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December 12, Strictly Confidential (FR) 1986 Class I FOMC MONETARY POLICY ALTERNATIVES Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System December 12, 1986 STRICTLY CONFIDENTIAL (FR) CLASS I - FOMC MONETARY POLICY ALTERNATIVES Recent Developments (1) M2 growth slowed substantially in November to a 6-1/2 percent annual rate and M3 growth moderated further to a 5-1/2 percent annual rate; since September, growth in M2 has been in the upper part of and M3 a little below the 7 to 9 percent growth ranges established by the Committee for the September-to-December period. Based on preliminary data through early Decem- ber, the staff estimates that annual growth in 1986 on a fourth-quarter to fourth-quarter basis will be just under 9 percent for M2 and about 8-3/4 percent for M3 (see table below), implying declines in velocity of around 4 percent. M1 accelerated again in November, reaching a 21 percent rate, as demand deposit growth surged. Growth in M1 likely will reach 14-3/4 percent for 1986 as a whole and its velocity will fall almost 9 percent--a postwar record. Monetary and Credit Aggregates and Ranges for 19861 (percent) M1 Actual growth P Annual range M2 M3 Debt 14.8 8.9 8.7 12.7 3 to 8 6 to 9 6 to 9 8 to 11 p--preliminary estimate. 1. Fourth-quarter to fourth-quarter basis. (2) In November, a marked deceleration in the nontransactions portion of M2 reflected in part weakness in overnight RPs and Eurodollars-offset in M3 by some strength in their term counterparts. In addition, the -2- KEY MONETARY AGGREGATES (Seasonally adjusted annual rates of growth) September October November September to November QIV'85 to November Ml 9.6 14.0 20.9 17.6 15.0 M2 7.3 10.6 6.6 8.6 8.9 M3 8.8 6.7 5.6 6.1 8.7 Domestic nonfinancial debt 11.4 8.5 11.6 10.1 12.6 Bank credit 13.0 2.2 9.0 5.6 9.1 Nonborrowed reserves 10.8 16.0 33.4 24.9 21.5 Total reserves 11.5 13.7 32.9 23.5 19.9 5.4 9.4 12.8 11.1 9.6 438 345 333 - 726 746 1001 Money and credit aggregates Reserve measures Monetary base Memo: (Millions of dollars) Adjustment and seasonal borrowing Excess reserves NOTE: Monthly reserve measures, including excess reserves and borrowing, are cal- culated by prorating averages for 2-week reserve maintenance periods that overlap months. Data incorporate adjustments for discontinuities associated with implementation of the Monetary Control Act and other regulatory changes to reserve requirements. -3retail portion of nontransactions M2 slowed, perhaps owing to a small extent to heavy purchases of U.S. savings bonds at the end of October, just before their minimum yield was lowered from 7-1/2 to 6 percent. Retail money market funds were especially weak and small time deposits continued to show large outflows, while flows into savings deposits continued rapid. NOW account growth also remained very strong, contributing to the rapid growth in M1. Opportunity costs of holding NOW and savings accounts remained quite low as offering rates edged down only slightly. of M3 rose a little in November. The non-M2 component Bank credit expanded rapidly, but a large increase in Treasury deposits reduced the need to issue managed liabilities included in M3. (3) Growth of debt of domestic nonfinancial sectors picked up to an 11-1/2 percent pace in November. Federal borrowing increased sharply, following the lifting of debt ceiling constraints. Business borrowing also was brisk last month, in both short- and long-term markets; a heavy pace of equity retirements, in part in advance of year-end tax changes affecting mergers, accounted for much of the strength. Although the announcement of a widening SEC investigation of insider trading had a pronounced effect on trading of low-grade debt, issuance of such debt remained strong and activity in investment-grade corporate bonds was not adversely affected. Issu- ance of tax-exempt bonds increased, but the pace was well below that of the spring and summer. Borrowing likely remained robust in mortgage markets, while the growth of consumer debt probably dropped off after the expiration of most auto financing incentives in early October. For the year, nonfinan- cial debt is expected to expand around 12-3/4 percent, well in excess of the 11 percent upper bound of the Committee's monitoring range. -4- (4) Reserve paths were constructed throughout the intermeeting period assuming $300 million of adjustment plus seasonal borrowing. Growth of total reserves picked up sharply to a 33 percent rate owing to the surge in required reserves against transactions deposits and an advance in excess reserves from almost $750 million in the previous three months to around $1 billion on average in November. In large measure, the increase in excess reserves seemed to reflect the usual patterns around holidays and social security payment dates, and in conducting open market operations the Desk made informal allowance for higher demands for excess reserves. Consequently, adjustment plus seasonal borrowing in the two complete maintenance periods since the last FOMC meeting averaged close to the $300 million path allowance. Even so, the funds rate firmed from around 5-7/8 percent at the time of the last meeting to well above 6 percent towards the end of the last complete statement period. Both seasonal and adjustment borrowing by smaller banks, where reserves and liquidity apparently have been ample, have been unusually light recently. In addition, larger banks may have been managing reserve positions especially cautiously, perhaps because of frequent discount window borrowings earlier in the fall and a desire not to constrain access to the window should the usual seasonal pressures arise over the year-end. In the current statement period, borrowing has averaged only $77 million through the first 8 days, and the federal funds rate has averaged close to 6 percent. (5) With the federal funds and RP financing rates a little firmer through much of the intermeeting period, other short-term market rates have risen by 10 to 35 basis points. However, bond yields generally -5- have declined about 15 to 25 basis points, as market participants appear to have interpreted incoming economic data as pointing on balance to a moderate course for activity and prices next year, which might provide some scope for an easing of policy in the first half of the year. Rates on commitments for fixed-rate home mortgages dropped one-half percentage point, moving toward a more normal alignment with Treasury bond yields. Although stock prices fell initially on the announcement of insider trading violations related to takeover activity, on balance they showed little net change over the period. (6) The dollar generally declined through November, but has since retraced a portion of that decline, ending the period about 1-3/4 percent lower on a weighted-average basis than at the time of the last FOMC meeting. Short-term interest rates rose moderately abroad, about in line with movements in U.S. rates, while long-term differentials moved slightly against dollar assets. in the EMS, The relative strength of the mark has increased pressures -6- Policy alternatives (7) The table below presents three alternative specifications for growth in the monetary aggregates from November to March, along with associated federal funds rate ranges. More detailed data, including implied growth from December to March and from the fourth quarter of this year to March, are shown on the table and charts on the following pages. Given the pattern of money growth expected through the fourth quarter, expansion from the fourth quarter base for the 1987 ranges through March would be at rates very close to the November-to-March growth rates shown below. Thus, under the reserve conditions assumed for any of the alternatives, both M2 and M3 would be expected to be within their 5-1/2 to 8-1/2 percent tentative longrun ranges in March. However, growth in M1 would be expected to continue at historically rapid rates, well in excess of its very tentative 3 to 8 percent range. Alt. A Alt. B 8 6-1/2 14 7 6 12 3 to 7 4 to 8 Alt. C Growth from November to March M2 M3 M1 Associated federal funds rate range (8) 6 5-1/2 10 5 to 9 The specifications of alternative B assume borrowing at the discount window of $300 million. Federal funds would be expected to trade around 5-7/8 percent, though perhaps more often above than below this level through year-end. The three-month Treasury bill is likely to edge back to the 5-3/8 percent level, especially as federal funds trading comes to center Alternative Levels and Growth Rates for Key Monetary Aggregates Levels in billions 1986-October November December 1987-January February March Monthly Growth Rates 1986-October November December Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 2764.9 2780.1 2794.6 2764.9 2780.1 2794.1 2764.9 2780.1 2793.6 3444.5 3460.6 3475.9 3444.5 3460.6 3475.2 3444.5 3460.6 3474.5 701.2 713.4 721.8 701.2 713.4 721.6 701.2 713.4 721.4 2813.2 2833.6 2854.2 2810.4 2828.0 2845.0 2807.6 2822.3 2835.7 3495.0 3515.7 3535.6 3492.9 3511.8 3529.8 3490.7 3507.9 3524.0 730.4 738.7 746.9 729.1 735.9 742.2 727.8 10.6 6.6 6.3 10.6 6.6 6.0 10.6 6.6 5.8 6.7 5.6 5.3 6.7 5.6 5.1 6.7 5.6 4.8 14.0 20.9 14.1 14.0 20.9 13.8 14.0 8.0 8.7 8.7 7.0 7.5 7.2 6.0 6.3 5.7 6.6 7.1 6.8 6.1 6.5 6.2 5.6 5.9 5.5 14.3 13.6 13.3 12.5 11.2 10.3 10.6 8.7 7.2 4.3 10.5 11.1 8.6 6.9 4.3 10.5 11.1 8.5 6.1 7.6 9.0 10.2 7.0 6.4 7.6 9.0 10.2 7.0 5.9 7.6 9.0 10.2 7.0 5.5 7.7 15.8 17.3 15.5 14.9 7.7 15.8 17.3 15.5 13.3 7.7 15.8 17.3 15.4 11.7 1987-January February March Quarterly Ave. Growth Rates 1986-Q1 4.3 10.5 Q2 11.1 Q3 8.6 Q4 7.7 1987-Q1 733.1 737.5 20.9 13.5 Sept.86 to Dec. 86 Nov. 86 to Mar. 87 Dec. 86 to Mar. 87 7.9 8.0 8.5 7.8 7.0 7.3 7.7 6.0 6.0 5.9 6.5 6.9 5.8 6.0 6.3 5.7 5.5 5.7 16.6 14.1 13.9 16.4 12.1 11.4 16.3 10.1 8.9 Q4 85 to Dec. 86 Q4 85 to Q4 86 Q4 86 to Mar. 87 8.8 8.9 8.0 8.7 8.9 7.0 8.7 8.9 6.1 8.5 8.7 6.5 8.5 8.7 6.0 8.5 8.7 5.6 15.1 14.8 14.7 15.1 14.8 12.7 15.0 14.8 10.7 1986 Ranges: 1987 Ranges(Tentative): 6 to 9 5.5 to 8 6 to 9 5.5 to 8 3 to 8 3 to 8 CHART 1 ACTUAL AND TARGETED M2 Bi I lons of dol Ilra 3100 - ACTUAL LEVEL SSHORT RUN ALTERNATIVES .. - 3050 .s - 3000 2950 2900 - * 2850 2800 91 .. * 2750 2700 2650 *2600 - -- 2550 2500 I ONDJ 1985 FMAM J J 1986 AS O NDJ FMAM J J 1987 AS 11 ND 2450 CHART 2 ACTUAL AND TARGETED M3 Bill ions of dol wre 13800 - -- 3700 ACTUAL LEVEL SHORT RUN ALTERNATIVES * 552 -- 3600 -- 3500 -- 1 3400 -- 3300 - - a -- * S . S -- 3200 I I I I 1I I I I I I I I I t I I I I I JA ONDJFMAMJJASONDJFMAMJ 1985 I 1986 1987 I I SON I 3100 D CHART 3 ACTUAL AND TARGETED M1 of dol lore 8111 lor I 780 - - ACTUAL LEVEL SSHORT RUN ALTERNATIVES S760 *A -740 -*CC.. -720 a.. -700 -680 - ./. -- -- .. - -1660 -1640 *** -- 620 I O I . NDJFMAMJ 1985 I I I I I I J 1986 I I ASON 1 I 1 I DJ I FMAM I I I I J J 1987 I I AS I I I ND 600 Chart 4 DEBT Bi ll Ions of dol Irs 1 8500 8300 ACTUAL LEVEL --- ESTIMATED LEVEL - 8100 - 7900 - 7700 7500 -7300 -7100 .' > .^'/~. -6900 -6700 I I ONDJ 1985 I I f I FMAMJ I I I I JAS 1986 I I I I NDJ I I I FMAM I I I I J J 1987 I I AS I I I ND 6500 -8- more evenly around 5-7/8 percent after year-end pressures abate. Bond rates are expected to vary around current levels; consistent with the staff forecast, incoming indicators of domestic output growth and inflation should not provide the basis for a major shift in sentiment. However, mar- kets are likely to remain sensitive to developments in oil markets--especially given the current OPEC meeting--and in foreign exchange markets. Down- ward pressures on the dollar could re-emerge in light of continued large current account deficits, especially absent evidence of a greater willingness of foreign authorities to lower interest rates. (9) M2, under alternative B, is expected to slow further from its average growth over October and November, expanding at a 7 percent pace over the November-to-March period--in the middle of its tentative range. The boost to M2 growth from previous market rate declines is likely to diminish further over this period, reinforced by additional reductions in offering rates on passbook accounts and other liquid deposits. The degree of moderation, though, probably will be limited by a continuation of slow adjustment of offering rates on these accounts. In addition, nominal in- come growth is projected to pick up in the first quarter, bolstering demands for M2. Adding to uncertainty about M2 growth in 1987 are tighter restric- tions on IRA deductions imposed by tax reform, which will tend to reduce the appeal of this non-M2 investment. While this could act to boost inflows to M2 accounts over time, its effects are less certain early in the year, when flows are dominated by contributions for the previous tax year. 1. 1 Under The new mortgage-backed securities favored by tax reform--REMICs--appear unlikely to attract many funds from retail M2 accounts, especially in the near-term. -9- alternative B, M2 would outpace nominal GNP, given the staff forecast, and its velocity thus would decline further in the first quarter, though by considerably less than in the fourth quarter or the year 1986. (10) Under the specifications of alternative B, M3 would expand at a 6 percent rate from November to March, near the reduced pace of recent months and in the lower half of its tentative range. Credit growth at banks is expected to moderate in early 1987 as business and household loan demands slacken, and stiffer capital requirements for thrifts should further restrain their asset growth. Under these circumstances depository institu- tions will be under little pressure to issue CDs and other managed liabilities in M3. The margin of growth of M3 over GNP would narrow and the con- traction of M3 velocity in the first quarter would be small--about in line with its long-term trend. (11) The outlook for M1 remains quite uncertain, given the extra- ordinarily low opportunity costs of holding OCDs and the erratic behavior of demand deposits. However, underlying conditions would seem to continue to point to some moderation in M1 growth under alternative B from the exceptional pace of recent quarters. With market rates fairly stable for some months now, interest rate effects on OCDs are likely to diminish as offering rates are reduced further and as the public's portfolio becomes more fully adjusted to earlier rate declines. Demand deposit growth also should subside, in part as compensating balances are brought into line with lower interest rates. Nevertheless, M1 would be expected to grow in the first quarter at a rate well in excess of GNP and its velocity would register another sharp decline, on the order of an 8 percent annual rate. - 10 - (12) The debt of domestic nonfinancial sectors is likely to decelerate in early 1987, with slower growth coming from both the government and private sectors. However, the decline in borrowing by some key sectors would be greater than is indicated by their underlying financing needs. Federal borrowing, for example, is expected to moderate considerably (sea- sonally adjusted), but much of this would result from a drawdown of the Treasury's cash balance, rather than a substantial decrease in the fiscal deficit. Borrowing by state and local governments is likely to edge lower from the already reduced levels of recent months in part as advance refunding activity slackens. Business needs for external funds in the first quarter should remain at about the level of the fourth quarter, but with a slowing of equity retirements after the current surge, businesses are expected to tap the credit market for smaller amounts in early 1987. In the household sector, a moderation in underlying demands for consumer credit will be exaggerated by efforts to substitute mortgage for consumer debt to retain full deductibility of interest payments; abstracting from such shifting, household mortgage demands would be expected to remain around the enlarged amounts of recent quarters. Total domestic nonfinancial debt is expected to grow at about a 10 percent annual rate over the first quarter of 1987, within the Committee's tentative annual monitoring range of 8 to 11 percent. (13) Alternative A assumes a reduction in discount window borrow- ing to a near-frictional level of $150 million or a reduction in the discount rate of one-half percentage point with borrowing maintained at $300 million. The federal funds rate, in either event, would decline to the 5-1/4 to 5-1/2 percent area. Other short-term rates also would move lower, - 11 - with the three-month bill likely dropping to 5 percent or a little below. The dollar could come under greater downward pressure on foreign exchange markets, unless other major central banks were similarly to ease. A weaker dollar and possibly heightened concerns about inflation could limit the scope for bond rate declines. That scope could widen, though, should incoming indicators on the economy point to more softness early in the year than is now generally expected and to subdued price pressures. (14) Under alternative A, growth in M2 would slow only a little from its average pace of recent months, and by March this aggregate would be in the upper portion of its tentative long-run range. strengthen a bit, but still range in March. pace of 1986. Growth in M3 would would be below the midpoint of its tentative M1 would be expected to expand at about the very rapid Unless greater interest cost pressures break the resistance of banks and thrifts to lowering offering rates on savings deposits and other liquid accounts, opportunity costs on these accounts would remain very low--or even decline further--drawing funds from small time deposits and the open market. M3 would tend to be boosted by inflows to money mar- ket funds, as their yields lagged the decrease in market interest rates. In addition, bank funding needs might be enlarged by more lending to businesses, especially if (15) long-term rates did not similarly decline. Under alternative C, reserve paths would be drawn with an assumed $500 million of discount window borrowing. would rise to the 6-1/4 to 6-1/2 percent area. The federal funds rate The tighter reserve condi- tions of this alternative would act to damp growth in M2 and M3; M2 would be in the lower half and M3 close to the lower end of their tentative ranges in March. Opportunity costs of the more liquid components of M2, in parti- - 12 - cular, would widen appreciably, restraining inflows to retail accounts, and reduced overall funding needs of banks and thrifts associated with slower asset growth would limit expansion of managed liabilities in M3. Growth in Ml also would be damped by tighter reserve market conditions and accompanying larger opportunity costs, although it probably would continue to advance considerably more rapidly than GNP. (16) The three-month bill likely would rise by around 50 basis points, and other short-term rates could rise by even more should the debt servicing difficulties of some businesses and other borrowers seem to have worsened. markets. The dollar might firm, at least for a while, on foreign exchange Bond rates also would back up, although reduced pressure on the dollar and a reassessment of inflation prospects could limit the extent of any rise. - 13 - Directive language (17) Draft language for the operational paragraph, with the usual alternatives for indicating the degree of reserve pressure, is shown below. In keeping with the Committee's practice since the July meeting, the draft provides for the specification of numerical growth rates for M2 and M3 but not for M1. With regard to M1, the staff is projecting some slowdown over the November-to-March period relative to growth over the summer and fall months, and the Committee could retain the wording of the current directive if it wished to indicate a similar expectation. If, on the other hand, the Committee preferred not to express any expectation about M1 growth over the months ahead, it could delete the language in the first set of brackets, referring to an expected moderation, perhaps substituting wording, like that shown in the second set of brackets, which emphasizes the uncertain outlook for M1. With regard to possible intermeet- ing adjustments in the degree of reserve pressure, the draft retains the symmetrical language of the latest directive but that language could be adapted to an asymmetrical approach (with the appropriate use of "might" and "would") as in a number of earlier directives. The draft also retains the reference to the possibility of "slight" adjustments to reserve pressures; the more usual terminology of "somewhat" as well as the standard option with respect to the use of "would" are given in parentheses. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT (Alt. A)/maintain (Alt. B)/ - 14 - INCREASE SOMEWHAT (Alt. C) the existing degree of pressure on reserve positions. This action is expected to be consistent with September to December] growth in M2 and M3 over the period from [DEL: 7 to9]____ and ____ percent, NOVEMBER TO MARCH at annual rates of [DEL: RESPECTIVELY. [While growth in M1 over the same period is expected to moderate from its exceptional pace during the previous several months,] [THE OUTLOOK FOR M1 REMAINS SUBJECT TO A GREAT DEAL OF UNCERTAINTY, AND] growth in this aggregate will continue to be judged in the light of the behavior of M2 and M3 and other factors. Slightly (SOMEWHAT) greater reserve restraint or slightly (SOMEWHAT) lesser reserve restraint might (WOULD) be acceptable depending on the behavior of the aggregates, taking into account the strength of the business expansion, developments in foreign exchange markets, progress against inflation, and conditions in domestic and international credit markets. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of[DEL: 4 to 8]____TO ____ percent. Selected Interest Rates Percent December 15, 1986 1985--High Low 8.98 7.13 8.65 6.77 9.03 6.92 9.21 7.06 9.13 7.34 8.83 7.22 8.31 7.00 10.75 9.50 11.19 8.24 11.95 9.07 11.89 9.34 13.23 10.62 10.31 8.85 13.57 10.52 13.29 11.09 11.14 9.17 1986--High Low 9.55 5.81 7.21 5.09 7.30 5.16 7.35 5.31 7.94 5.47 7.91 5.60 7.22 5.17 9.50 7.50 8.60 6.24 9.38 7.02 9.52 7.16 10.83 9.15 8.72 7.15 10.97 9.37 10.99 9.50 9.09 7.79 1986--Apr. May June 6.99 6.85 6.92 6.06 6.15 6.21 6.08 6.19 6.27 6.06 6.25 6.32 6.60 6.65 6.73 6.75 6.72 6.79 6.58 6.22 6.18 8.83 8.50 8.50 6.86 7.27 7.41 7.30 7.71 7.80 7.39 7.52 7.57 9.26 9.50 9.65 7.64 7.96 8.30 9.71 10.22 10.45 9.93 10.21 10.68 8.53 8.57 8.60 July Aug. Sep. 6.56 6.17 5.89 5.83 5.52 5.21 5.86 5.55 5.35 5.90 5.60 5.45 6.37 5.92 5.71 6.42 6.02 5.74 6.02 5.74 5.34 8.16 7.90 7.50 6.86 6.49 6.62 7.30 7.17 7.45 7.27 7.33 7.62 9.57 9.51 9.56 7.95 7.59 7.53 10.16 9.75 9.98 10.49 10.15 10.01 8.52 8.37 8.20 Oct. 5.85 6.04 5.18 5.35 5.26 5.41 5.41 5.48 5.69 5.76 5.74 5.84 5.22 5.21p 7.50 7.50 6.56 6.46 7.43 7.25 7.70 7.52 9.48 9.31 7.47 7.23 9.82 9.56 9.97 9.70 8.06 7.90 Nov. Aug. 6 13 20 27 6.36 6.31 6.38 5.87 5.74 5.65 5.56 5.32 5.78 5.68 5.56 5.38 5.81 5.73 5.61 5.41 6.23 6.12 5.94 5.64 6.27 6.21 6.12 5.68 5.86 5.82 5.76 5.67 8.00 8.00 8.00 7.86 6.79 6.64 6.44 6.27 7.37 7.28 7.09 7.02 7.50 7.39 7.24 7.24 9.58 9.49 9.45 9.32 7.97 7.64 7.43 7.32 10.00 9.87 9.62 9.52 10.40 10.23 10.04 9.93 8.44 8.42 8.33 8.32 Sep. 3 10 17 24 5.83 5.82 5.88 5.81 5.22 5.20 5.16 5.24 5.23 5.31 5.36 5.40 5.31 5.41 5.46 5.50 5.47 5.63 5.73 5.80 5.60 5.66 5.77 5.78 5.53 5.38 5.34 5.30 7.50 7.50 7.50 7.50 6.24 6.51 6.69 6.75 7.06 7.31 7.54 7.59 7.28 7.52 7.69 7.75 9.43 9.59 9.72 9.62 7.37 7.63 7.57 7.55 9.77 10.02 10.07 10.07 9.90 9.96 10.07 10.10 8.33 8.18 8.19 8.10 Oct. 1 8 15 22 29 6.08 5.75 5.83 5.91 5.86 5.22 5.09 5.11 5.28 5.22 5.38 5.17 5.16 5.37 5.30 5.49 5.32 5.33 5.48 5.46 5.78 5.64 5.63 5.77 5.74 5.83 5.72 5.70 5.77 5.77 5.30 5.26 5.21 5.19 5.20 7.50 7.50 7.50 7.50 7.50 6.69 6.48 6.50 6.67 6.60 7.47 7.33 7.42 7.56 7.44 7.63 7.56 7.72 7.84 7.73 9.50 9.51 9.52 9.49 9.32 7.57 7.47 7.50 7.49 7.30 9.92 9.82 9.87 9.77 9.72 10.08 9.99 9.96 9.95 9.89 8.18 8.08 8.03 8.03 7.98 Nov. 5 12 19 26 6.02 5.98 6.13 6.00 5.22 5.35 5.38 5.38 5.30 5.46 5.43 5.42 5.41 5.54 5.49 5.46 5.64 5.78 5.81 5.76 5.72 5.81 5.86 5.88 5.20 5.17 5.21 5.25 7.50 7.50 7.50 7.50 6.48 6.55 6.48 6.39 7.30 7.36 7.26 7.15 7.59 7.60 7.51 7.42 9.42 9.37 9.22 9.16 7.30 7.29 7.18 7.16 9.77 9.67 9.42 9.37 9.83 9.81 9.64 9.50 7.98 7.98 7.84 7.79 Dec. 3 10 6.25 5.97 5.41 5.46 5.44 5.47 5.47 5.48 5.83 5.84 5.99 6.02 5.22 5.26 7.50 7.50 6.38 6.36 7.12 7.07 7.37 7.33 9.08 9.00 7.15 7.34 9.37 9.38 9.30 9.35 7.77 7.72 Daily--Dec. 5 11 12 5.94 5.86 5.90p 5.44 5.49 5.49 5.46 5.49 5.50 5.49 5.51 5.52 5.81 5.87 5.94 6.01 6.03 6.04 7.50 7.50 7.50 6.38 6.39 4 6. 0p 7.12 7.12 3 7.1 p 7.38 7.38 7 39 . p - 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 the FNMA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments on the Friday following the end of the statement week Column 15 Is the average contract rate on new commitments for fixed-rate mort gages (FRMs) 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 one-year, adjustable-rate mortgages (ARMs) at S&Ls offering both FRMs and ARMs with the same number of discount points FR 1367 (1218i1 Money and Credit Aggregate Measures Strictly Confidential (FR)Class II FOMC Seasonally adjusted 15, DEC. Period M1 M2 1 2 Money stock measures and liquid assets nontransactions components In M3 only In M2 4 3 M3 5 L Investments 6 PERCENT ANNUAL GRBOTH: ANNUALLY (QIV TO QIV) 1983 1984 1985 10.4 5.4 11.9 12.2 8.0 8.7 12.8 8.8 7.7 1.0 21.2 3.8 9.9 10.5 7.7 10.4 11.9 8.5 QUARTEBLI AVERAGE 4TH UTR. 1985 1ST QTR. 1986 2ND UTB. 1986 3RD QTR. 1986 10.7 7.7 15.8 17.3 6.1 4. 4 10.5 11.1 4.7 3.3 8.7 9.1 8.6 20.6 3.4 6.3 6.6 7.6 9.0 10.2 9.5 8.3 7.0 8.5 MONTHLY 1985--V01. DEC. 11.5 12.6 5.9 7.1 4.2 5.3 5.7 9.0 5.9 7.5 1.1 7.3 14.1 14.5 23.4 14.8 16.6 20.6 9.6 14.0 20.9 1.6 3.6 6.8 13.8 12.6 9.6 12.8 11.2 7.3 10.6 6.6 1.7 2.4 4.6 13.6 9.1 7.8 11.5 8.0 6.4 9.4 1.7 37.8 16.9 11.6 2.5 -10.7 4.7 13.8 0.9 14.7 -9.1 1.8 8.7 6.3 7.8 11. 4 7.9 8.5 13.0 9.1 8.8 6.7 5.6 676.0 687.6 693.1 701.2 713.4 2699.2 2724.3 2740.8 2764.9 2780.1 2023.2 2036. 7 2047.6 2063.7 2066.7 1986--JA . FEB. HAL APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. P HONTHLI LEVELS 1986-JULY AUG. SEPT. OCT. NOV. P 1/ 2/ 1P 7.1 5.9 4.3 7.2 9.8 6.8 9.1 8.3 8.6 6.7 Domestic nonfinancial debt U.S. total other 2 government 2 9 10 21.3 16.0 15.2 8.9 13.3 12.8 11.5 13.9 13.3 9.4 12.7 4.1 10.5 13.7 17.0 11.6 14.5 13.4 14.9 9.8 11.1 13.5 15.4 10.3 11.9 13.3 15.5 23.1 27.9 13.0 21.3 15.3 22.8 18.7 3.4 5.7 2.0 5.9 3.8 13.2 13.8 13.0 2.2 9.0 15.8 9.8 5.6 9.6 17.3 19.3 14.7 8.8 11.5 9.9 16.0 18.2 7.2 8.5 10.7 10.9 9.8 9.9 13.7 11.4 8.1 10.2 17.6 7.7 7.8 10.4 12.4 12.0 11.0 12.5 11.4 8.5 11.6 7 8 10.6 11.2 9.9 (SBILLIONS) VEEKLY LEVELS (SBILLIONS) 1986-NOV. 3 10 17 24P DEC. 12.0 12.3 Bank credit total loans and 1 1986 675.9 676.4 684.7 679.5 680.5 3375.1 3400.7 3425.5 3444.5 3460.6 4002.9 4030.7 4059.6 4082.2 1985.0 2007.7 2029.6 2034.0 2049.3 1712.6 1725.1 1741.6 1755.9 1779.3 5518.1 5581.1 5634.2 5672.1 5720.4 7230.7 7306.2 7375.8 7427.9 7499.7 703.4 713.2 712.3 711.5 721.4 ANNUAL BATES FOB BANK CBRDIT ARE ADJUSTED FOd A TRANSFER OF LOANS FROM CONTINENTAL ILLINOIS NATIONAL BANK TO THE FDIC BEGINNING SEPTEMBER 6b, 1984. DEBT DATA ARE ON A MONTHLY AVERAGE BASIS, DEHIVED OI AVERAGING END-OF-MONTH LEVELS OF AUJACENT MONTHS, AND HAVE BEEN ADJUSTED TO BEHOVE DISCONTINUITIES. P-PBRELIMINAR Components of Money Stock and Related Measures Billions of dollars, seasonally adjusted unless otherwise noted 15, DEC. Small Other Currency Period denomi- Overnight Demand checkable RPs and deposits deposits Eurodollare MMDAs NSA Savings deposits nation time Money market Large mutual funds, NSA denomi- Term Term nation time RPs NSA Eurodollars NSA general purpose, depositsa and brokerl 2 dealer NSA Inatltutlons 1986 Short- Savings bonds term lTeasury Commerclea paper tancee securities only depositsI 9 10 11 12 13 14 Bankers accep16 15 1 2 3 147.2 157.8 169.7 243.4 247.1 268.4 130.2 144.2 176.3 53.6 56.1 67.3 s76.2 405. 508.5 J09.7 291.0 303.2 775.0 881.8 877.3 138.2 161.7 176.8 43.2 57.7 64.1 325.2 409.8 433.1 48.0 65.6 63.0 89.3 81.8 77.8 70.9 74.0 79.0 210.3 268.5 297. 1 127.5 158.7 199.5 44.0 44.5 42.7 1985-NOT. DBC. 169.8 170.6 267.8 271.5 176.7 178.6 66.4 70.3 509.5 512.0 303.7 303.6 876.0 880.3 176.8 176.5 64.5 64.6 432.9 436.5 63.3 66.0 78.4 76.7 79.0 79.5 300.7 308.4 196.4 209.5 43.1 41.1 1986-JAN. EB. BAR. 171.9 172.9 173.9 268.9 269.2 273.2 180.5 183.1 185.3 68.9 68.5 67.6 515.7 516.3 520.5 304.0 304.9 306.9 885.9 891.0 894.7 177.7 181.0 186.2 67.3 67.7 70.2 447.9 451.3 450.5 68.8 70.6 71.6 76.0 79.2 82.7 79.9 80.5 81.1 305. 5 307.7 300.2 210.6 209.2 209.5 41.6 42.4 41.7 APR. NAr JUNE 174.4 175.8 176.7 275.7 281.6 284.9 189.9 195.1 199.0 68.5 69. 1 66.4 525.2 530.8 540.4 311.4 318.5 325.0 895.9 891.2 885.6 191.4 193.2 197.3 74.1 76.1 75.0 452.1 446.4 445.1 71.5 74.2 75.3 81.5 79.8 80.1 81.8 82.6 83.4 298.8 305.7 299.5 20,3.0 20.6.7 210.6 41.0 40.1 40.3 JULY AUG. SEPT. 177.5 179.0 179.7 288.3 291.8 292.2 203.8 210.4 214.8 71.9 74.6 72.6 546. 1 553.1 558.3 331.2 337.6 344.4 883.7 877.2 871.3 199.7 200.5 202.2 77.5 80.8 84.4 445.9 448.0 447.2 75.0 75.5 78.0 78.6 78.4 81.6 84.3 85.3 86.4 291.9 288.4 289.8 212.3 219.3 221.1 39.4 37.2 36.8 181.2 182.2 293.2 298.4 220.4 226.4 77.0 75.6 563.8 68d. 1 353.8 363. 1 861.8 854.3 206.7 206.6 84.5 443.2 443.4 78.1 82.4 78.6 79.5 87.8 289.6 222.9 37.5 ANNUALLT (4T 1983 1984 1985 QT) 4 5 6 7 8 : 80STHJLI OCT. NOV. 1/ 2/ 3/ P 84.4 INCLUDES RETAIL REPURCHASB AGBEEHENTS. ALL IRA AND KBOGH ACCOUNTS AT COMNERCIAL BANKS AND TdHlFT INSTITUTIONS FROM SHALL TIE DEPOSITS. EXCLUDES IRA AND KEOGH ACCOUNTS. NET OF LARGE DENOMINATION TIME DEPOSITS HELD Br MUNES HARKET nUTUAL FUNDS AND THRIFT INSTIIUTIONS. P-PRELIANARY ABE SUBTRACTED STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Net Changes in System Holdings of Securities 1 Millions of dollars, not seasonally adjusted December 15, 1986 Treasury bills net change' Period t __ __ __ -3,052 5,337 5,698 13,068 3,779 14,596 1980 1981 1982 1983 1984 1985 1986- -QTR. I II III Treasury coupons net purchases 3 within 1-nnr -5 5-10 Federal agencies ne t purchases' over 10 4 . .~--. 912 294 312 484 826 1,349 4.564 2.768 2,803 3,653 3,440 4,185 2,138 1,702 wthin 1-year 1-5 217 133 398 360 5-10 over 10 total Net change outright holdings total' I I 29 -- 2,035 8,491 8.312 16,342 6,964 18,619 2,462 684 1,461 -5,445 -2,821 -2,861 7,585 7,535 4,577 -3,580 -356 1,794 1,896 1,938 2,185 4,668 1986- -Jan. Feb. Mar. 61 61 -3,277 396 -3,318 396 Apr. May June 2,988 3,196 1,402 2,988 3,146 1,402 July Aug. Sept. 867 867 2,940 2,850 861 Oct. Nov. 928 3,318 Sept. Oct. Nov. Dec. 861 3 10 17 24 2,287 119 1 8 15 22 29 295 106 472 5 12 19 26 295 2,708 153 117 3 10 461 4,123 LEVEL-- Dec. 10 ($ billLions) Net RPs" 835 190 893 236 158 1,476 4,670 2,287 281 151 120 104.0 1,476 18.5 38.8 15.5 23.1 93.8 2.5 3.8 1.2 .4 7.8 1,450 3,001 4,044 -3,466 198 -312 3,659 -4,470 455 -1,270 -448 5,762 -3,493 1,852 -1,085 119 281 151 2,179 -2,438 1,108 236 106 120 -34 472 -1,708 469 1,529 5,065 -6,223 295 2,583 1,629 117 1,827 -291 2,157 -3,097 461 4,123 -2,061 209.2 1,702 -3.5 J I ________________ ______________________________________________________________ ________________________________________________________________ 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 5 In addition to the net purchase of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowing from the System and redemptions (-) of agency and Treasury coupon issues 6 Includes changes In RPs (+), matched sale-purchase transactions (-). and matched purchase sale transactions (+)
@FedFRASER