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Mr. Sternlight made the following statement:

Desk operations since the last meeting of the Committee
have been directed steadily at maintaining conditions of reserve
availability consistent with a Federal Funds rate around 6 1/2

Estimated growth of the monetary aggregates was perceived

to be well within the designated ranges throughout the interval,
though the period started with estimated growth somewhat above the
midpoints while later revisions placed growth in the lower portion
of the ranges.

For the most part, actual funds trading hugged the

desired rate closely, with weekly averages deviating no more than
a few basis points from 6 1/2 percent.
Desk operations drained reserves in the second half of
November through matched sale purchase transactions in the market
as well as with foreign accounts, and through outright sales of
$360 million of bills to those accounts.

Starting December 1, the

System began making outright purchases of bills from foreign accounts,
acquiring a total of about $1,350 million in preparation for major
mid-December reserve drains.

To this same end, the System bought

$977 million of Treasury coupon issues in the market on December 13,
and $24 million of notes from a foreign account.

A large reserve

need remains to be met next week, some of which can be accomplished
through further outright purchases, while additional reserves can
be injected through repurchase agreements.

If not all the need can

be met that way we expect the Treasury to help out by reducing its
calls on tax and loan accounts or possibly even making redeposits

Content last modified 01/11/2011.

to commercial banks.
Short-term interest rates changed little over the past
month, against the background of a steady funds rate.


rates came down slightly, despite some Treasury additions to
supply, as customer demand remained good-notably from foreign
central banks that were investing dollars acquired from foreign
exchange market operations.

Yesterday, 3- and 6-month bills were

auctioned at about 5.99 and 6.34 percent, compared with 6.09 and
6.37 percent the day before the last meeting.

Some other short

rates--including commercial paper and bank certificates of depositedged slightly higher reflecting increased credit demands.
Intermediate and long-term Government securities rose
moderately over the period--by some 5 to 18 basis points--apparently
reflecting market views that higher rates are likely next year
because of a stronger economy than was anticipated a month or two

There has also been an expectation of larger Treasury
Market observers are now more inclined to take official

estimates of a sizable deficit about at face value whereas earlier
this year there was a tendency, well-founded in recent experience,
to expect deficits to fall short of official estimates.


there is little anticipation ,in the market of a very near-term
change in System policy--and the recent moderation in the aggregates
has generated some complacency on this score--the predominant market
view is that the next change, perhaps a few months off, is likely

to be toward higher rates.
A $3 billion two-year note is to be auctioned tomorrow,
with early rate ideas around 7.15 percent compared with 7.13
percent on a similar maturity last month.

Also coming up is a

$1.5 billion 15-year bond, announced yesterday for auction next
week and payment in early January.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102