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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 (FR) August 12, Class I - FOMC 1994 MONETARY POLICY ALTERNATIVES Recent Developments1 (1) Consistent with the Committee's decision to maintain the existing degree of pressure on reserve positions, the intended federal funds rate was kept unchanged at 4-1/4 percent during the intermeeting period. The allowance for adjustment and seasonal borrowing was raised in several steps over the period, by a total of $125 million, to accommodate increasing demands for seasonal credit. The federal funds rate averaged 4.28 percent in the intermeeting period. 2 (2) Other market interest rates showed mixed changes over the intermeeting period. Rates generally edged lower in the first half of July, after the FOMC left policy unchanged at its meeting and as incoming data seemed to suggest continued moderation in aggregate demand and a lower trajectory for System firming. upper panels of chart.) (See However, after the Chairman's Humphrey- Hawkins testimony and the strong employment report made substantial near-term tightening appear considerably more likely, rates began to back up. Most of the net rate increases over the intermeeting period were registered on short-term Treasuries, which may have been affected as well by expectations of a large swing in bill issuance from the second to the third quarter. Expected bond market volatility con- tinued to decline (chart), helping to hold down long-term yields, and spreads on the standard mortgage instruments stayed relatively nar- 1. noon, 2. above since Financial market quotations in this section are taken as of Friday, August 12. Adjustment plus seasonal borrowing averaged about $22 million its allowance in the two complete reserve maintenance periods the last FOMC meeting. Chart 1 Federal Funds Futures Percent Current Month t+1 t+2 t+3 t+4 t+5 7/12 7/1 Implied Bond Volatility Weekly 7/22 1994 8/2 8/12 Treasury Yield Curves Percent Percent FOMC FOMC FOMC July FOMC F -. Feb Mar Apr May 1994 Jun Jul Aug 3mo 3 5 7 10 row. With corporate profit reports for the second quarter gener- ally better than expected, most stock prices rose 3 to 4 percent over the intermeeting period. (3) The weighted-average foreign exchange value of the dol- lar was little changed, on balance, over the intermeeting period. The currency continued to move lower in early July but seemed to gain some support from statements about the desirability of a stronger dollar by U.S. Treasury officials and by Chairman Greenspan at the HumphreyHawkins hearing. In Japan most interest rates rose 20 to 25 basis points in response to increasing indications of a turnaround in the Japanese economy. Three-month interest rates showed little net change in Germany, but bond yields there rose 25 basis points. Bond yields in Europe generally increased sharply late in the period in the wake of discount rate increases in Italy and Sweden intended to support the lira and the krona. ; the Desk did not intervene. (4) Growth of all of the monetary aggregates in July was considerably stronger than projected at the time of the last FOMC meeting; although data for early August suggest a return to subdued expansion, on balance the broad aggregates remain above expected levels. M2 and M3 increased at 5 and 6 percent rates, respectively, last month, leaving these aggregates slightly above the lower ends of their annual ranges. Despite the likely depressing effects of declin- ing mortgage refinancings and compensating balances, demand deposits expanded at a rapid pace last month, helping to boost M1 growth to a 3. The thirty-year Treasury bond yield fell 12 basis points over the intermeeting period, but some of this decline reflected the effects of a shift to a newly auctioned bond at the end of the period. 7-1/2 percent rate.4 In addition, a jump in overnight Eurodollars buoyed the nontransaction components of M2 and M3. Even aside from these volatile components, however, M2 accelerated in July, perhaps owing partly to a resumption of runoffs in bond mutual funds.5 Flows into money market funds were particularly strong, likely benefitting from their close substitutability with bond funds within a family of funds. In addition, the contraction of savings and MMDAs slowed a bit, and the expansion of other checkable and small time deposits picked up in July, perhaps partly reflecting a greater appreciation of the protection of principal in deposits. Rates on small CDs continued to increase, but their response to rising market rates this year has been unusually sluggish, and an especially wide gap to market rates remains. The continuing attraction of direct holdings of short- and intermediate-term market instruments is indicated by persistently high levels of noncompetitive tenders in Treasury auctions. Rather than bid aggressively for retail deposits, banks have relied on wholesale sources--especially funds raised by their foreign offices and, recently, in the domestic large CD market-to finance increases in bank credit. (5) Bank credit surged in July. Growth of security holdings rose, but that pickup primarily reflected revaluation of banks' offbalance sheet positions; banks reduced their holdings of U.S. govern- 4. Total reserves and the monetary base increased in July at 1-3/4 and 8 percent rates, respectively, with currency growth remaining at a robust 10-1/4 percent pace. 5. M2 plus bond and stock mutual funds is estimated to have expanded at a 3-3/4 percent rate last month. This aggregate has increased at a 1 percent pace since the fourth quarter of 1993. ment securities slightly.6 Much of the jump in overall bank credit growth was accounted for by a strong pickup in lending. loans rose at an 17 percent annual rate. Business According to responses to the August Senior Loan Officer Opinion Survey, demand for business loans has increased, reflecting needs to finance inventory and fixed investment. Reduced financing in the capital markets as well as bor- rowing to finance mergers also appear to have prompted a portion of the recent growth in business loans.7 In the household sector, consumer loans expanded sharply at banks in July, suggesting that overall consumer credit about maintained June's strong pace. In the aggregate, the expansion of the debt of nonfederal sectors is estimated to have continued in recent months at about the 5 percent pace of earlier this year. From the fourth quarter of 1993 through June, total debt rose at a 5-1/2 percent rate, leaving this aggregate well within its 4-to-8 percent monitoring range. 6. An interpretation by the Financial Accounting Standards Board (FIN 39) requires banks to include on their balance sheets the net value of off-balance-sheet contracts with each individual counterparty. If the net value of contracts with a given counterparty is positive, it is included in "other securities holdings" on the balance sheet; if negative, it is reported as a liability. In contrast to the first three months of this year, when banks were phasing in such reporting, the bulk of the rise in "other securities holdings" in July reflected a revaluation of existing positions. Such a rise does not necessarily indicate an increase in bank net worth, however, as offsetting changes may have been recorded on the liability side. 7. The loan officer survey also suggests that banks continued to ease terms and standards on business loans over the past three months. MONEY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) QIV. May June July to July Money and credit aggregates M1 1.9 3.7 7.6 4.3 M2 .3 -3.2 4.9 1.6 -1.8 -1.1 6.0 0.6 4.8 4.2 5.1 5.2 6.7 4.7 ---- 5.4 6.2 5.1 1.7 3.2 12.6 7.2 -9.9 -6.7 -0.7 -1.7 -8.4 -4.0 1.8 -1.0 7.6 7.7 8.0 9.1 borrowing 200 333 458 Excess reserves 915 1105 1086 M3 Domestic nonfinancial debt Federal Nonfederal Bank credit Reserve measures Nonborrowed reserves 2 Total reserves Monetary base Memo: (Millions of dollars) Adjustment plus seasonal QIV to June for debt aggregates. Includes "other extended credit" from the Federal Reserve. NOTE: 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. Monetary Policy Alternatives (6) Three monetary policy alternatives are presented for consideration by the Committee. Under alternative B, federal funds would continue to trade around 4-1/4 percent in association with retaining the $450 million allowance for adjustment plus seasonal borrowing.8 Under alternative C, the federal funds rate would be raised to 4-1/2 percent and the initial borrowing allowance to $475 million. Under alternative D, the funds rate would be moved to 4-3/4 percent, either through an increase in the initial borrowing allowance to $500 million or a hike in the discount rate to 4 percent and unchanged adjustment plus seasonal borrowing. (7) In the staff economic forecast, the federal funds rate rises a full percentage point by early next year and remains at that higher level over the balance of 1995. The economy is already essen- tially at potential, and aggregate demand will continue to be bolstered by, among other factors, the aggressive lending posture adopted by banks and by foreign demands for the U.S. goods and services owing to the lower dollar and stronger growth abroad. In these circum- stances, further policy tightening is seen as needed to hold total output at potential to keep inflation from rising. The Greenbook rate assumption does not necessarily entail a tightening at the August FOMC meeting itself, but it does imply that the upward trajectory of shortterm rates will be resumed fairly promptly. (8) Alternative B might be preferred if it were thought that there would be less strength in the economy than in the staff forecast. Such a view might follow from placing more weight on recent 8. Later in the intermeeting period it may prove necessary to reduce the borrowing allowance a little to reflect the onset of the typical unwinding of the summer bulge in seasonal borrowing. soft spending indicators, on undesired inventory buildups, or on the effects of previous policy tightenings. Waiting for more clarifica- tion of how much slowing in spending growth is already in train would be seen as posing fewer risks than implied in the staff forecast if it were thought that favorable readings on price indexes suggested that some slack remained in the economy. (9) Market participants now seem to expect at least a 25 basis point increase in the federal funds rate at the August meeting, with some possibility of a 50 basis point increase; funds rate is anticipated by late September. a 4-3/4 percent In these circumstances, the choice of no change in the stance of policy under alternative B would result in some decline in short-term interest rates, and the dollar might tend to weaken on foreign exchange markets. rates could move lower, at least initially. Long-term Market participants might view the absence of action as indicating a milder degree of tightening into the future as well--perhaps because the Federal Reserve saw less inflation in the outlook than previously thought. However, rate de- clines would be limited to the extent that market participants questioned the Fed's anti-inflation resolve; absent subsequent data pointing to further weakening in aggregate demand or surprisingly modest price pressures, concerns about inflation would mount, pushing up longer-term interest rates. (10) A tightening of reserve conditions might seem appropriate if the Committee saw significant risks of greater inflation from the pressure of demand on available resources under an unchanged policy. immediate rise in short-term interest rates might also be seen as more consistent with the Committee's longer-run intention to make progress An toward price stability. The question in these circumstances would be how large an increase in the federal funds rate should be sought. (11) Alternative C embodies a move of 25 basis points. An increase of this size, by itself, would be unlikely to have a substantial effect on spending or prices, but a small tightening could lend assurance that policy had firmed enough to keep the economy around its potential. Although further tightening could prove to be necessary, the Committee might judge that the case for a larger move is not yet established. As noted above, alternative C is about what is built into the structure of market interest rates, and neither interest nor exchange rates are likely to react very strongly to such an action. However, this would be the first move since the announcement in May that excess accommodation had been substantially removed and could be seen as marking a return to the usual practice of reacting to incoming data with small changes in reserve conditions. Markets could become somewhat more unsettled and volatile, especially if the rise in short-term rates were perceived as less than needed and therefore likely to be followed by another increase but of uncertain timing. (12) The more forceful move of alternative D might be chosen if the Committee viewed the economic situation as highly likely to require substantial additional monetary tightening, for example, of the scope embodied in the steep tilt to the yield curve over the next few years. Alternatively, the Committee also might take this action if it believed that only moderate further tightening were required to hold inflation in check. In this regard, the 50 basis points of alternative D would imply more assurance of this outcome than alternative C and, therefore, would be more likely to be followed by a period of stability of short-term rates. Given these alternative rationales, the Committee might want to explain its reasoning publicly--an opportunity for which would naturally occur if the increase were accomplished through a hike in the discount rate. The market response might depend importantly on how the action was perceived. If the market saw it as one of a series of further steps, interest rates could rise substantially along the maturity spectrum. On the other hand, if markets saw the increase as the last at least for a time, short-term rates would rise, but intermediate- and possibly long-term rates might move very little. Some forward rates would be revised down and reductions in expected volatil- ity might lower risk premiums on longer-term assets. (13) Under all of the alternatives, borrowing by nonfederal sectors is expected to remain around the pace of recent months. Bor- rowing by nonfinancial businesses will be buoyed by further increases in external financing needs and large cash-for-equity merger transactions. The more aggressive posture of bank lenders and the higher levels of bond rates since earlier this year suggest that banks will continue to be a major source of credit in the months ahead, although businesses are likely to take advantage of any intermittent rallies in the bond market to lengthen debt maturities. Still-large outlays for housing and consumer durables will boost growth in mortgage and consumer credit to a pace roughly in line with that of personal disposable income. With federal debt growth firming a bit in the months ahead, total debt of domestic nonfinancial sectors is projected to grow at nearly a 5 percent pace over the remainder of the year--placing annual growth in this aggregate at 5-1/4 percent, in the lower half of its 4 to 8 percent monitoring range. (14) Growth of the monetary aggregates over July to December is presented below for alternatives B and D. The path for alternative B -10- is based on the assumption of no change in the federal funds rate for the rest of this year. Alternative D assumes a 50 basis point increase in the funds rate at this meeting and no change thereafter. 9 (Money growth under the reserve conditions of alternative C would lie half way between alternatives B and D.) Alt. B Alt. D Growth from July to December 1 M2 1-1/2 M3 M1 3/4 3 1/2 2-1/4 1-1/2 1/2 4 1-1/4 1/2 3-1/2 Implied growth 93Q4 to 94Q4 M2 M3 M1 (15) M2 would grow at a 1-1/2 percent rate over the July-to- December period under alternative B, down from the July pace but quicker than that over the first six months of the year. Acting to boost growth in this aggregate would be some narrowing of opportunity costs as deposit rates, especially those on small time deposits, moved up in lagged response to earlier increases in market rates. Renewed outflows from bond mutual funds over recent weeks, even as bond rates 9. The interest rate path of the Greenbook forecast, because it assumes continuing increases over the balance of the year, corresponds to none of the bluebook alternatives. With the interest rates and nominal income of the Greenbook, the staff would expect M2 growth at a 1 percent rate for the July-to-December period and 1-1/2 percent for the year, and M3 growth at a 1/2 percent pace for both intervals; M1 growth would be at a 2-1/4 percent rate from July to December and 3-3/4 percent for the year. Although these money growth rates are roughly the same as those projected for alternative D, the higher year-end level of rates assumed in the Greenbook implies slower growth of money and income in the first half of 1995 than would alternative D. Alternative Levels and Growth Rates for Key Monetary Aggregates M3 M2 Levels in Billions May-94 Jun-94 Jul-94 Aug-94 Sep-94 Oct-94 Nov-94 Dec-94 Monthly Growth Rates Jun-94 Jul-94 Aug-94 Sep-94 Oct-94 Nov-94 Dec-94 M1 Alt. B Alt. D Alt. B Alt. D Alt. B Alt. D 3590.9 3581.3 3595.9 3599.2 3604.6 3609.7 3614.5 3618.7 3590.9 3581.3 3595.9 3598.6 3601.6 4216.3 4212.5 4233.4 4237.3 4239.4 4241.4 4243.5 4245.6 4216.3 4212.5 4233.4 4236.6 4237.3 4237.5 4238.6 4239.6 1142.9 1146.4 1153.7 1155.5 1158.8 1162.1 1165.0 1167.9 1142.9 1146.4 1153.7 1155.2 1157.5 1159.6 1161.8 1164.1 3604.0 3606.4 3608.8 -3.2 4.9 1.1 1.8 1.7 1.6 1.4 -3.2 4.9 0.9 1.0 0.8 0.8 0.8 -1.1 6.0 1.1 0.6 0.6 0.6 0.6 -1.1 6.0 0.9 0.2 0.1 0.3 0.3 3.7 7.6 1.9 3.4 3.4 3.0 3.0 3.7 7.6 1.6 2.4 2.2 2.2 2.4 Quarterly Averages 94 Q1 94 Q2 94 Q3 94 Q4 1.8 1.4 1.4 1.6 1.8 1.4 1.3 0.9 0.2 -0.1 1.8 0.6 0.2 -0.1 1.8 0.3 6.0 1.9 4.4 3.1 6.0 1.9 4.2 2.2 Growth Rate To From Dec-93 Jul-94 Jul-94 Dec-94 1.4 1.5 1.4 0.9 0.1 0.7 0.1 0.4 3.8 3.0 3.8 2.2 93 Q4 Jul-94 1.6 1.6 0.6 0.6 4.3 4.3 91 Q4 92 Q4 93 Q4 92 Q4 93 Q4 94 Q4 1.9 1.4 1.6 1.9 1.4 1.3 0.5 0.6 0.6 0.5 0.6 0.5 14.3 10.5 3.9 14.3 1994 Target Ranges: 1 to 5 0 to 4 10.5 3.6 Chart 2 ACTUAL AND TARGETED M2 Billions of Dollars 3800 * Actual Level Short-Run Alternatives 3750 3700 -1 3650 ~~~.. ''~' * a o -1 3600 3550 -1 I O I N D 1993 I I J I F I M I A I M I J J 1994 I I A I S I O I N D J 3500 3450 Chart 3 ACTUAL AND TARGETED M3 Billions of Dollars 4450 - Actual Level * Short-Run Alternatives -- 4400 4350 * * S 1I O N 1993 1I 1 D J 1 F I M I A I M I J I J A 1994 I S I O I N 8 D -1 4300 -1 4250 -1 4200 -4 4150 -1 4100 I D J 4050 Chart 4 M1 Billions of Dollars 1320 15% Actual Level -- * Short-Run Alternatives 1300 -1280 -1260 - 1240 - 1220 - 1200 ** .* * - . * * 1180 D 1160 o 1140 0% .............................................................................. I L ON I D 1993 I J I F l I M A l M l J J 1994 l l A l S 1120 l i N D J Chart 5 DEBT Billions of Dollars 13400 S * Actual Level Projected Level 13200 13000 12800 12600 12400 12200 O N 1993 D J F M A M J J 1994 ASO N D J 12000 -12- have fluctuated around levels attained in the spring, suggest that households may continue to rebalance portfolios in a way that might also impart some upward tilt to growth of the broader aggregates. Restraining monetary growth is some projected slowing of nominal income growth, even under the unchanged interest rate assumptions of this alternative.10 M2 velocity would rise at around a 3 percent rate in the third and fourth quarters, somewhat slower than over the first half and about in line with predictions of traditional models of money demand.11 M3 is projected to grow at a 3/4 percent pace in the July-to-December period, a bit less slowly than in the first half of the year. Abstracting from the effects of FIN 39, we expect a little more growth in bank credit over the second half of the year-though not a persistence of the unusually rapid increase in July. Moreover, with short-term rates unchanged under alternative B, institution-only money funds should be stable after large runoffs through the spring. (16) Under alternative D, M2 would grow at a 1 percent rate over the July-to-December period. Opportunity costs would widen under this alternative, particularly damping M1 and savings deposits. How- ever, if bond yields backed up under this alternative, the additional capital losses might accentuate a redirection of savings back into M2, offsetting some of this restraining effect. M3 would grow at only a 10. M1 would expand at about a 3 percent rate over the July-toDecember period under alternative B. Continued rapid currency growth would account for this expansion, as higher opportunity costs reached earlier this year and slow mortgage refinancing activity hold transaction deposits about flat. The monetary base would grow at a 7-1/2 percent rate and total reserves would contract at a 3 percent rate over this period. 11. M2+ is predicted to grow a little more rapidly than M2 over the second half of this year, but not as fast as nominal output, and its velocity would still register an appreciable increase. -13- 1/2 percent rate from July to December, as institution-only money funds ran off appreciably owing to their lagging yields. -14- Directive Language (17) paragraph that Presented below is draft wording for the operational includes the usual options for Committee consideration. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT/ main- tain/INCREASE SOMEWHAT the existing degree of pressure on reserve positions. In the context of the Commit- tee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly (SOMEWHAT) greater reserve restraint would/ MIGHT or slightly (SOMEWHAT) lesser reserve restraint WOULD/might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with modest growth in M2 and M3 over coming months. August 1b, 1994 SELECTED INTEREST RATES (percent) Short-Term Long-Term money CDs corporate conventional home mortgages federal Treasury bills secondary comm. market bank U.S. government constant A-utility funds secondary market 3-month I 6-month I 1-year 2 3 4 market 3-month 5 paper 1-month 6 mutual fund 7 prime loan 8 maturity yields 3-year I 10-year 30-year 9 10 11 recently offered 12 Bond Buyer 13 fixed-rate 1 municipal secondary market 14 primary market lixed-rate ARM 15 16 93 -- High -- Low 3.24 2.87 3.12 2.82 3.27 2.94 3.48 3.07 3.36 3.06 3.44 3.07 2.92 2.59 6.00 6.00 5.06 4.07 6.73 5.24 7.46 5.83 8.28 6.79 6.44 5.41 8.17 6.72 8.14 6.74 5.36 4.14 94 -- High -- Low Monthly Aug 93 Sep 93 Oct 93 Nov 93 Dec 93 4.38 2.97 4.42 2.94 4.87 3.12 5.24 3.35 4.79 3.11 4.55 3.11 3.85 2.68 7.25 6.00 6.57 4.44 7.41 5.70 7.68 6.25 8.57 7.16 6.60 5.49 8.98 7.02 8.77 6.97 5.58 4.12 3.03 3.09 2.99 3.02 2.96 3.02 2.95 3.02 3.10 3.06 3.14 3.06 3.12 3.26 3.23 3.30 3.22 3.25 3.42 3.45 3.14 3.12 3.24 3.35 3.26 3.14 3.14 3.14 3.15 3.35 2.64 2.65 2.65 2.66 2.70 6.00 6.00 6.00 6.00 6.00 4.36 4.17 4.18 4.50 4.54 5.68 5.36 5.33 5.72 5.77 6.32 6.00 5.94 6.21 6.25 7.16 6.94 6.91 7.25 7.28 5.67 5.50 5.48 5.71 5.59 7.05 6.89 6.85 7.32 7.27 7.11 6.92 6.83 7.16 7.17 4.48 4.36 4.25 4.24 4.23 Jan 94 Feb 94 Mar 94 Apr 94 ay 94 Jun 94 Jul 94 Weekly Apr 27 94 3.05 3.25 3.34 3.56 4.01 4.25 4.26 2.98 3.25 3.50 3.68 4.14 4.14 4.33 3.15 3.43 3.78 4.09 4.60 4.55 4.75 3.39 3.69 4.11 4.57 5.03 4.98 5.17 3.15 3.43 3.77 4.01 4.51 4.52 4.73 3.14 3.39 3.63 3.81 4.28 4.36 4.49 2.71 2.73 2.86 3.03 3.29 3.61 3.75 6.00 6.00 6.06 6.45 6.99 7.25 7.25 4.48 4.83 5.40 5.99 6.34 6.27 6.48 5.75 5.97 6.48 6.97 7.18 7.10 7.30 6.29 6.49 6.91 7.27 7.41 7.40 7.58 7.24 7.45 7.82 8.20 8.37 8.30 8.45 5.54 5.65 6.16 6.48 6.46 6.38 6.48 7.12 7.35 7.96 8.55 8.78 8.62 8.82 7.06 7.15 7.68 8.32 8.60 8.40 8.61 4.21 4.20 4.55 4.96 5.46 5.45 5.52 3.59 3.78 4.21 4.64 4.10 3.88 3.13 6.75 6.01 6.89 7.17 8.27 6.42 8.69 8.32 5.15 May May May May 4 11 18 25 94 94 94 94 3.76 3.70 4.02 4.22 3.95 4.18 4.16 4.17 4.37 4.68 4.64 4.57 4.86 5.14 5.07 4.93 4.22 4.61 4.61 4.48 3.95 4.29 4.36 4.32 3.15 3.24 3.31 3.47 6.75 6.75 6.89 7.25 6.21 6.50 6.35 6.22 7.09 7.34 7.19 7.10 7.33 7.52 7.41 7.35 8.51 8.46 8.23 8.30 6.43 6.60 6.41 6.41 8.89 8.98 8.50 8.76 8.53 8.77 8.56 8.53 5.25 5.54 5.58 5.48 Jun Jun Jun Jun Jun 1 8 15 22 29 94 94 94 94 94 4.27 4.13 4.21 4.19 4.19 4.17 4.11 4.12 4.15 4.16 4.63 4.52 4.51 4.53 4.58 5.06 4.92 4.90 4.94 5.11 4.51 4.47 4.44 4.49 4.62 4.35 4.35 4.32 4.35 4.41 3.51 3.57 3.59 3.63 3.64 7.25 7.25 7.25 7.25 7.25 6.32 6.16 6.19 6.28 6.38 7.13 6.97 7.04 7.14 7.20 7.40 7.27 7.34 7.44 7.48 8.19 8.21 8.32 8.41 8.49 6.38 6.20 6.34 6.43 6.56 8.71 8.49 8.61 8.68 8.89 8.55 8.25 8.33 8.46 8.57 5.52 5.45 5.43 5.41 5.48 Jul Jul Jul Jul 6 13 20 27 94 94 94 94 4.38 4.30 4.30 4.28 4.21 4.38 4.27 4.39 4.67 4.83 4.67 4.79 5.19 5.23 5.06 5.23 4.78 4.79 4.66 4.69 4.52 4.55 4.47 4.46 3.70 3.75 3.78 3.80 7.25 7.25 7.25 7.25 6.50 6.57 6.37 6.49 7.33 7.41 7.22 7.29 7.62 7.68 7.52 7.56 8.57 8.42 8.45 8.27 6.52 6.47 6.46 6.47 8.91 8.79 8.82 8.71 8.68 8.72 8.52 8.57 5.56 5.58 5.46 5.54 Aug Aug 3 94 10 94 4.28 4.26 4.33 4.42 4.74 4.87 5.12 5.24 4.68 4.75 4.45 4.50 3.83 3.85 7.25 7.25 6.36 6.52 7.15 7.26 7.43 7.52 8.37 8.35 6.37 6.49 8.82 8.84 8.38 8.57 5.50 5.56 Daily Aug Aug Aug 5 94 11 94 12 94 4.28 4.22 4.20p 4.46 4.34 4.38 4.90 4.92 4.90 5.28 5.30 5.28 4.77 4.79 4.79 4.49 4.54 4.61 7.25 7.25 7.25 6.55 6.61 6.57 7.28 7.36 7.27 7.54 7.56 7.48 --- - .5 NOTE: Weekly data for columns 1 through 11 are statement week averages. Data in column 7 are taken from Donoghue's Money 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 lee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for fixed-rate mortgages (FRMs) with 80 percent loan-to-value ratios at major institutional lenders. Column 16 is the average initial contract rate on new commitments for 1-year, adjustablerate mortgages (ARMs) at major institutional lenders offering both FRMs and ARMs with the same number of discount points. p - preliminary data Strictly Confidential (FR)- Class II FOMC Money and Credit Aggregate Measures AUGUST 15, 1994 Seasonally adjusted _____Moiney stock measures and liquid assets Bank credit nontransactions components Period Annual growth rates(%): Annually (Q4 to Q4) 1991 1992 1993 M1 M2 1 2 In M2 In M3 only 3 4 Domestic noninancial debt' total loans M3 L 5 6 investments' and U. S. government' other' total 7 8 9 1 2 7.9 14.3 10.5 2.9 1.9 1.4 1.2 -2.4 -2.3 -6.0 -6.3 -3.5 1.2 0.5 0.6 0.4 1.4 1.1 3.5 3.7 4.9 11.3 10.7 8.4 2.6 3.2 3.8 4.6 5.0 5.0 12.0 9.4 6.0 1.9 2.5 2.3 1.8 1.4 -1.7 -0.8 -0.1 1.2 -6.7 4.0 -8,9 -8.7 1.0 2.6 0.2 -0.1 1.0 1.9 2.3 0.5 6.8 3.1 6,8 6.9 9.2 5.5 7.1 5.2 4.8 4.9 5.3 4.9 6.0 5.0 5.8 5.0 11.4 9.4 10.7 9.0 9.7 6.4 1.7 0.8 2.8 1.2 4.2 2.5 -2.5 -3.0 -0.8 -2.3 1.6 0.7 -10.6 -4.6 1.5 7.4 2.6 10.2 -0.3 -0.0 2.6 2.2 3.9 3.7 -0.8 2.0 -1.6 2.5 3.2 4.8 9.0 1.7 3.1 0.9 6.3 5.2 7.4 9.1 7.0 -1.8 9.1 13.3 5.3 3.8 5.6 5.7 3.3 5.0 5.9 5.2 6.0 3.7 4.8 7.2 Quarterly Average 1993-3rd 1993-4th 1994-ist 1994-2nd QIR. QTR. QTR. QTR. Monthly 1993-JULY AUG. SEP. OCT. NOV. DEC. 1994-JAN. 5.4 1.7 0.0 -2.0 1.2 4.7 7.6 3.0 7.1 6.0 5.4 -1.3 -4.4 -42.3 -7.7 -2.8 5.3 5.2 4.4 4.6 4.0 4.7 5.0 -12.0 2.2 -0.1 10.5 9.0 4.0 5.4 -1.4 1.9 3.7 7.6 2.3 0.3 -3.2 4.9 4.0 -0.3 -6.4 3.6 2.1 -14.2 10.9 12.4 2.3 -1.8 -1.1 6.0 4.2 -1.1 -2.8 9.8 1.7 3.2 12.6 2.9 4.2 6.8 5.7 5.1 4.7 4.9 4.8 5.2 1142.4 1141.1 1142.9 1146.4 1153.7 3582.9 3589.9 3590.9 3581.3 3595.9 2440.5 2448.7 2448.0 2434.9 2442.2 631.8 632.9 625.4 631.1 637.6 4214.7 4222.8 4216.3 4212.5 4233.4 5139.8 5157.9 5153.2 5141.1 3165.6 3191.4 3195.9 3204.3 3237.9 3375.4 3383.6 3395.4 3414.5 9107.7 9150.6 9189.3 9225.1 12483.2 12534.2 12584.6 12639.6 4 11 18 25 p 1145.4 1149.9 1152.5 1158.2 3589.8 3590.5 3594.8 3600.7 2444.4 2440.6 2442.3 2442.5 631.6 635.0 637.5 643.3 4221.4 4225.5 4232.3 4244.1 1 p 1159.2 3601.3 2442.2 637.9 4239.2 EBB. MAR. APR. MAY JUNE JULY p Levels ($Billion) Monthly 1994-MAR. APR. KAY JUNE JULY p Weekly 1994-JULY AUG. : 1. 2. Adjusted for breaks caused by recassifications. Debt data are on a monthly average basis, derived by averaging end-of-month levels of adjacent months, and have been adjusted to remove discontinuities. p pe preliminary preliminary estimate Strictly Confidential (FR)Class II FOMC Components of Money Stock and Related Measures AUGUST 15. 1994 Seasonally adjusted unless otherwise noted P o Currency e Other checkable Overnight RPs and uro- 3 4 Sain Small denomination Money market mutual funds general purpose Institutions Large denomintion Term AP' Term Euro- Savings Short-term er Commercal ank B e dealerd 1 LevelsJ ( Bi.L.ons) : Annually (4th Qtr.) 1991 1992 1993 2 5 8 7 8 10 12 13 19 14 265.6 289.7 319.5 286.3 337.1 382.1 328.8 380.1 411.9 77.5 81.2 90.6 1027.8 1177.9 1212.1 1082.8 883.0 790.4 369.7 354.0 346.7 174.4 206.5 195.4 433.1 365.3 340.0 74.7 80.9 94.5 137.0 154.4 170.9 321.1 327.7 325.9 334.0 366.3 385.2 24.5 20.5 15.4 Monthly 1993-JULY AUG. SEP. 309.7 312.4 315.4 366.4 370.9 375.4 402.8 404.2 406.6 81.1 82.1 85.4 1202.1 1205.9 1208.4 814.5 806.6 799.9 346.6 345.5 345.0 192.6 190.1 190.8 341.8 341.6 340.4 96.4 96.0 95.6 167.1 168.2 169.2 344.3 343.8 328.0 370.4 379.5 378.4 17.4 16.5 16.4 OCT. NOV. DEC. 317.6 319.5 321.4 378.4 383.2 384.8 409.5 411.8 414.3 89.4 90.4 92.1 1208.8 1211.9 1215.5 794.9 790.6 785.6 344.4 347.0 348.8 194.3 194.8 197.0 341.6 339.4 339.0 94.2 94.0 95.3 170.1 170.8 171.7 323.7 324.6 329.3 384.7 384.1 386.8 16.4 15.3 14.6 1994-JAN. MAR. 325.2 329.2 332.4 388.3 390.3 390.0 412.0 411.2 411.9 94.8 93.0 97.9 1220.3 1220.9 1221.9 779.5 774.5 771.1 347.8 343.7 348.4 192.7 176.9 177.4 341.5 335.7 330.9 91.3 89.3 91.2 172.7 173.4 174.1 339.1 341.6 345.8 391.6 403.0 389.6 14.9 15.3 15.7 APR. MAY JUNE 334.8 337.6 340.3 388.9 385.8 386.6 409.3 411.2 411.4 94.6 94.6 96.3 1220.7 1215.9 1207.2 768.6 769.1 770.4 361.5 365.1 359.3 177.0 169.3 169.5 330.6 333.5 333.8 94.2 91.7 95.3 174.8 175.7 176.6 361.3 358.8 349.0 384.9 391.0 392.6 14.1 11.4 10.5 JULY p 343.2 389.5 412.7 1202.2 772.5 363.5 170.9 336.9 95.7 FEB. 101.5 1. 2. 3. 4. 5. Net of money market mutual fund holdings of these items. Includes money market deposit accounts. Includes retail repurchase agreements. All IRA and Keogh accounts at commercial banks and thrift institutions are subtracted from small time deposits. Excludes IRA and Keogh accounts. Net of large denomination time deposits held by money market mutual funds, depository Institutions, U.S. government, and foreign banks and official institutions. p preliminary NET CHANGES IN SYSTEM HOLDINGS OF SECURITES Millions of dollars, not seasonally adjusted August 12, 1994 Treasury bills Period Net 2 purchases 20,038 13,086 17,717 7,749 1,268 8,700 1994 ---Q1 ---02 2,164 6,639 1993 August September October November December 902 366 1,396 5,911 1,394 1994 January February March April May June 1,264 900 1,101 1,395 4,143 July STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC 1 Treasurycoupons Redemptionswi I (-) tNet change hin eNetp urchases 3 withi nRedemptions e 5-10 year 1-5 | over 10 Federal agencies redemptions Net Change (-) Net change outright holdings total 4 g Net RPs 19,038 11,486 17,249 3,043 1,096 1,223 6,583 13,118 10,350 375 2,333 3,457 11,282 19,365 19,198 27,726 30,219 35,374 -1,614 -13,215 5,974 --- 7,749 1,268 8,232 279 244 511 189 1,441 2,490 3,700 2,719 705 1,110 817 826 3,141 4,990 6,326 4,742 2,851 12,648 7,067 12,807 -461 10,624 -8,644 4,455 ----- 2,164 6,639 147 364 1,413 2,817 2,665 4,754 4,418 11,086 -11,663 17,719 902 366 927 5,911 1,394 100 411 1,100 2,400 1,800 4,326 100 189 2,619 100 4,642 2,577 4,656 857 5,996 5,954 4,528 1,262 -6,723 7,232 3,947 -817 1,163 4,073 5,520 1,480 4,085 -322 -7,757 -3,946 40 8,208 5,441 4,070 -5,023 -51 3,059 3,490 -3,849 2,682 2,161 1,471 -5,396 2,127 435 94 2,042 1,009 -864 -3,057 2,321 144 1,000 1,600 468 468 ----468 - 1,103 1,117 618 896 616 440 -616 147 209 155 3,281 4,599 155 --_~ --- --- Weekly April 27 May 4 11 18 25 June 1 8 15 22 29 July 6 13 20 27 August 3 10 Memo: LEVEL (bil. $)6 August 10 --- 350 1,045 3,750 -25 350 1,045 3,750 5 310 1,195 3,750 -26 150 203.9 ~-~-- 246 147 246 147 214 147 203. -302 -20 184 184 184 176.9 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 exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues. 86.6 25.0 33.1 348.6 I 359.6 4. Reflects net change in redemptions (-) of Treasury and agency securities. 5. Includes change in RPs (+), matched sale-purchase transactions (-), and matched purchase sale transactions (+). 6. The levels of agency issues were as follows: I I ....1 year 1-5 5-10 over 10 total 3.9 0.0 0.6 1.8 1.5 August 10 6.4 I
@FedFRASER