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August 16, Strictly Confidential (FR) 1985 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) CLASS I - FOMC August 16, 1985 MONETARY POLICY ALTERNATIVES Recent Developments (1) M1 increased at an annual rate of about 9 percent in July, down considerably from the pace of May and June but still well above the Committee's target path of 5 to 6 percent for the June-to-September period. Moreover, data for early August suggest stronger growth this month. The recent strength of M1 has reflected rapid growth in other checkable deposits (OCDs) together with the absence so far of any unwinding of the extraordinary surge in demand deposit growth of late spring. (2) The extent of the bulge in M1 since May appears to have no clear single explanation. With econometric models underpredicting M1 growth in recent months, one might argue that there has been an upward demand shift for narrow money, but it a shift to have occurred. is difficult to find reasons for such According to surveys, consumer confidence remains generally high, so that from that perspective precautionary demands for cash are unlikely to have increased significantly. Nonethe- less, the recent strength in OCDs may be an aspect of a general shift toward more liquid deposit forms affecting the total of M1 and the structure of M2 at a time when the opportunity cost of holding liquid deposits is on the low side of recent experience. For instance, OCDs, savings deposits, and MMDAs have all shown considerable strength recently, while small time deposits have been weakening-indeed the total outstanding of such deposits has been declining since midyear. (3) With regard to the demand deposit bulge, examination of individual bank data indicates that the increase in such deposits since -2- KEY MONETARY AGGREGATES (Seasonally adjusted annual rates of growth) QIV to July May n June 13.8 19.8 8.6 13.7 8.6 7.7 10.7 4.2 Dcmestic nonfinancial debt 12.0 11.6 12.3 12.8 Bank credit 13.3 9.3 9.5 10.0 33.0 10.7 17.0 16.0 July i m Money and Credit Aggregates Reserve Measures 13.51 2 Nonborrowed reserves 3 7.9 Total reserves 18.1 24.8 12.3 Monetary base 10.6 13.5 6.8 Memo: (Millions of dollars) Adjustment and seasonal borrowing total 800 Excluding special situation borrowing Excess reserves NOTE: 540 600 506 804 905 859 Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for 2-week reserve maintenance periods that overlap months. 1. Growth from the second quarter to July. Growth from QIV to July is 11.4 percent. 2. Growth rates of reserve measures are adjusted to remove the effects of discontinuities resulting from phased changes in reserve ratios under the Monetary Control Act. 3. Includes "other extended credit" from the Federal Reserve, but not special situation borrowing by thrifts that was part of adjustment plus seasonal borrowing until it was entirely reclassified as extended credit in mid-June. -3the middle of the second quarter has been distributed roughly proportionately by size class of banks, though weighted a bit toward large banks. Very recent contacts with selected banks experiencing large demand deposit increases identified no consistent set of special factors to account for the unusual strength over recent months. The decline in interest rates was seen to be raising compensating balances of businesses, but by no more than might normally have been expected; banks generally reported no change in corporate cash management practices; a number indicated the increase in deposits may have simply reflected reduced incentives to manage cash carefully as interest rates declined. Finally, it should be noted that the demand deposit ownership survey sample indicated a disproportionate share of the increase in gross demand deposits from March to June in household demand accounts, perhaps reflecting the unusual pattern of tax refunds, with only about one quarter of the rise in deposits of financial and nonfinancial businesses. (4) The broader aggregates also decelerated in July. Nonetheless, M2 growth at an 8-1/2 percent annual rate was somewhat above the Committee's 7-1/2 percent path for June to September, and left this aggregate a bit above the upper bound of its range for the year. Growth of the nontrans- actions component of M2, although slowing from June, remained strong as rapid growth in MMDAs and savings accounts offset the decline in small time deposits. M3 expanded at only a 4-1/4 percent annual rate in July, well below its 3-month objective of 7-1/2 percent. still With core deposit growth fairly robust and Treasury deposits rising while asset growth at depository institutions remained moderate, CDs and other managed liabilities in M3 fell. (5) Growth in total domestic nonfinancial debt is estimated to have continued at roughly a 12 percent annual rate. Federal borrowing -4surged and state and local governments, responding to the decline in interest rates since late winter, continued to issue large volumes of bonds in anticipation of refundings. There was no net borrowing from banks and the commercial paper market by nonfinancial businesses last month, while bond issuance, although quite strong, receded somewhat from the June pace when it had been boosted by several exceptionally large offerings to retire equity. In the household sector, consumer credit growth appears to have slowed in recent months, but mortgage borrowing seems to have continued at around its spring pace. (5) In July, total reserves and the monetary base decelerated to annual growth rates of around 12-1/4 and 6-3/4 percent, respectively, as expansion of transactions deposits and currency slowed from the rapid May-June pace. Nonborrowed reserves (including extended credit) grew at a 10-3/4 percent pace in July. 1 The nonborrowed reserve path over the first two complete maintenance periods after the last FOMC meeting was constructed assuming $350 million of adjustment plus seasonal borrowing. With M1 and M2 running above the Committee's short-run paths, against a background of a weaker dollar and moderate strength in economic activity, desk operations in the maintenance period just completed were conducted with a view to borrowing in a $350 to $450 million range. Borrowing averaged about $605 million in the first two maintenance periods as demands for excess reserves proved unusually strong; 2 in the most recent complete maintenance period, borrowing averaged about $480 million. 1. The much larger rise in June reflected in part the reclassification, as extended credit, of borrowing by financial institutions-principally thrifts-in special situations. 2. The allowance for excess reserves used in drawing the reserve path was raised from $650 to $700 million over the intermeeting period, to reflect the generally higher average levels of excess reserves that have come to prevail in recent months. -5(6) Federal funds have traded generally in a range around 7-3/4 percent since the last FOMC meeting, with the average in the most recent statement period close to 7-7/8 percent. Other short-term market rates are up about 20 to 45 basis points over the intermeeting period, reflecting mainly a reassessment of the likelihood of near-term easing by the Federal Reserve. Yield spreads between short-term private and Treasury securities have widened slightly over the past couple of weeks, reflecting adverse news about the earnings of some financial institutions; these spreads remain well below the highs of mid-1984, though somewhat above the very low levels reached early in 1985. Intermediate- and long-term Treasury yields, which have risen by about 30 to 40 basis points, were also affected by some disappointment in the budget process and the decline in the dollar on exchange markets. than Treasury yields. Corporate bond yields have moved up a little more The dollar has depreciated by about 4-3/4 percent, net, on a weighted average basis over the intermeeting period, even though yield spreads favoring foreign currencies have narrowed as U.S. interest rates have risen some and foreign rates have declined. -6- Policy alternatives (7) It seems unlikely, given recent developments, that the Committee's June-to-September objective of 5 to 6 percent growth (annual rate) for M1 can be attained short of a very sharp rise in the federal funds rate to perhaps the 10 to 11 percent area. Assuming some slight decrease in M1 in the second half of August, it would take about a 5 percent annual rate of decline in September for growth over the three months to reach 6 percent. It is likely, however, that such a rise in the funds rate would need to be reversed later in the year to sustain economic activity, consistent with growth of M1 around the upper limit of its range. The alternatives presented below are based on less extreme movements in money and interest rates. Of the alternatives, B and C are most consistent with moving near to or somewhat below the upper end of the FOMC's 3 to 8 percent long-run range for M1 by the fourth quarter, although the tighter alternative C would provide more assurance. Alternative A would very probably involve growth for the second half above the Committee's M1 target. (More detailed data are shown in the following tables and charts). Alt. A Alt. B Alt. C Growth from June to September M1 10 9 8 M2 9-1/4 8-1/2 7-3/4 M3 7 6-1/4 5-3/4 6 to 10 7 to 11 Associated federal funds rate range 5 to 9 Alternative Levels and Growth Rates for Key Monetary Aggregates Alt. A 1985--April May June July August September Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 575.0 581.6 591.2 575.0 581.6 591.2 575.0 581.6 591.2 2427.3 2444.7 2472.6 2427.3 2444.7 2472.6 2427.3 2444.7 2472.6 3056.2 3075.9 3103.3 3056.2 3056.2 3075.9 3103.3 595.7 595.7 602.8 606.1 602.6 604.6 595.7 602.4 603.1 2490.3 2511.3 2529.3 2490.3 2510.9 2524.7 2490.3 2510.5 2520.1 3114.1 3132.6 3156.7 3114.1 3132.1 3151.9 3075.9 3103.3 3114.1 3131.6 3147.1 Growth Rates Monthly 6.1 13.8 6.1 13.8 -1.0 8.6 -1.0 8.6 -1.0 8.6 19.8 19.8 19.8 13.7 13.7 13.7 9.1 14.3 6.6 9.1 13.9 4.0 9.1 13.5 1.4 8.6 10.1 8.6 8.6 9.9 6.6 8.6 9.7 4.6 10.6 10.6 10.2 12.0 12.0 10.2 13.0 July August September 6.1 13.8 10.6 10.2 1985--April May June 12.6 12.2 10.1 12.0 5.3 9.6 13.5 13.5 13.5 9.2 9.2 12.1 11.3 10.6 9.4 9.2 10.1 9.1 9.0 8.1 7.5 9.2 9.4 0.2 7.7 10.7 4.2 7.1 9.2 0.2 7.7 10.7 0.2 7.7 10.7 4.2 6.9 7.6 4.2 6.7 5.9 10.7 5.2 7.0 10.7 5.2 7.3 9.2 7.8 7.8 7.8 8.9 8.0 7.8 7.6 7.7 7.2 6.9 8.2 6.3 7.3 Growth Rates 1985--01 02 03 Long-run period Long-run period base to July 851 base to Sept. 851 1985 June to Sept. 1985 July to Sept. 1. 10.5 5.3 5.3 9.9 10.7 5.2 6.8 The long-run base period is the second quarter of 1985 for M1 and the fourth quarter of 1984 for M2 and M3. Chart 1 ACTUAL AND TARGETED M1 Billions of dollars 1 630 -- 620 - ACTUAL LEVEL * SHORT RUN ALTERNATIVES -- 610 -1 600 3 - 590 -- 580 -- 570 -- 560 - I O N 1984 I I D I J I F I M I A 540 I M 550 J 1985 J A S N D Chart 2 ACTUAL AND TARGETED M2 Billions of dollars 1 2650 -12600 - ACTUAL LEVEL SHORT RUN ALTERNATIVES * -42550 :- B 2500 * -1 2450 .* --1 2400 -1 2350 * -1 2300 I 0 N 1984 I D I I I J F I I M I I I A I M I I I J I J 1985 I I I 1, I A S 2250 I , 0 N D Chart 3 ACTUAL AND TARGETED M3 Billions of dollars 1 3300 - ACTUAL LEVEL * -- 3200 SHORT RUN ALTERNATIVES -- 3100 * 00 0« 3000 -- 2900 I S N 1984 D i II I J SI F I M I I I I I A M I J 1985 I J I I A S I 0 2800 I N D Chart 4 ACTUAL AND TARGETED DEBT Billions of dollars 16800 - ACTUAL LEVEL -- 6600 - 6400 6200 -- 6000 H 5800 I S N 1984 I SI I D J F 1I I M I II II A M I J J 1985 I I I I ~I I I I I D N 0 S A 5600 -8- (8) Alternative B, which assumes reserve pressures indexed by borrowing in a $350 to $450 million range, encompasses growth in M1 from June to September at a 9 percent annual rate. Nonborrowed and total reserves would be expected to expand at about 8 and 5 percent annual rates, respectively, over the last two months of the quarter. Federal funds would probably trade mostly a little above 7-3/4 percent. (9) We would expect rapid growth of M1 in August of around 14 percent at an annual rate, based on data thus far available, to be followed by a very substantial moderation to about a 4 percent annual rate in September. It still seems likely that the extraordinary bulge in demand deposits of late spring and early summer will be partly reversed. More generally, the waning impact on money demand of earlier declines in rates, along with the effects of the more recent firming of money market conditions, should also work to moderate growth of M1, including OCDs. (10) On a quarterly average basis M1 growth would be at about a 12-1/2 percent annual rate in the third quarter, implying an even sharper drop in velocity-at about a 6-3/4 percent annual rate-than in the first half of the year. With such a continued large build-up in money relative to GNP, the staff expects that much of the increase in nominal GNP in the fourth quarter will be financed, given current levels of interest rates, out of existing cash balances. Velocity growth is likely to turn positive, and growth of money from September to December may be at around a 2-1/2 to 3 percent annual rate (implying a quarterly average growth of near 4-1/2 percent annual rate). Such a development would imply growth in M1 from QII '85 to QIV '85 at about an 8-1/2 percent annual rate, a little above the upper limit of the FOMC's range for the second half of the year. -9- (11) Under alternative B, both M2 and M3 would be expected to diverge somewhat from the Committee's June-to-September specification for growth at about a 7-1/2 percent annual rate set at the July meeting. Growth of M2 is likely to be higher, around 8-1/2 percent, while growth of M3 should be lower, about 6-1/4 percent. M2 growth has been boosted recently by its M1 component, and it is likely to show some deceleration as M1 growth slows. M3 growth, however, is expected to pick up a little over the balance of the quarter as banks increase their issuance of managed liabilities to replace declining Treasury deposits. (12) The debt of nonfinancial sectors is projected to grow at an 11-1/2 percent annual rate in the third quarter, a little slower than in the second, but leaving this aggregate around the 12 percent upper end of its 1985 range. The federal government's net need for funds, though still quite large, is expected to moderate somewhat this quarter on a seasonally adjusted basis. On the other hand, businesses' net external needs for funds are projected to increase over the quarter to finance further advances in investment spending as internal funds remain flat. Equity retirements associated with mergers and stock buy-backs are expected to moderate a little in the third quarter, restraining the rise in business borrowing. In the household sector, mortgage borrowing should continue to edge higher along with the projected pickup in housing activity, but consumer credit growth is expected to slow. (13) Unchanged reserve conditions, as contemplated under alter- native B, are likely to be associated with short- and long-term interest rates remaining close to current levels over the upcoming intermeeting period. The 3-month Treasury bill rate would be expected to fluctuate around the 7-1/8 to 7-1/4 percent area. The dollar might drift down a -10- bit more on exchange markets. Bond markets are likely to be sensitive to Congressional actions to implement the budget resolution in September after the recess, and to also significant changes in the foreign exchange value of the dollar. (14) Alternative C assumes a tightening of reserve positions, with borrowing rising to the $750 to $850 million area. The restrained provision of nonborrowed reserves, with little net growth over August and September, would lead to a rise in the funds rate to about 8-1/2 percent or somewhat higher and to a more rapid slowing of M1 growth. For the June-to-September period, growth of M1 would still be relatively high, about 8 percent. Expansion over the fourth quarter would be expected to drop to an annual rate of near one percent as the cumulative impact of higher interest rates, and perhaps some slowing of transaction demands relative to the staff GNP forecast, takes hold. growth would be a little (15) For the second half, M1 under 7-1/2 percent. Such a move toward greater reserve restraint would probably lead to a sharp rise in short-term rates generally, with the 3-month bill rate rising to around 8 percent. Private short-term rates may rise by a bit more as concerns about the financial condition of certain depository institutions and financial intermediaries intensified under current circumstances. Longer-term rates would also come under fairly substantial upward pressure, at least for a short while, until the large volume of corporate and municipal bonds currently overhanging the market was worked down or withdrawn. The dollar would rise on exchange markets, although this would probably prove to be no more than a temporary interruption of a long-term downward trend. -11- (16) Growth of M2 may slow fairly substantially over the next month or two under this alternative, partly as yields on the nontransactions components lag, as usual, behind rising market rates. expected to slow, though perhaps not as much as M2. M3 also would be It is probable that bank issuance of CDs and other managed liabilities would pick up as credit market demands shift toward banks, and also the commercial paper market, in a rising rate environment. (17) Alternative A involves an easing of pressures on bank reserve positions, either through a reduction in borrowings to the $100 to $200 million area or by a drop in the discount rate of, say, 1/2 percentage point with a smaller or no accompanying decline in borrowing. The federal funds rate would drop toward 7 percent, and the decline in the dollar on foreign exchange markets would accelerate. Long- and short- term interest rates would retrace their recent rise and probably fall still further, although the drop in long-term rates may be damped by the implications for inflation and for foreign interest in U.S. securities of a substantial weakening of the dollar. (18) Adoption of this alternative, which would tend to strengthen economic activity, would probably mean that M1 growth for the second half would cane in well above the upper limit of the FOMC's range. Growth of M2 also may be above its range, though perhaps only marginally, as lower market rates increase the relative attractiveness of bank and thrift deposits. Financing demands can be expected to strengthen, though much of this may fall on the open market rather than banks as bond yields decline and rising stock prices increase the attractiveness of equity financing. -12- Directive language (19) are given below. Two alternative operational paragraphs for the directive Alternative I represents the current paragraph, with proposed updating modifications shown in the usual way. Alternative II is suggested in case the Committee wishes to restructure the paragraph in light of the probability that M1 growth will exceed by a substantial margin the 5 to 6 percent rate originally anticipated at the July meeting. Alternative I In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT (Alt. A), maintain (Alt. B), INCREASE SOMEWHAT (Alt. C), the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M2 and M3 at[DEL: an]annual [DEL: RATES of around [DEL: rate] 7-1/2] ________ percent RESPECTIVELY during the period from June to AND September, and with a substantial slowing of M1 growth to an annual rate of [DEL: 6] ____ 5 to percent. Somewhat lesser reserve restraint might (WOULD) be acceptable in the event of substantially slower growth of the monetary aggregates while somewhat greater restraint would (MIGHT) be acceptable in the event of substantially higher growth. In either case such a change would be considered in the context of appraisals of the strength of the business expansion, progress against inflation, and conditions in domestic credit and foreign exchange markets. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of [DEL: ____ 6 to 10] TO ____ percent. -13Alternative II In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT (Alt. A), maintain (Alt. B), the existing degree of INCREASE SOMEWHAT (Alt. C), pressure on reserve positions. This action is expected to be rate] an] annual [DEL: RATES of consistent with growth in M2 and M3 at[DEL: around [DEL: ____ and ____ percent, RESPECTIVELY, 7-1/2] during the and substantial a with period from June to September, [DEL: slowing percent.] 6 5 rate annual an to growth M1 of M1 GROWTH IS EXPECTED TO SLOW MARKEDLY FROM ITS RECENT PACE, BUT GIVEN RELATIVELY RAPID GROWTH IN JULY AND EARLY AUGUST, EXPANSION OVER THE JUNE TO SEPTEMBER PERIOD MAY BE AT AN ____ TO ____ PERCENT ANNUAL RATE. SOMEWHAT GREATER RESTRAINT WOULD [MIGHT] BE SOUGHT IN THE EVENT OF SUBSTANTIALLY HIGHER GROWTH IN THE MONETARY AGGREGATES. MIGHT [WOULD] SOMEWHAT LESSER RESTRAINT BE SOUGHT IN THE EVENT OF SUBSTANTIALLY SLOWER GROWTH, ALTHOUGH IN THE CASE OF M1 A WEAKENING OVER THE NEAR TERM THAT BROUGHT GROWTH FOR THE THIRD QUARTER TO THE 5 TO 6 PERCENT ANNUAL RATE ESTABLISHED AT THE PREVIOUS MEETING WOULD BE ACCEPTABLE. In either case such a change would be considered in the context of appraisals of the strength of the business expansion, progress against inflation, and conditions in domestic credit and foreign exchange markets. may call for Committee consultation if it The Chairman appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds 6 to rate persistently outside a range of [DEL: 10] ____ TO ____ percent. Selected Interest Rates Percent Period Short Term Treasury bills CDs federal secondary market secondary fundsecondary market secondary Smarket month -month Iear 3-month 1 2 3 4 August 19, comm omm money market mark l ua mut fund bank bank prime on lan 3 year 10 year 30year 5 6 7 8 9 10 11 S government constant maturity yields Long-Term corporate muni A utility cipal recently Bond offered Buyer 12 13 1985 home mortgages convenF NA S&L tional 1-year at S&Ls ce ARM 14 15 16 1984--High Low 11.77 7.95 10.65 7.71 10.76 8.01 11.09 8.39 11.71 8.24 11.35 8.04 10.72 8.38 13.00 11.00 13.44 10.39 13.84 11.30 13.81 11.36 15.30 12.70 11.44 9.86 14.68 13.14 14.00 12.50 12.31 10.81 1985--High Low 8.75 7.13 8.65 6.77 9.03 6.92 9.21 7.07 9.13 7.34 8.83 7.22 8.31 7.00 10.75 9.50 11.19 8.83 11.95 10.00 11.89 10.30 13.23 11.37 10.31 9.13 13.29 12.03 13.00 11.50 11.14 9.47 1984--July Aug. Sept. 11.23 11.64 11.30 10.12 10.47 10.37 10.52 10.61 10.47 10.89 10.71 10.51 11.56 11.47 11.29 11.06 11.19 11.11 10.30 10.58 10.62 13.00 13.00 12.97 13.08 12.50 12.34 13.36 12.72 12.52 13.21 12.54 12.29 14.93 14.12 13.86 10.84 10.40 10.54 14.67 14.47 14.35 14.00 13.70 13.50 12.20 12.14 12.00 Oct. Nov. Dec. 9.99 9.43 8.38 9.74 8.61 8.06 9.87 8.81 8.28 9.93 9.01 8.60 10.38 9.18 8.60 10.05 9.01 8.39 10.16 9.34 8.55 12.58 11.77 11.06 11.85 10.90 10.56 12.16 11.57 11.50 11.98 11.56 11.52 13.52 12.98 12.88 10.77 10.69 10.40 14.13 13.64 13.18 13.38 12.75 12.50 11.96 11.54 11.01 1985--Jan. Feb. Mar. 8.35 8.50 8.58 7.76 8.27 8.52 8.00 8.39 8.90 8.33 8.56 9.06 8.14 8.69 9.02 7.99 8.46 8.74 8.00 7.80 7.97 10.61 10.50 10.50 10.43 10.55 11.05 11.38 11.51 11.86 11.45 11.47 11.81 12.78 12.76 13.17 9.96 10.07 10.23 13.08 12.92 13.17 12.50 12.50 12.63 10.84 10.63 10.92 Apr. May June 8.27 7.97 7.53 7.95 7.48 6.95 8.23 7.65 7.09 8.44 7.85 7.27 8.49 7.92 7.44 8.31 7.80 7.34 7.97 7.71 7.21 10.50 10.31 9.78 10.49 9.75 9.05 11.43 10.85 10.16 11.47 11.05 10.45 12.75 12.25 11.60 9.85 9.46 9.18 13.20 12.91 12.21 12.75 12.30 11.50 10.83 10.56 9.89 July 7.88 7.08 7.20 7.31 7.64 7.58 7.04p 9.50 9.18 10.31 10.50 9.20 12.06 11.50 9.68 8 15 22 29 8.19 8.14 7.91 7.60 7.76 7.64 7.32 7.22 7.94 7.81 7.48 7.38 8.13 8.00 7.70 7.61 8.19 8.11 7.77 7.60 8.06 7.98 7.67 7.49 7.82 7.77 7.74 7.55 10.50 10.50 10.29 10.00 10.16 9.89 9.49 9.44 11.22 11.01 10.69 10.53 11.33 11.18 10.93 10.80 12.49 12.24 12.01 11.78 9.56 9.34 9.39 9.27 13.02 12.94 12.83 12.71 12.50 12.50 12.00 12.00 10.61 10.59 10.52 10.40 June 5 12 19 26 7.75 7.62 7.13 7.46 7.04 7.12 6.77 7.00 7.15 7.21 6.92 7.19 7.32 7.37 7.10 7.38 7.45 7.46 7.34 7.52 7.40 7.40 7.22 7.34 7.47 7.29 7.26 7.01 10.00 10.00 9.86 9.50 9.10 9.09 8.86 9.22 10.12 10.10 10.02 10.39 10.46 10.43 10.34 10.60 11.57 11.50 11.71 11.62 9.10 9.18 9.19 9.24 12.39 12.27 12.05 12.15 11.50 11.50 11.50 11.50 10.05 9.90 9.83 9.77 July 3 10 17 24 31 8.06 8.07 7.77 7.88 7.64 6.91 6.90 7.03 7.21 7.23 7.04 6.96 7.15 7.32 7.39 7.22 7.07 7.27 7.43 7.51 7.55 7.44 7.59 7.75 7.78 7.49 7.46 7.51 7.68 7.69 7.12 7.09 7.01 7.00 7.00 9.50 9.50 9.50 9.50 9.50 9.11 8.83 9.08 9.34 9.46 10.25 10.00 10.19 10.42 10.60 10.47 10.30 10.39 10.57 10.73 11.37 11.53 11.62 11.81 11.83 9.25 9.18 9.13 9.25 9.35 12.13 12.03 11.94 12.03 12.17 11.50 11.50 11.50 11.50 11.50 9.72 9.78 9.56 9.73 9.62 Aug. 7 14 7.92 7.88 7.26 7.13 7.46 7.36 7.61 7.51 7.85 7.79 7.78 7.71 7.05 7.05 9.50 9.50 9.54 9.31 10.60 10.40 10.72 10.64 11.78 11.82 9.40 9.47 12.23 12.24 11.50 11.50 9.57 9.47 Daily--Aug. 9 15 16 7.61 8.53 7 8.1 p 7.16 7.19 7.11 7.38 7.36 7.30 7.51 7.52 7.45 7.79 7.81 7.91 7.71 7.78 7.80 9.50 9.50 9.50 9.30 9.28 9.20p 10.37 10.36 10.30p 10.61 10.64 57 10. p 1985--May 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 and 13 are 1-day quotes for Friday and Thursday, respectively. following the end of the statement week Column 13 Is the Bond Buyer revenue Index Column 14 Is an average of contract Interest rates on new commitments for conventional first mortgages with 80 percent loan to-value 11.64 ratios at a sample of savings and loan associations on the Friday following the end of the statement week. After November 30, 1983, column 15 refers only to VA-guaranteed loans Column 16 Is the average Initial contract rate on new commitments for one-year ARM s at those institutions offering both fixed- and adjustablerate mortgages with the same number of discount points FR 1367 (4/85) Security Dealer Positions August 19, 1985 Millions of dollars 32,155 5,107 15,505 -8,251 1,296 -1,038 6,840 -5,664 19,525 11,086 21,064 11,263 8,272 -14,456 3,381 -986 -7.223 -10,679 -4 -13,053 1985--ligh Low 53,685 8,154 14,672 535 2.068 -390 6,479 -6,920* 24,613* 16,693 21,623 14,603 3,800 -14,946 6,909 -373 -6,190 -10,756* 7,028 -28.599 1984--July Aug. Sept. 12,355 11,499 17,976 -2,382 4,542 10,316 -3,391 -1,184 623 16,040 16,098 14,063 14,751 15,556 17,695 -2,528 -7,312 -9,771 2,800 2,504 2,156 -9,650 -9,073 -8,334 -2,592 -9,304 -8,960 Oct. Nov. Dec. 21,955 19,094 26,220 11,649 9,748 13,841 116 -487 -416 2,649 5,087 4,762 13,168 16,106 18,470 16,285 17,950 19,180 -9,867 -8,549 -11,718 2,154 533 -389 -8,815 -9,229 -8,313 -5,312 -11,991 -9,256 1985--Jan. Feb. Mar. 24,023 32,957 48,495 11,614 12,456 14,028 -110 851 1,316 2,467 227 -4,337 19,416 19,614 19,337 19,977 19,444 16,216 -13,318 -3,648 843 702 2,494 4,677 -7,033 -8,179 -8,353 -9,659 -10,289 4,822 Apr. Nay June 36,619 22,504 13,759 11,538 8,004 4,588 1,203 1,082 845 -4,536 -3,965 -3,874 18,049 19,819 22,746 17,560 19,313 19,268 -2,963 -5,881 -4,991 5,567 6,108 4,466 -7,833 -7,902 -9,616 -1,975 -14,169 -19,733 July 20,558* 2,946* 1,293* -4,099* 23,461* 18,370* -5,230* 3,780* 22 29 15,183 9,314 6,546 3,832 999 913 -5,148 -5,221 19,634 20,721 18,546 19.378 -7,051 -7,152 6,031 5,245 -8,136 -8,055 -16.292 -20,464 June 5 12 19 26 12,647 8,154 12,358 17,087 7,193 7,132 5,379 1,155 1,014 1,083 745 585 -2,737 -3,907 -3,898 -5,533 22,182 23.420 22,541 22,628 21,551 21,497 18,119 17,399 -7,302 -6,737 -6,008 -2,873 4,477 4,233 4,928 4.435 -8,858 -10,082 -9,672 -9,684 -24,987 -28,599 -19,844 -11,019 July 3 10 17 24 31 22,160 21,584 18,034 22,582* 19,365* 535 2,908 4,107 4,089* 2,041* 893 1,022 1,138 1,435* 1,651* -900 -1,320 -3,686 -6,920* -5,916* 22,329 24,178 24,613 23,605* 22,083* 18,339 21,413 18,538 17,428* 16,275* -1,493 -5,389 -7,087 -4,595* -5,815* 3,654 2,820 3,395 4,389* 4,549* -9,054 -9,340 -10,449 -10.756* -10,352* -12,141 -14,702 -12,534 -6,081* -5,108* Aug. 7 14 20,108* 24,514* 2,520* 8,332* 1,301* 1,394* -8,541* -5,220* 22.748* 23,754* 18,011* 17,593* -6,389* -7,046* 4,900* 6,615* -10,613* -11.831* -3,828* -9,040* 1984--igh Low 1985--Nay NOTE: Government securities dealer cash posltlons consist of securities already delivered, commitments to buy (sell) securities on an outright basis for Immediate delivery (5 business days or less), and certain "when-ssued" securities for delayed delivery (more than 5 business days). Futures and forward positions include all other commitments Involving delayed delivery; futures contracts are arranged on organized exchanges. 1. Cash plus forward plus futures positions In Treasury, federal agency, and private short-term securities. SStrictly confidential -3 -5 -1 -13* -45* -10,102* -9,845* Net Changes in System Holdings of Securities 1 STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Millions of dollars, not seasonally adjusted August Treasury bills net 2 change Period Treasury coupons net purchases within 1-year 1-5 IV 1985--qTR. I II Mar. -4,268 2,362 -138 Apr. Hay June 164 within 1 year 5 15 5-10 5-10 over 10 over 10 totals totaltotal Feb. 1985--fay June 5 July 3 10 17 24 31 Aug. -300 -1,555 1,918 169 6,432 -286 70 1,982 -316 -735 8,409 462 -350 -4,368 2,345 1,289 -2,315 3,095 -318 7,321 -951 2,039 6,141 -9,257 2,766 -246 -1,815 1,484 -600 961 245 465 846 1,657 -100 108 96 1,295 -100 ---- -- -100 -O0 -- 1,326 -' qA- -- -- 96 1,426 1,295 -300 3 __ ~f __ 249 1,950 -200 -46 79 494 -200 LEVEL--Aug. 15 78.1 286 -444 -1,385 851 739 1,687 921 -3,000 701 406 1,369 75 75 68 524 350 449 .. 249 2,010 7 14 Net RPs" 2,462 684 1,461 -5,445 1,450 -880 -300 3 12 19 26 1985 2,035 8,491 8,312 16,342 6,964 -200 1985--Jan Net change outright holdi 19 4,564 2,768 2,803 3,653 3,440 - 6,026 -942 2,099 July 277 1,130 total 811 379 307 383 441 808 -1,168 491 -424 4,880 -2,044 7,183 Federal agencies net purchases over 10 2.138 1,702 1,794 1,896 1,938 -3,052 5,337 5,698 13,068 3,779 1984--QTR. I II III 5-10 3 4 -- 6 6 36.4 15.2 - 20.8 1 Change from end of-period to end-of period. 2 Outright transactions in market and with foreign accounts, and redemptions (-) in bill auctions. 3 Outright transactions in market and with foreign accounts, and short-term notes acquired in exchange for maturing bills. Excludes redemptions, maturity shifts, rollovers of maturing coupon issues, and direct Treasury borrowing from the System. 4 Outright transactions in market and with foreign accounts only. Excludes redemptions and maturity shifts. 2.6 4.0 1.2 .4 8.2 179.5 -2.3 5 In addition to the net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowing from the System and redemptions (-) of agency and Trea sury coupon issues. 6 Includes changes in RPs (+), matched sale-purchase transactions (-), and matched purchase sale transactions (+).
@FedFRASER