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December 11, Strictly Confidential (FR) 1987 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) December 11, 1987 CLASS I - FOMC MONETARY POLICY ALTERNATIVES Recent developments (1) Following the November 3 FOMC meeting, reserve paths were constructed assuming $400 million of adjustment plus seasonal borrowing. However, in light of the fragile market conditions and uncertainty about liquidity demands and discount borrowing behavior, the Desk treated the allowance for borrowing flexibly, gearing open market operations to a considerable extent on the level of the federal funds rate relative to a central tendency of 6-3/4 to 6-7/8 percent, as discussed by the Committee. In each of the two complete maintenance periods since the last meeting, the Desk made informal downward adjustments to the borrowing allowance in order to avoid a tightening of money markets and a surge of borrowing late in the period, and actual borrowing averaged about $225 million over the two periods. On December 4, the borrowing allowance was reduced formally to $300 million, as evidence of a reduced willingness to borrow accumulated. Actual borrowing has averaged $140 million over the first eight days of the current maintenance period. After expanding at a double-digit pace in October, total and nonborrowed reserves contracted in November, owing to a drop in required reserves associated primarily with the reversal of the post-crash bulge in transactions accounts, and to a lower average level of excess reserve demands. (2) Federal funds have averaged in the 6-3/4 to 6-7/8 percent range over the intermeeting period, close to the average in the days leading up to the last FOMC meeting. Most other short-term rates have risen somewhat on balance, perhaps reflecting some ebbing both of preferences for liquidity as markets calmed somewhat and of hopes for further ease in monetary policy, as incoming data failed to suggest a nearterm weakening of the economy and the dollar fell. Rate increases were especially sharp on one-month private instruments, but these were attributable to efforts to lock in funding over the end of the year in anticipation that once again reserve market conditions would tighten substantially around that date. Yields on long-term Treasury securities have risen a little less than one-half a point since early November, with much of the increase occurring as the dollar declined sharply following release of unfavorable trade data for October. Corporate bond yields rose considerably less, however, and rates on municipal bonds have fallen over the intermeeting period, reflecting the restoration of calmer, more liquid conditions to most sectors of these markets. In general, markets are functioning more normally, with bid-ask spreads and dealer access to funding returning to levels prior to the stock market collapse; even so markets remain skittish, with occasional episodes of unusually wide price swings and of incipient flights to liquidity and quality echoing the experience after mid-October. (3) The dollar has declined by about 5 percent on a weightedaverage basis since the last Committee meeting. Market disappointment over U.S. budget deficit reduction efforts contributed to the dollar's weakness in the early part of the intermeeting period, as did various statements by U.S. and German officials to the effect that they were not willing to sacrifice other objectives to that of exchange rate stability. The early December round of concerted official interest rate reductions by Germany and several other European countries did lend some temporary support to the dollar. However, dollar declines resumed, and disappointing trade figures for October triggered a steep further drop in the exchange value of the dollar. The Desk purchased about $1.5 billion against marks and yen, with the total divided evenly between System and Treasury accounts. Over the period, short-term interest rates declined by about 1/2 percentage point, on average, in major foreign countries, while long-term rates declined slightly on balance. Stock prices fell by about 3 percent in Japan, while dropping a further 12 percent in Germany and rising slightly in the United Kingdom, compared with declines of around 6 percent in the United States. (4) The monetary aggregates weakened substantially in November. While some of the weakening reflected a runoff of the bulge in demand deposits that followed the stock market plunge in October, demand deposits dropped below early October levels and OCDs decreased. M1 contract- ed at a 6-1/2 percent annual rate in November; growth for October and November combined was about 4-1/4 percent at an annual rate. With the nontransactions portion of M2 expanding only sluggishly, the level of M2 KEY MONETARY AGGRETGATES (Seasonally adjusted annual rates of growth) September September QIV'86 to to November November October November 15.0 -6.6 4.2 5.8 Money and credit aggregates M1 .3 M2 5.7 7.2 -.1 3.5 4.1 M3 5.7 8.0 4.7 6.4 5.6 Domestic nonfinancial debt 8.9 9.4 10.3 9.9p 9.6P Bank credit 9.7 10.4 -.8 4.7 7.5 Nonborrowed reserves 1 -1.4 14.8 -4.8 5.0 6.5 Total reserves -1.1 13.9 -10.1 1.8 6.2 Monetary base 5.0 11.9 8.3 10.2 8.1 531 494 231 793 1128 937 Reserve measures Memo: (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves 1. Includes "other extended credit" from the Federal Reserve. p--Preliminary. 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 implementation of the Monetary Control Act and other regulatory changes to reserve requirements. was about unchanged in November, following a 7-1/4 percent rate of growth in October; growth of M2 at a 3-1/2 percent rate over the two months fell short of the Committee's 6 to 7 percent range for the broad aggregates. Only small time deposits and money fund shares have shown any strength recently, as their yields have remained attractive relative to rates on market instruments and liquid deposits. The extent of the dropoff in M1 and M2 in November, as well as the relative movements of components within M2, suggest that there were no lasting unusual demands for liquid, insured deposits. In addition, the runup in interest rates and opportunity costs through mid-October probably continued to restrain demands for these aggregates. To supplement weak core deposit growth, banks and thrift institutions issued managed liabilities at a robust pace in November, and flows into institution-only money funds moved up sharply, as returns on these funds lagged the downward movement of market rates in late October. As a consequence, M3 expanded at a 4- 3/4 percent annual rate, bringing growth in this aggregate from September to 6-1/2 percent. Based on the staff Greenbook GNP forecast, the velocities of M1 and M2 appear to be increasing slightly further in the fourth quarter, while the velocity of M3 probably is dropping a little. (5) The staff estimates that growth for 1987 on a fourth-quarter to fourth-quarter basis will be 4-1/4 percent for M2 and 5-1/2 percent for M3, considerably below the pace of recent years, leaving these aggregates respectively well below and at the lower ends of their 5-1/2 1. The currency component of M1 continued to increase unusually rapidly through mid-November, but has leveled off in recent weeks. to 8-1/2 percent annual ranges. M1 growth, at 6 percent, also would represent a sharp deceleration from the experience of the previous two years. The slowing of these aggregates and turnaround of their veloci- ties appear to be attributable primarily to the rebound in interest rates and opportunity costs in 1987 following steep declines in 1986. However, the extent of the moderation in money growth is somewhat more than can be accounted for using historical relationships among money, interest rates, and income. In part, the interest sensitivity of money demand may have increased in recent years, given the effects of deregulation and greater ease in effecting financial transfers; weakness in demand deposits in particular may be reflecting this tendency. In addition, special factors, including changes in consumer borrowing incentives under the new tax law, may have tended to restrain accumulation of liquid assets in M2. (6) Borrowing by private nonfinancial sectors may have slowed somewhat in November. Partial data suggest that business borrowing weakened last month, with both bond issuance and short-term borrowing below the pace of previous months. In part, credit needs were depressed by a reduced level of merger and leveraged buyout activity. Borrowing by state and local governments remained near the subdued pace that has prevailed in recent months. For households, banking data together with the earlier expiration of most auto incentive programs suggest consumer credit growth was moderate. On the other hand, Treasury borrowing has increased to fund a larger fourth-quarter deficit. Overall, the debt of domestic nonfinancial sectors is estimated to have expanded in November -7- in line with its trend of just over 9 percent since the fourth-quarter 1986 base; it thus appears that the debt aggregate will end the year near the middle of its 8 to 11 percent range. Policy alternatives (7) Three alternatives for monetary policy are presented below for Committee consideration. They are based on the options of maintaining current reserve and money market conditions, or seeking somewhat easier (alternative A) or somewhat tighter (alternative C) conditions. The latter two alternatives are assumed to involve changes of approximately 1/2 point in the federal funds rate from current levels along with associated adjustments of reserve pressures. Investor caution about default risk and potential volatility may continue in financial markets over the near term. In such circumstances, the apparent added reluc- tance of banks to be seen tapping the discount window since the last FOMC meeting also could persist. Moreover, year-end pressures may affect bank reserve management and the movements of interest rates in coming weeks. As a consequence, the relationship between the amount of adjustment plus seasonal borrowing and the spread of the funds rate over the discount rate is likely to remain unusually uncertain for awhile. In constructing the alternatives, the staff has assumed that, if financial markets remain unusually sensitive and instability in the borrowing relationship persists, the borrowing objective will continue to be interpreted with some degree of flexibility in implementing open market operations.2 2. The issue of the relative emphasis to give the federal funds rate and discount window borrowing as guides to day-to-day open market operations is discussed in the accompanying memorandum by Donald L. Kohn and Peter D. Sternlight, "Strategies for Open Market Operations," dated December 11, 1987. (8) Anticipated growth of the monetary aggregates from November to March under each alternative is presented in the table below, along with the associated federal funds rate bands. The memo items in the table show the implied rates of growth through March from the estimated fourth-quarter base for the 1988 ranges, as well as the FOMC's tentative 1988 ranges themselves. (More detailed data are shown on the table and charts on the following pages.) Under all the alternatives, growth of the monetary aggregates in coming months is expected to rebound from the unusual weakness in November. However, based on the experience of recent weeks, the projected growth paths do not incorporate any allowance for heightened demands for money resulting from the stock market collapse and subsequent financial and economic uncertainty. Alt. A Alt. B Alt. C 6 6-1/2 6 5 6 4 4 5-1/2 2 4 to 8 4 to 8 5 to 9 Alt. A Alt. B Alt. C Growth from November to March M2 M3 M1 Associated federal funds rate range Memo items: Implied growth from Q4'87 to March Tentative 1988 range (Q4 to Q4) M2 M3 5-3/4 6-1/2 4-3/4 6 3-3/4 5-1/2 Ml 5-1/2 3-1/2 1-1/2 5 to 8 5 to 8 (9) Alternative B would involve federal funds trading continuing to center around 6-3/4 to 6-7/8 percent. Borrowing at the discount Alternative Levels and Growth Rates for Key Monetary Aggregates M2 M3 M1 -------------------------------------- ------------------------ -----------------------Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Levels in billions 1987 October November December 2894.3 2894.0 2906.8 2894.3 2894.0 2906.1 2894.3 2894.0 2905.3 3645.6 3660.0 3675.3 3645.6 3660.0 3674.6 3645.6 3660.0 3673.9 760.7 756.5 757.1 760.7 756.5 756.9 760.7 756.5 756.7 1988 January February March 2921.9 2937.2 2953.2 2918.7 2931.1 2943.6 2915.5 2925.0 2934.0 3696.4 3717.9 3739.8 3694.2 3713.9 3733.7 3692.0 3709.9 3727.6 761.4 766.1 771.6 760.1 763.3 766.6 758.8 760.5 761.6 7.2 -0.1 5.3 7.2 -0.1 5.0 7.2 -0.1 4.7 8.0 4.7 5.0 8.0 4.7 4.8 8.0 4.7 4.6 15.0 -6.6 0.9 15.0 -6.6 0.6 15.0 -6.6 0.3 6.2 6.3 6.5 5.2 5.1 5.1 4.2 3.9 3.7 6.9 7.0 7.1 6.4 6.4 6.4 5.9 5.8 5.7 6.9 7.5 8.6 5.1 5.1 5.2 3.3 2.7 1.7 Quarterly Ave. Growth Rates 6.4 1987 Q1 Q2 2.3 Q3 3.1 Q4 5.0 5.4 1988 Q1 6.4 2.3 3.1 4.9 4.6 6.4 2.3 3.1 4.9 3.7 6.5 4.3 4.9 6.3 6.3 6.5 4.3 4.9 6.3 5.9 6.5 4.3 4.9 6.3 5.5 13.1 6.4 0.0 4.3 4.4 13.1 6.4 0.0 4.3 2.8 13.1 6.4 0.0 4.3 1.2 4.1 6.1 6.4 4.0 5.1 5.2 3.9 4.1 4.0 5.9 6.5 7.0 5.9 6.0 6.4 5.8 5.5 5.8 3.1 6.0 7.7 3.0 4.0 5.1 2.9 2.0 2.6 4.3 5.4 4.1 4.2 5.7 4.3 4.6 4.1 4.2 4.7 4.3 3.7 4.1 4.2 3.7 5.6 6.3 5.6 5.6 6.5 5.6 5.9 5.6 5.6 6.0 5.6 5.5 5.6 5.5 5.6 6.1 4.4 5.8 5.5 5.4 6.1 2.8 5.8 5.4 3.4 6.0 1.2 5.8 5.4 1.4 Monthly Growth Rates 1987 October November December 1988 January February March Sep. 87 to Dec. 87 Nov. 87 to Mar. 88 Dec. 87 to Mar. 88 Q4 Q4 Q4 Q4 Q4 86 87 86 86 87 to to to to to Q4 87 Q1 88 Nov. 87 Dec. 87 Mar. 88 1987 Ranges: 1988 Ranges (Tentative): 5.5 to 8.5 5.0 to 8.0 5.5 to 8.5 5.0 to 8.0 Chart 1 ACTUAL AND TARGETED M2 Billioni of dollars 3200 -* Actual Level Short-Run Alternatives 3150 3100 - 050 51 -3000 -2950 -2900 -2850 2800 - 1 O N D 1986 J F M A M J J 1987 A S O N D J F M A M J J 1988 A S I O I N 2750 2700 D Chart 2 ACTUAL AND TARGETED M3 Billions of dollars 4050 -- Actual Level SShort-Run Alternatives 4000 3950 3900 ,--* c 3850 / 3800 3750 3700 3650 3600 3550 3500 3450 3400 O N D 1986 J F M A M J J 1987 A S O N D J F M A M J J 1988 A SO N 3350 Chart 3 M1 Billions of dollars 960 S---Actual Level -------. Growth From 1986:04 SShort-Run Alternatives 9 940 15 ,' S,-' / - 920 - 900 -Sa S820 S- L .-" .*- -- * - ,,* - 740 --- 700 -- O 820 800 680 N i996 D J F M A M J J 19,7 A S O N D J F M A M J J 1988 A S O N D Chart 4 DEBT Billions of dollars 8600 --- Actual Level --- 8500 Estimated Level 8400 8300 8200 8100 8000 7900 7800 7700 7600 7500 7400 7300 I 0 N 1986 I I 0 I J I F I M I A I M I J J 1987 1 I A I S O N D 7200 -11- window associated with this level of federal funds trading seems especially difficult to gauge for the coming two maintenance periods, which surround year-end, as depository institutions position themselves for anticipated year-end pressures. Given continuing uncertainties in financial markets and concerns about bank credit quality, some reluctance on the part of banks to be seen at the window is likely to persist after year-end. Borrowing of perhaps around $300 million could be consistent with the assumed federal funds rate in the new year. (10) With federal funds continuing to trade around recent levels, short-term rates might show mixed movements in coming weeks. Private short-term rates should decline once year-end pressures have passed, while Treasury bill yields could edge higher, with the 3-month bill rate rising to above 6 percent under alternative B. However, any narrowing of spreads could be limited, as economic uncertainties here and abroad, combined with the overhang of previous financial difficulties, sustain market concerns about the financial strength of debtors and the institutions that have extended them credit. The dollar would probably continue under general downward pressure, although a new G-7 accord could lend an element of stability for a time. Should dollar weakness abate, and eco- nomic indicators point to a softer economy along the lines of the staff forecast, bond yields could drop somewhat from the elevated levels of recent days. (11) Under the unchanged reserve market conditions of alternative B, M2 growth from November to March likely would pick up from the 3-1/2 percent average pace of October and November, placing this aggregate -12- just below the 5 percent lower bound of the growth cone associated with its tentative 1988 range by March. The decline in market interest rates since mid-October has lowered opportunity costs on retail deposits to around their summer levels. As the effects of increases in opportunity costs earlier this year fade, deposit inflows should pick up. M2 is thus expected to grow nearly apace with GNP through the first quarter of next year, with its velocity essentially unchanged. This compares with an increase in V2 that averaged 3 percent at an annual rate over the first three quarters of this year. (12) M3 is expected to grow at a 6 percent annual rate from November to March under alternative B, about the same pace as in recent months; such growth would keep this aggregate through March well within its tentative range for 1988. Flows to institution-only money funds should weaken substantially as their returns move down into more normal alignment with market rates. However, bank credit expansion is likely to rebound in coming months from its November pause, and thrift asset growth should be well maintained, buoyed by continued large acquisitions of ARMs. Overall household mortgage and consumer credit expansion in the first quarter is expected to stay around the reduced fourth-quarter pace, as housing activity and consumer durables spending remain about flat. Business borrowing is expected to be sizable, as the financing gap remains appreciable, while share retirements fall back only modestly. State and local bond issuance should continue near its recent subdued pace, but a substantial volume of federal government borrowing is anticipated to finance the higher deficit. In all, the debt of -13- domestic nonfinancial sectors in March is expected to stand 9 percent at an annual rate above its fourth-quarter base--the midpoint of its 7-1/2 to 10-1/2 percent tentative range for 1988. (13) M1 growth is expected to average 4 percent over the next four months under alternative B. This represents a slight pickup from its average pace over October and November, abstracting from the effects of the bulge. Little expansion is expected on a month-average basis in December, given the pattern of growth in late November and early December. But with interest rates essentially flat, increases averaging 5 percent at an annual rate are projected over the first three months of next year. Even so, the monthly pattern of M1 growth is expected to produce an increase in velocity of 2 percent in the first quarter. (14) The 1/2 percentage point lowering of the federal funds rate under alternative A would bring it to the 6-1/4 to 6-3/8 percent area. This probably would be associated with minimal borrowing in the nearterm and perhaps in a range around $150 million in the new year. Such an easing is not expected by financial market participants, at least in the absence of much hard evidence indicating that the stock market decline or other factors have begun to retard spending significantly. Choosing this alternative thus would depress short-term market rates below recent levels, with the 3-month Treasury bill rate likely to fluctuate around 5-1/2 percent. Yields on private short-term instruments probably would decline by more, as the policy easing improved prospects for continued economic expansion and helped relieve worries about credit quality. Such an action would tend to restore -14- differentials between U.S. and European short-term interest rates to levels prevailing before recent cuts in official lending rates abroad, increasing downward pressure on the dollar. If inflationary concerns in financial markets are intensified, declines in bond yields may be limited. (15) Lower short-term market rates relative to deposit offering rates under alternative A would prompt more rapid inflows into M2-type accounts. M2 growth from November to March would be expected to pick up to 6 percent. Higher compensating balance requirements in response to reduced market rates would boost business demand deposits, while more savings-type balances would be diverted to NOW and other liquid accounts in response to reduced opportunity costs. M1 growth of 6 percent expected over November to March implies expansion at almost an 8 percent rate in the early months of 1988, given the slow growth now in train for December. The faster growth in core deposits likely would produce only a partial offset in reduced issuance of managed liabilities in M3, as greater loan demands would be placed on banks and thrifts in response to generally easier credit conditions. With this alternative, M3 might expand at around a 6-1/2 percent pace from November to March. By then, M2 would be within, and M3 around the midpoint of, the FOMC's tentative ranges for 1988. (16) The firming of reserve market conditions embodied in alternative C would also take market participants by surprise. Federal funds rates could rise back to the 7-1/4 to 7-3/8 percent area, with borrowing perhaps around the $500 million range in early 1988. Rates on private -15- instruments could rise appreciably, especially if a negative reaction in stock markets induced a renewed flight to safety and liquidity. Higher funding costs would cause banks to increase their prime rates by at least 1/2 point, while rates on consumer installment and mortgage loans also would be raised. But higher interest rates would enhance the attractiveness of dollar assets to international investors, and a tendency for the exchange value of the dollar to appreciate in the nearterm could emerge. (17) The higher interest rates of alternative C can be expected to prevent M2 from accelerating much from its recent pace. M3 growth could slow somewhat, especially as money funds experienced outflows when market rates rose. In March, M2 would be well below, and M3 somewhat above, the lower bounds of their tentative 1988 ranges. Given its rela- tively greater interest sensitivity, M1 would probably grow at only a 2 percent rate through March, well below its average growth to date this year. -16- Directive language (18) Draft language for the operational paragraph is shown below. The second sentence from the November directive, which calls for special flexibility in the conduct of open market operations, might be retained. However, the remaining special language from that directive is proposed for deletion; much of it referenced unusual demands for liquidity. The sentence on possible intermeeting adjustments would add a reference to "conditions in financial markets" to the usual listing of factors to be considered in deciding on the desirability of such an adjustment. OPERATIONAL PARAGRAPH 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 degree of pressure on reserve positions [DEL: sought in recent days]. The Committee recognizes that STILL SENSITIVE [DEL: the volatile] conditions in financial markets and uncertainties in the economic outlook may continue to call for a special degree of flexibility in open market operations[DEL: ,depending, growing out of recent or in particular, on-demands-for-liquidity- in prospective developments financial markets]. TAKING ACCOUNT OF CONDITIONS IN FINANCIAL MARKETS, [DEL: apart-from-such-con- siderations,] somewhat (SLIGHTLY) lesser reserve restraint would (MIGHT), or slightly (SOMEWHAT) greater reserve restraint might (WOULD), be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. [DEL: While the outlook for monetary growth over the months ahead is subject to unusual -17- uncertainly,] The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from NOVEMBER THROUGH MARCH[DEL: September through December]at annual rates of about [DEL: 6 to 7] but more rapid growth is pos____ percent AND ____ PERCENT, RESPECTIVELY[DEL: sible should preferences for liquidity be pariticulary strong]. Over the same period, growth in M1 is expected to REMAIN RELATIVELY LIMITED [DEL: be well above its average pace in the previous several months]. The Chair- man 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. December 14, 1987 L SELECTED INTEREST RATES (percent) Jl -Cnorx- ta-.. Lon- federal funds 3 month 6 month 12 month I r... -U.S. Gov't. constant- ----reasury bills-----secondary market--- ---- ods sec mkt 3-month paper 1-month comm. money market mutual fund bank 30-year corp. A utility rec off prime loan conventional home-r---r tgages w _ sec mkt primary market -- maturity yields--- 3-year 10-year muni. Bond Buyer fixedrate fixedrate ARM 9.55 5.75 7.21 5.09 7.30 5.16 7.35 5.32 7.94 5.47 7.91 5.60 7.21 5.17 9.50 7.50 8.60 6.24 9.38 7.02 9.52 7.16 10.83 9.03 8.72 7.15 10.97 9.31 10.99 9.29 9.09 7.62 7.62 5.95 6.84 5.24 7.36 5.36 7.64 5.40 8.49 5.83 7.69 5.88 6.70 5.28 9.25 7.50 9.29 6.37 9.96 7.03 9.97 7.34 11.50 8.79 9.59 6.92 11.98 8.97 11.58 9.03 8.45 7.47 Monthly DEC 86 JAN 87 FEB 87 MAR 87 APR 87 MAY 87 JUN 87 JUL 87 AUG 87 SEP 87 OCT 87 NOV 87 6.91 6.43 6.10 6.13 6.37 6.85 6.73 6.58 6.73 7.22 7.29 6.69 5.53 5.43 5.59 5.59 5.64 5.66 5.67 5.69 6.04 6.40 6.13 5.69 5.55 5.44 5.59 5.60 5.90 6.05 5.99 5.76 6.15 6.64 6.69 6.19 5.55 5.46 5.63 5.68 6.09 6.52 6.35 6.24 6.54 7.11 7.05 6.50 6.04 5.87 6.10 6.17 6.52 5.45 5.50 5.32 5.32 5.49 5.79 6.01 6.02 6.00 6.22 6.57 7.50 7.50 7.59 7.50 7.75 8.14 8.25 8.25 8.25 8.70 9.07 8.78 6.43 6.41 6.56 6.58 7.32 8.02 7.82 7.74 8.03 8.67 8.75 7.99 7.11 7.08 7.25 7.25 8.02 8.61 8.40 8.45 8.76 9.42 9.52 8.86 7.37 7.39 7.54 7.55 8.25 8.78 8.57 8.64 8.97 9.59 9.61 8.95 9.08 8.92 8.82 8.84 9.51 10.05 10.05 10.17 10.37 10.84 11.07 10.39 7.23 6.99 7.03 7.03 7.87 8.35 8.13 8.09 8.11 8.61 9.06 8.39 9.34 9.15 9.04 9.01 10.05 10.58 10.38 10.20 10.39 11.01 11.42 10.73 9.31 9.20 9.08 9.04 9.83 10.60 10.54 10.28 10.33 10.89 11.26 10.65 7.68 7.24 6.63 5.95 6.12 6.22 6.39 6.83 6.86 6.57 6.62 7.26 7.38 6.77 Neekly SEP 2 87 SEP 9 87 SEP 16 87 SEP 23 87 SEP 30 87 6.85 6.95 7.21 7.26 7.56 6.21 6.36 6.34 6.45 6.55 6.31 6.52 6.55 6.72 6.87 6.76 7.12 7.11 7.10 7.23 6.92 7.20 7.39 7.43 7.59 6.78 7.09 7.35 7.33 7.41 6.03 6.04 6.21 6.25 6.34 8.25 8.68 8.75 8.75 8.75 8.30 8.63 8.64 8.66 8.84 9.05 9.39 9.41 9.42 9.57 9.23 9.56 9.59 9.58 9.72 10.60 10.86 10.93 11.00 11.08 8.47 8.67 8.65 8.65 8.88 10.92 10.96 11.03 11.13 11.43 10.63 10.91 10.99 11.02 11.18 7.84 7.96 7.99 7.99 8.08 8.82 9.25 9.25 9.00 8.97 9.29 9.07 8.10 9.68 9.96 9.85 8.94 9.78 9.97 9.93 9.08 11.24 11.50 10.75 10.60 9.03 9.59 9.01 8.78 11.65 11.98 11.08 10.98 11.21 11.58 11.36 10.97 8.15 8.45 8.37 8.20 9.00 8.75 8.75 8.01 7.90 7.99 7.98 8.90 8.76 8.83 8.86 9.04 8.85 8.92 8.95 10.39 10.38 10.31 10.40 8.28 8.41 8.44 8.43 10.81 10.73 10.62 10.74 10.79 10.66 10.60 10.55 8.11 7.98 7.97 7.94 8.75 8.75 8.10 8.09 9.03 9.02 9.15 9.18 10.42 10.70 8.40 8.57 10.73 10.98 10.60 10.66 7.95 7.91 8.75 8.75 8.75 8.00 8.29 8.30p 8.94 9.23 9.28p 9.12 9.40 9.45p 6.99 6.94 6.70 6.75 7.37 8.02 OCT OCT OCT OCT 7 87 14 87 21 87 28 87 7.43 7.59 7.37 7.03 6.62 6.84 6.37 5.24 6.89 7.36 6.98 5.97 7.39 7.64 7.22 6.40 6.05 8.47 8.49 7.43 7.47 7.69 7.66 6.96 6.45 6.56 6.70 6.55 NOV NOV NOV NOV 4 87 11 87 18 87 25 87 6.43 6.68 6.77 6.78 5.42 5.67 5.85 5.73 6.03 6.12 6.32 6.18 6.38 6.41 6.57 6.51 7.40 7.08 7.17 7.19 6.91 6.67 6.78 6.75 6.47 6.49 6.68 6.43 6.89 6.84 5.47 5.66 6.17 6.31 6.58 6.64 7.60 7.64 7.03 7.62 6.42 6.47 6.82 6.83 6.84p 5.43 5.92 5.86 6.15 6.47 6.47 6.53 6.81 6.79 7.54 7.77 7.89 7.52 7.83 8.00 DEC 2 87 DEC 9 87 Daily DEC 4 87 DEC 10 87 DEC 11 87 8.75 7.62 7.56 7.54 7.58 7.88 7.93 7.81 7.76 7.95 8.25 8.00 NOTE: Meekly 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 FNHA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for fixed-rate mortgagesFRMs) with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial contract rate on new commitments for 1-year, adjustable-rate mortgages(ARMs) at SALs offering both FRMs and ARMs with the same number of discount points. Strictly Confidential (FR)Class II FOMC Money and Credit Aggregate Measures Seasonally adjusted . ._ M1 Period 1 PERCENT ANNUAL GROBTH: ANNUALLI (JiVTO QIV) 1984 1985 1986 QOABTKBLT AVERAGE 1986 TH TR. 1ST QTi. 1987 2ND UTN. 1987 380 QTR. 1987 1987--JAl. rl. BNA. APa. RAT JUNE JUL AUG. SBIT. OCT. 101. P NONTHLI LEVELS 1987--JULT AUG. SBPT. OCT. NOT. P 1/ 2/ total loans and L Domestic nonfinancial debi2 US government2 in M2 in M3only 3 4 5 6 7 8 other 2 total 9 10 7.9 8.8 9.0 8.6 7.8 6.9 23.2 3.3 8.7 10.7 7.7 8.9 12.2 8.5 8.1 11.2 10.2 9.7 15.9 15.2 14.7 13.4 12.6 12.7 13.9 13.2 13.2 17.0 6.4 0.0 9.3 6.4 2.3 J.1 6.7 4.1 0.9 4.3 4.3 6.6 12.2 11.8 8.3 6.5 4.3 4.9 8.4 6.2 3.2 4.4 8.8 10.1 7.0 5.7 11.8 12.2 8.7 5.9 12.8 9.8 9.2 9.0 12.5 10.4 9.1 8.2 18.8 30.5 6.5 10.8 2.3 4.0 6.7 8.6 6.5 10.3 7.6 9.5 6.4 15.1 12.6 19.1 11.8 14.8 12.0 15.8 11.8 -0.5 3.4 17.5 4.5 -10.4 1.6 5.6 0.3 15.0 -6.6 9.6 -0.2 1.5 5.7 0.2 0.5 2.7 6.5 5.7 7.2 -0.1 8.7 -0.1 0.9 1.4 -1.3 4.4 3.1 6.9 7.6 4.3 2.3 6.6 7.1 2.1 5.5 27.0 26.5 0.7 9.3 5.5 11.1 23.3 9.0 1.2 1.6 5.6 5.5 5.8 2.3 7.1 5.7 8.0 4.7 9.5 2.2 -3.2 3.3 9.6 4.1 -1.1 8.2 8.4 10.4 16.1 0.8 3.8 11.9 7.4 3.9 1.4 10.8 9.7 10.4 -0.0 9.4 9.4 11.2 7.6 8.2 7.4 1.8 8.8 6.5 3.9 12.7 10.4 3.9 7.6 10.7 10.7 10.0 8.4 7.4 9.7 11.1 9.6 10.2 5.2 8.5 9.9 10.1 9.4 6.8 7.8 8.9 9.4 10.3 747.6 751.1 751.3 760.7 756.5 2848.0 2863.4 2877.1 2894.3 2894.0 2100.4 2112.4 2125.8 2133.5 2137.5 735.4 741.1 744.5 751.4 766.0 3583.4 3604.5 3621.6 3645.6 3660.0 4224.7 4253.7 4283.4 4320.7 2169.5 2189.0 1888.9 1902.8 1913.1 1919.3 1939.6 6097.7 6135.3 6184.9 6242.1 6292.0 7986.6 8038.2 8098.0 8161.5 8231.7 2206.7 2225. 2224.3 757.6 754.0 759.5 768.4 762.7 759.2 756.2 759.2 750.9 2 9 16 23 P 30 P ANNUAL RATES FOR BANK CBEDIT ARE ADJUSTED FOR A TRANSFEB OF LOANS FRON CONTINENTAL ILLINOIS NAIIONAL BANK TO THE FDIC BEGINIING SEPTEMREB 26, 1984. LEVELS OF ADJACENT NONTS., AND HAVE BEEN ADJUSTED DEBT DATA ABE ON A HONTHLI AVERAGE BASIS. DSEIVED B! AVERAGING END-OF-HONI' TO BBIOVE 2 investments' (SBILLIONS) EXKLI. LEVELS (SBILLIOIS) 5 1987-OCT. 12 19 26 NOv. 2 Bank credit M3 components M2 1987 5.4 12.1 15.3 13.1 MONTHLI 1986-- 10. DEC. Money stock measuresand lquid a s nontransactions .. 14, DEC. DISCONTINUITIXS. F-PMELININARY PE-PMiLIAINART ESTINATE Components of Money Stock and Related Measures Billions of dollars, seasonally adjusted unless otherwise noted DEC. Demand Other checkable Overnight RPs and Currency deposits deposits Eurodollars NSA 1 2 3 4 157.8 169.7 182.4 246.6 268.6 299.8 143.9 175.9 226.1 1986-801. DEC. 182.4 183.5 297.8 308.3 1987-JAN. F18. IAB. 186.0 187.2 187.7 APa. sAi Ju39 JULY AUG. SEPT. Period Small denomlnation time deposits' Money market mutual funds, NSA general nstlltupurpose, tlons nd brokerl only MMDAs NSA Savings deposits 5 6 7 8 56.1 67.2 78.0 405.4 509.2 568.2 290.5 301.9 358.4 880.0 880.3 858.4 161.7 176.6 207.2 225.8 232.3 77.5 78.4 568.7 571.4 358.5 366.3 857.1 853.5 305.1 300.8 299.3 240.1 242.9 245.7 84.7 80.1 76.9 574.3 570.8 570.6 376.7 387.2 396.3 188.9 190.2 191.1 303.9 303.9 297.4 250.7 252.2 251.2 76.8 75.9 74.5 565.5 557.1 553.5 192.1 193.2 194.5 296.2 296.4 294.1 252.6 254.6 255.6 75.1 79.2 82.9 196.2 198.4 300.4 295.7 257.2 255.5 85.6 79.9 Large denomination time deposlts' Term RPs NSA 14, 1987 Term Eurodollars NSA Savings bonds 12 13 14 15 16 Shortterm CommerTreasury cl paper securities Bankers accep. tances dealer' 9 10 11 57.7 64.7 84.3 413.6 433.3 446.1 65.3 62.7 82.2 81.1 77.6 80.1 73.9 78.9 89.7 266.8 294.7 287.0 161.2 201.7 229.0 45.7 43.2 37.7 207.1 207.6 84.4 84.1 445.8 447.1 83.8 84.0 79.3 83.0 89.8 91.7 288.8 288.1 228.4 230.2 38.0 37.5 851.6 848.5 846.1 209.0 210.7 211.6 84.0 84.7 84.9 449.7 448.2 450.1 83.6 87.2 87.2 84.7 87.3 87.6 92.7 93.5 94.3 284.1 285.6 269.2 239.7 239.8 239.1 37.8 39.3 39.8 406.1 411.7 415.2 843.9 843.2 850.1 211.0 208.9 209.6 83.1 81.8 81.3 454.6 459.7 465.1 94.5 104.8 107.0 83.1 86.2 88.8 95.1 95.9 96.5 256.3 262.4 259.8 244.9 254.3 252.1 41.2 42.4 43.5 548.1 543.7 539.3 416.7 419.9 419.3 858.5 865.5 871.7 209.8 212.8 216.5 83.4 83.4 80.7 465.1 466.8 468.9 107.5 108.0 109.7 84.7 89.6 93.9 97.3 97.8 98.2 252.2 258.3 262.3 248.4 250.3 257.5 43.4 42.9 43.8 532.6 526.3 416.7 411.9 883.0 901.6 219.3 221.6 81.6 88.5 476.2 486.0 106.9 109.7 92.4 90.3 98.7 273.1 257.7 45.5 AINUALLI (4TH QOT) 1984 1985 1986 N8011NLI OCT. NOV. 1/ 2/ 3/ P INCLUDES BETAIL BEPURCHASE AGBEBRINTS. ALL IlA AND K0OGM ACCOUNTS AT COIIBBCIAL BAIKS AND THRBIT INSTITUTIONS ARB FROn SALL TIRE DPOSITs. EXCLODES IRA AID KROGM ACCOUOTS. NET OF LARGE DENOINATION TIRE DEPOSITS HELDU 81! OE BI IAKET HUTUAL FUNDS AND THRIFT INSTITUTIONS. P-P LININABI SUBTRACTID STRICTLY CONFIDENTIAL (FR) Net Changes in System Holdings of Securities1 MillIons of dollars, not Treasury bills net change' Period Treasury coupons net purchases' 1-5 294 312 484 826 1,349 190 1,702 1,794 1,896 1,938 2,185 893 1981 1982 1983 1984 1985 1986 5,337 5,698 13,068 3,779 14,596 19,099 1986--Q1 Q2 Q3 Q4 -2,821 7,585 4,668 9,668 190 893 1987--Q1 Q2 Q3 -2,714 5,823 -3,539 1,767 143 -252 5,036 2,356 1987--June 553 -4,909 499 871 795 3,388 July Aug. Sept. Oct. Nov. 2 9 16 23 30 804 2,994 309 245 -3,246 7 14 21 28 26 -50 285 Nov. 4 11 18 25 644 198 2,953 51 Dec. 2 9 127 100 Sept. Oct. LEVEL -Dec. 9 107.9 535 143 300 670 443 Federal agencies net purchases 4-. within 1-year 1,394 -200 5 2,551 5-10 over 10 393 388 890 236 358 236 wi th- n 1-year 1-5 5-10 over 10 total | 1987 Net change outright holdings total' Net RPs' oa 2,768 2,803 3,653 3,440 4,185 1,476 8 ,491 8 ,312 16 ,342 6 ,964 18 ,619 20 ,178 684 1,461 -5,445 1,450 3,001 10,033 236 1,476 -2 ,861 7,535 4,577 10 ,927 -3,580 -356 4,044 9,925 1,226 619 -252 8,948 3,610 -3 ,075 14 ,735 12 -14,254 2,121 -1,433 2,491 -200 5 3,805 300 720 3 ,044 -5 ,168 504 4,676 1,039 4 ,038 2,954 906 -2,365 26 7,493 -3,331 4,105 804 2 ,994 4,414 245 -3 ,546 -4,478 2,023 -854 19,582 -19,561 312 619 50 2,551 CLASS II-FOMC December 14, seasonally adjusted 619 -300 -300 26 194 285 -1,025 1,152 2,600 8,557 - 20 479 50 2,589 445 23.3 47.2 25.4 ----- 150 195 185 120 794 393 3d,068 171 -14,095 3,744 -4,309 1,982 -- 70 4,109 196 4,210 9,998 -10,780 Change from end-of-period to end-of-period. Outright transactions in market and with foreign accounts, and redemptions (-) In bill auctions. 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. Outright transactions in market and with foreign accounts only. Excludes redemptions and maturity shifts. 111.2 .2 7.6 2331.3 -4.5 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