 9.8 9.1 9.9 8.6 8.7 9.8 4.7 5.2 3.0 762.9 770.1 770.2 776.5 782.4 4 11 18 7 6 8.5 8.3 5.2 10.2 9.9 7.8 15.2 14.7 9.0 12.7 12.8 9.8 13.3 13.3 9.6 4.5 5.4 7.0 7.1 4,3 5.7 6.5 8.5 6.2 5.5 5.1 10.8 5.8 7.6 9.3 8.2 8.5 10.9 8.0 8.5 7.9 10.1 8.3 8.4 1.6 10.7 5.9 12.7 20.4 -0.2 2.5 6.0 5.0 7.1 4.8 1.4 0.8 6.4 7.2 8.0 3.1 0.2 Z.5 9.7 8.6 6.0 2.6 -1.0 1.8 8.7 6.5 4.1 13.0 8.3 7.7 7.2 10.1 12.4 11.9 8.8 6.3 7.6 9.2 10.4 12.1 8.7 8.9 11.2 9.9 9.3 6.2 3.7 0.9 2.8 18.4 5.4 -2.6 3.3 10.3 14.5 8.4 10.6 8.0 7.2 4.4 6.3 5.4 10.2 8.6 7.2 11.5 7.6 3.5 6.1 9.3 7.9 11.4 13.0 11.1 4.8 5.3 11.1 15.2 7.1 2.7 5.3 4.2 7.3 6.9 6.7 9.1 10.0 8.4 8.2 6.8 7.9 8.7 8.6 8.3 7.6 7.3 2967.4 2991.7 3003,3 3016.4 3024.0 2204.5 2221.6 2235.0 2239.9 2241.5 777.0 775.3 777.4 784.1 793.6 3744.4 3767.0 3780.7 3800.6 3817.6 4418.5 4460.8 4489.2 4502.3 2274.8 2297.7 2322.5 2343.9 2353.3 2006.6 2018.5 2023.1 2032.1 2039.2 6462.1 6511.2 6565.4 6611.2 6656.4 8468.8 8529.7 8588.5 8643.2 8695.7 777.5 784.9 3021.4 3026.2 2243.9 2241.3 784.2 790.4 3805.6 3816.5 781.6 3022.1 2240.6 795.9 3818.0 25 p 781.9 3022.7 2240.8 797.5 3820.2 1 p 784.4 3027.7 2243.3 795.5 3823.2 QUARTERLY AVERAGE 1987-3rd QTR. 1987-4th QTR. 1988-1is QTR. 1988-2nd QTR. MONTHLY 1987-JULY AUG. SEP. OCT. NOV. DEC. 1988-JAN. FEB. MAR. APR. MAY JUNE JULY p LEVELS ISBILLIONS) MONTHLY 1988-MAR. APR. MAY JUNE JULY p 1. L 1988 investments in M3 only __1 AUG. M3 components in M2 ANN. GROTH RATES (M) : ANNUALLY (Q4 TO 04) 1985 1986 1987 MEEKLY 1988-JULY M2 15, : Debt data are on a monthly average basis, discontinuities. p-preliminary pe-preliminary estimate derived by averaging end-of-month levels of adjacent months, and have been adjusted to remove I OMC F I Strictly Confidential (FR)- Components of Money Stock and Related Measures Class seasonally adjusted unless otherwise noted Small Period : LEVELS (SBILLIONS) ANNUALLY (4TH QTR. 1985 1986 1987 Other checkable deposits Overnight RPs and Eurodollars NSA1 MMDAs NSA Savings deposits 1 2 3 4 5 6 166.9 179.3 194.9 263.5 291.7 176.8 228.6 259.7 189.0 190.2 191.4 292.3 292.1 290.5 255.6 257.2 258.6 OCT. NOV. DEC. 193.1 195.0 196.5 295.9 291.3 288.0 1988-JAN. FEB. MAR. 198.4 199.3 200.9 APR. HAY JUNE JULY p MONTHLY 1987-JULY AUG. SEP. 1. 2. 3. 4. Currency Demand deposits 67.2 AUG. Money market denomimutual funds NSA nation general Institutime purpose tions deposits1'and broker/ only dealer3 7 a II FOMC 15, 1988 Large denomination time deposits' 10 Term RPs NSA' Term Eurodollars NSA' Savings bonds Shortterm Treasury securities Commercial paper1 Bankers accep. tances it 12 13 14 I5 Is 509.9 569.2 528.9 299.9 362.2 415.4 858.9 899.4 176.8 207.6 219.7 64.1 84.7 87.2 433.9 441.5 479.2 62.7 82.2 106.8 77.6 81.0 92.2 78.9 89.7 99.4 292.3 283.8 266.8 201.6 228.5 255.2 43.2 37.8 45.1 83.4 549.4 545.0 540.5 415.5 417.8 418.6 859.1 865.9 872.1 210.6 213.1 216.3 83.8 84.0 81.3 460.2 462.4 465.3 107.0 107.4 109.1 84.5 90.2 94.5 97.5 98.1 98.4 254.8 258.9 263.7 251.8 251.8 256.6 43.4 43.5 44.3 260.3 259.5 259.3 86.0 79.7 78.0 533.9 527.7 525.2 417.0 415.0 414.3 883.3 901.7 913.1 218.2 219.7 221.1 82.5 89.5 89.6 472.3 480.5 484.7 106.1 108.7 105.5 93.0 92.8 90.8 98.8 99.3 100.2 272.7 269.7 258.0 254.2 252.5 258.9 44.5 45.0 45.7 289.9 287.8 287.9 263.3 265.0 266.9 82.8 78.0 74.8 524.1 522.6 524.7 414.4 416.2 419.8 924.6 941.5 953.5 225.0 231.0 234.9 94.4 98.7 97.4 482.9 489.7 491.5 106.0 109.9 107.3 85.3 85.2 89.4 101.4 102.6 103.5 259.9 255.0 249.7 269.0 274.1 280.3 43.6 40.9 40.6 202.5 203.6 204.9 290.2 287.4 289.9 270.1 271.9 274.4 76.6 80.9 80.0 523.3 519.6 522.3 422.7 425.1 429.0 964.8 972.0 974.9 236.1 232.7 229.8 91.9 90.0 86.3 492.9 495.9 501.5 108.1 111.1 111.0 88.7 91.0 92.8 104.6 105.4 106.1 259.7 258.6 248.2 288.2 303.9 307.4 41.2 40.6 40.0 206.3 290.6 278.3 76.1 521.0 431.7 977.8 230.4 84.8 509.0 110.5 94.4 294.6 78.0 81.2 75.7 79.8 877.1 Net of money market mutual fund holdings of these items. institutions are subtracted from small Includes retail repurchase agreements. All IRA and Keogh accounts at commercial banks and thrift Excludes IRA and Keogh accounts. Net of large denomination time deposits held by money market mutual funds and thrift institutions. p-preliminary time deposits. STRICTLY CONFIDENTIAL (FR) CLASS II--FOMC Net Changes in System Holdings of Securities1 Millions of dollars, not seasonally adjusted August 15, 1988 Treasury bills Treasury coupons Net purchases s Period Net purchases2 Redemtions (-) 1986 8,698 15,468 11,479 18,096 20,099 1987 12,933 3,000 2,400 7,700 3,500 1,000 9,029 1987--Q1 Q2 03 04 -1,914 800 1982 1983 1984 1985 5,823 4,690 1988--01 319 1987--Dec. 150 1988--Jan. Feb. Mar. Apr. -192 560 423 -49 Netchange 5,698 13,068 3,779 14,596 19,099 3,905 8,229 -- 2,200 312 600 1,600 1,349 190 3,358 893 9,779 2,441 -252 5,036 2,356 2,639 1,226 619 596 -3,539 1,767 143 4,334 1,449 -1,881 S 479 150 308 890 236 358 236 826 5,823 over 10 10 1,797 1,896 1,938 2,195 484 -2,714 - 4,334 within within -yearover -800 2,589 .. Redempions (-) 307 383 441 293 Federal Net change outright agencies Netchang redemptions holdins Net cange ) total 189 292 8,312 1,461 16,342 -5,445 398 276 6,964 18,619 20,178 20,994 1,450 3,001 10,033 -11,033 8,948 3,610 5,059 110 37 59 70 -3,076 14,735 12 9,323 -14,254 2,121 -1,433 2,533 -975 155 -3,011 -3,514 2,803 3,566 3,440 4,185 1,476 17,366 158 1,858 256 162 -252 920 493 445 -175 596 445 - 4,109 13 4,246 -1,629 131 21 -780 -2,788 557 7,040 -11 -4,807 1,247 45 9,111 -10,575 -649 -1,792 -800 -175 -975 3,661 1,017 6,737 3 560 423 1,092 120 11 May June July 25 June 1 515 515 -5,941 -7,614 2,462 1,403 -3,034 7,328 15 22 29 Meno: -3,761 - 8 Aug. 6,683 - 515 May JJuly Net RPs5 222 176 51 6 13 20 27 -3,571 66 -4,012 -3,261 -- 2,825 -876 - 3 10 S 6 LZVEL (bil.$) Aug. 10 20.5 111.5 54.5 4. 1. Change from end-of-period to end-of-period. 2. Outright transactions in market and with foreign accounts. 3. Outright transactions in market and with foreign accounts, and short-term notes acquired in exhange for maturing bills. Excludes maturity shifts and rollovers of maturing coupon issues. 15.5 26.5 -5.8 235.7 117.0 ______ A-_ __ _ __ _ 4. Reflects net change and redemptions (-) of Treasury and agency securities. 5. Includes changes in RPs (+). matched sale-purchase transactions (-), and matched purchase sale transactions (+). 6. The levels of agency issues were as follows: within over to 7 12.7 -year IS 3.2 5-10 ovr 2.7 3.2 1.2 .2 1 7.2
@FedFRASER