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Strictly Confidential (FR)
Class I FOMC
February 1,
1980
MONETARY AGGREGATES AND
MONEY MARKET CONDITIONS
Prepared for the Federal Open Market Committee
By the staff
Board of Governors of the Federal Reserve System
STRICTLY CONFIDENTIAL (FR)
CLASS I - FOMC
February 1,
1980
MONETARY AGGREGATES AND
MONEY MARKET CONDITIONS
Recent developments
(1) M-1 expanded at about a 1½ percent annual rate in January,
well below the lower end of the range of growth targeted by the FOMC for
the December to March period.
Currency growth rebounded sharply in January,
but outstanding demand deposits declined slightly.
Reflecting the weak
advance of M-1, M-2 increased at only about a 5¼ percent annual rate in
January, also well under the December to March growth rate targeted by the
FOMC.
Deposit growth at thrift institutions dropped off a bit in January,
and M-3 increased at only about a 4½ percent annual rate.
September
to
December
January
December
to March
Targeted
M-1
3.1
1.6
4 to 5
M-2
6.8
5.2
M-3
6.1
4.6
M-1A
4.4
4.8
M-1B
4.7
5.9
M-2
6.5
8.3
M-3
7.8
8.4
Monetary aggregates
Old Definitions-1/
2/
New Definitions-
1/ Based on old seasonal adjustment factors.
2/
Based on revised seasonal adjustment factors.
7
--
-2(2) As can be seen in the lower panel of the table on the previous
page, M-1A is estimated to have increased at an annual rate of about 4¾
percent in January, considerably more rapidly than old M-1.
This difference
is attributable in part to the use of revised seasonal adjustment factors
in the calculation of the new measures,1/ and in part to the exclusion of
deposits due to foreign commercial banks and official institutions from
M-1A (these deposits declined in January).
(3) Seasonally adjusted annual growth rates in the family of
reserve measures that originally appeared consistent with monetary targets
adopted by the FOMC at the January meeting are shown below for the December
to March period and for the month of January, along with actual results for
As may be seen, growth in nonborrowed reserves--while rapid--
last month.
was considerably less than targeted.
Banks' demand for borrowing turned
Actual
Targeted growth rates
January
December to March
January
Nonborrowed reserves
6.7
18.4
10.6
Total reserves
2.1
3.8
4.0
Monetary base
8.1
10.8
9.8
out to be much larger than the $1 billion initially assumed following the
January Committee meeting, and borrowing averaged $1.4 billion during the
three statement weeks ending January 30.
As a result, the decline in
borrowing from December to January was less than anticipated.
total reserves and the monetary base was about on target.
Growth in
In late January
and early February, though, total reserves have tended to fall below target,
1/ The revised seasonals are estimated to have raised January growth of
M-1A by about one percentage point. Impacts of the seasonal revision
on growth rates for other months are shown in appendix I.
despite a higher than anticipated level of excess reserves, reflecting
in part a weakening in required reserves (as a result of deposit weakness
two weeks earlier) and in part misses in projections of market factors
affecting reserves.
Comparisons of reserve paths (seasonally unadjusted)
for the four-week interval covering the weeks ending January 16 to February 6
with actual developments are shown in appendices IIA and IIB.
(4)
The federal funds rate has drifted downward since the
previous Committee meeting, from a weekly average of 13.94 percent in the
week of January 9 to an average of 13.55 percent in the most recent complete
statement week.
On the other hand, with the Treasury continuing to issue
large amounts of bills for cash, Treasury bill rates advanced about ¼ to
percentage point since the last Committee meeting.
Private short-term
rates were unchanged to a bit lower in the 3-month area, but rose 20 to 25
basis points in the 6-month area as market expectations of future declines
in interest rates weakened.
(5)
In longer-term markets, yields on corporate and Treasury
bonds remained under upward pressure throughout January--after having
increased in December--and are presently about ¾ to 1 percentage point above
levels prevailing at the time of the January FOMC meeting.
Inflationary
expectations have apparently intensified in response to international
tensions and the prospects of stronger defense spending.
The residential
mortgage market remained quite tight in January, although there are a few
indications of easing from the exceptionally taut conditions in the latter
part of the fourth quarter.
For example, reports from some sectors of the
country indicate that thrift institutions have liberalized commitment
policies.
(6) Foreign exchange markets have been quiet since the last
Committee meeting, and the dollar has been generally firm.
The weighted-
average exchange value of the dollar rose a bit over 1 percent, reflecting
advances against all major currencies other than sterling and the Canadian
dollar.
. However, U.S. authorities purchased more
than $400 million of DM
and used these funds to repay swap drawings.
(7) The table on the next page shows seasonally adjusted annual
rates of change, in percent, for selected monetary and financial flows over
various time periods.
Past
Six
Past
Three
Months
Months
Jan. '80
over
July '79
Jan. '80
over
Oct. '79
Nonborrowed reserves
10.8
16.3
Total reserves
10.8
8.3
4.1
Monetary base
10.2
7.9
9.8
n.a.
n.a.
n.a.
1977-1
,
1978-1/
1979-1
Past
Month
Jan. '80
over
Dec. '79
10.6
Redefined Concepts of Money
M-1A (Currency plus demand
deposits 3/)
7.7
7.1
M-1B (M-1A plus other checkable
deposits)
8.1
8.2
M-2 (M-1B plus small time and
savings deposits, money
market mutual fund shares
and overnight RP's and
Euro-dollars)
10.9
8.2
M-3 (M-2 plus large time deposits
and term RP's)
12.3
11.1
10.9
13.6
Bank Credit
Loans and investment of
all commercial banks 3/
11.4
Managed Liabilities of Banks
(Monthly average change in
billions)
Large CD's
Eurodollars
41
Other borrowings-
0.9
-0.2
1.0
-0.2
1.9
0.8
1.85/
0.5 0.05/
o.5 -.
0.0 /
1.4
-2.0
1.0
-2.
-6.3
-1.0
n.a.
n.a.
Memo
Nonbank commercial paper
n.a.
1/ December to December
2/ Other than interbank and U.S. Government.
3/ Includes loans sold to affiliates and branches.
4/ Primarily federal funds purchases and securities sold under agreements to repurchase.
/ Latest month December 1979.
NOTE: All items are based on averages of daily figures, except for data on total loans and
investments of commercial banks, commercial paper, and thrift institutions--which are
derived from either end-of-month or Wednesday statement date figures. Growth rates for
reserve measures in this and subsequent tables are adjusted to remove the effect of discontinuities from breaks in the series when reserve requirements are changed.
2
/
Proposed targets for the year 1980
(8)
At the Committee's preliminary discussion in January of
targets for the monetary aggregates for the year 1980 (QIV '79 to QIV '80),
preferences generally appeared to be encompassed by a narrow range of 4½
to 5½ percent growth for M-1A.
Against that background, the three alternative
1980 targets shown below for Committee decision at the February meeting are
indexed by M-1A growth rates in ranges centering on 5½ percent (alt. I),
5 percent (alt. II), and 4½ percent (alt. III).1/
Alt. I
Alt. II
Alt. III
M-1A
4 to 7
3½ to 6½
3 to 6
M-1B
4½ to 7½
4 to 7
3½ to 6½
8.0
M-2
6½ to 9½
6 to 9
5½ to 8½
8.8
M-3
7 to 10
6½ to 9½
6 to 9
9.5
Bank Credit
6½ to 9½
6 to 9
5½ to 8½
(9) The table on p. 7
Growth in 1979
5.5 (6.8)2/
12.2
shows (in the first line of each panel)
key economic variables from the GNP projection in the green book, along
with expected changes in income velocity of M-1A and in the federal funds
rate, for 1980 and 1981.
This projection assumes growth in M-1A at the
5 percent mid-point of the alternative II range.
As may be seen, a
modest decline in the federal funds rate is expected in the course of
1980, while the velocity of M-1A is projected to increase by about 2
percent.
Such an increase, while below the long-run trend, is still more
rapid than has generally occurred in past periods of declining interest
rates and weakening economic activity.
1/
2/
Thus, the basic projection assumes
For comparative purposes, and in final farewell to the old money measures,
the mid-point growth rates for Alt. II are reconciled with prospective
growth in the old definitions for 1980 in appendix III.
Number in parenthesis represents rate of increase after adding back
the amount of demand deposits estimated to have shifted to ATS and
New York State NOW accounts.
Economic Projections for
5% M-1A Growth Under
Alternative Fiscal Assumptions
1980
1981
Nominal GNP (% Change, Q4/Q4)
Greenbook
7.0
High Defense
8.0
Tax Cut
7.5
9.5
-2.2
-1.4
-1.7
0.6
1.0
1.7
Greenbook
High Defense
9.3
9.5
8.4
9.0
Tax Cut
9.3
7.9
Greenbook
High Defense
7.7
7.3
8.7
8.3
Tax Cut
7.6
8.0
2.0
3.0
2.5
4.0
5.0
4.5
Greenbook
12¾
13
High Defense
Tax Cut
13½
13
14¼
13¾
9.0
10.0
Real GNP (% Change, Q4/Q4)
Greenbook
High Defense
Tax Cut
Implicit GNP Deflator (% Change, Q4/Q4)
Unemployment Rate (%, Q4 Level)
M-1A Velocity (% Change, Q4/Q4)
Greenbook
High Defense
Tax Cut
Federal funds rate (%, Q4 Level)
NOTE:
The High Defense projection assumes that defense purchases (NIA
basis) exceed those reflected in the greenbook projection by
$10 billion in 1980 and $20 billion in 1981. The Tax Cut projection assumes a $10 billion cut in personal taxes in mid-1980;
$10 billion cut in corporate taxes in mid-1980; and a $13 billion
cut in social security taxes at the beginning of 1981, through
rollbacks of scheduled rate and base increases.
a greater than usual desire on the part of the public to economize on cash-an assumption that seems reasonable in the current environment of strong
inflationary expectations, high nominal interest rates, and growing public
awareness of alternatives to cash.
(10)
in economic
The table on the preceding page does not show differences
projections resulting from ½ point changes in assumptions about
M-1A growth.
These differences would be small--e.g. about ¼ percentage
point in the price level and just a shade more on the unemployment rate
by the end of 1981--and well within our range of projection error.
The table
does show, however, impacts of alternative fiscal policies, given growth
in M-A of around 5 percent.
lines of each panel
These are summarized in the second and third
and will be described in the chart show at the February
meeting.
(11)
All of the alternative monetary growth rates for 1980 would
involve a slowing from rates of growth in 1979.
measured growth in 1979 was 5
In the case of M-1A
percent, but after adding back the estimated
amount of outstanding demand deposits transferred into ATS and New York
State NOW accounts, growth of M-1A in an economic sense was probably around
6¾ percent last year.
Thus, as compared with the latter figure, even the
mid-point of the proposed M-1A range for alternative I (the easiest
alternative proposed) would involve a substantial decline in growth over
the year ahead, though the upper end of that range would be above last
year's growth.
(12)
In this context, it should be noted that the proposed
targets assume that further shifts out of existing demand deposits into
ATS accounts and New York State NOW accounts will be negligible.
Toward
the end of last year, such shifts appear to have faded to around .2 of a
percentage point (at an annual rate) per month.
However, to the extent
that significant shifts do tend to occur this year, any growth rate for M-1A
adopted by the Committee would be less restraining than would otherwise
be the case.1 /
The most likely occasion for large-scale shifts out of
existing demand deposits into interest-bearing transactions accounts in
the year ahead would be early enactment of legislation authorizing nationwide NOW accounts.
In that case, M-1A growth would tend to decline as
demand deposits around the country shifted into NOW accounts, and M-1B growth
would accelerate as savings deposits (not included in M-1B) also shifted into
NOW accounts.
In developing alternatives for the Committee, we have not
assumed nationwide NOW accounts.
(13)
M-2 targets for 1980 assume the continued rapid expansion
of money market mutual funds and money market certificates and also that
the new 2 -year floating ceiling certificate captures some funds that would
otherwise have been lodged in instruments not included in the aggregate.
M-3 is projected to grow only slightly more rapidly than M-2 in 1980,
mainly because moderating credit demands are expected to hold down issuance
of large time deposits at banks and thrift institutions.
Shorter-run targets
(14)
Shown below are three alternative targets for the monetary
aggregates over the December to March period, with suggested continuations
through the second quarter.
Also shown are proposed intermeeting federal
funds rate ranges and implied growth rates for the aggregates in the twomonth January to March period that are consistent with the basic three-month
1/
Any shifts from demand to ATS or other checkable deposits would, of
course, be captured in M-1B.
-10-
December to March objective.
Alternative B is indexed by growth in M-A
of 4½ percent from December to March, and, for all practical purposes,
can be considered to be equivalent to the 4½ percent M-1 target for that
period adopted at the last meeting.
(Similar data for M-3 are shown,
along with more detailed information on all the aggregates, in the tables
on pp. 11 and 12.)
Alt. A
Alt. B
Alt. C
M-1A
Dec./Mar.
Mar./June
5
6
4½
5½
4
4½
M-1B
Dec./Mar.
Mar./June
5½
6½
5¼
6
4¾
5
M-2
Dec./Mar.
Mar./June
6¾
7¼
6½
7
6¼
6¾
Intermeeting federal funds
rate range
11 to 15½
11½ to 15½
11½ to 16
Memo:
Implied growth Jan./Mar.
M-A
5
4¼
3½
M-1B
5½
4¾
4¼
M-2
6
5¾
5¼
(15)
If the Committee chose to continue the policy adopted at
the previous meeting with respect to M-1, it would imply growth in M-1A
from January (as a base) to the end of the quarter of about 4¼ percent
at an annual rate--given the 4¾ percent annual rate of growth of M-1A in
January (which incorporates revised seasonal factors).
The staff expects
that a consistent growth in M-1B and M-2 would be 5¼ and 6½ percent,
respectively, over the first quarter as a whole, and 4¾ and 5¾ percent
for the remaining two months of the quarter.
This assumes: (a) that
interest-bearing checkable deposits expand at about the pace of the
previous three months; (b) that a substantial outflow of savings deposits
-11-
Alternative Levels and Growth Rates for Key Monetary Aggregates
M-1A
1979
1980
M-1B
Alt. A
Alt. B
Alt. C
Alt. A
Alt. B
Alt. C
371.5
373.0
374.6
376.1
371.5
373.0
374.4
375.7
371.5
373.0
374.2
375.3
387.7
389.6
391.4
393.1
387.7
389.6
391.2
392.7
387.7
389.6
391.0
392.3
4.8
5.1
4.8
4.8
4.5
4.2
4.8
3.9
3.5
5.9
5.5
5.2
5.9
4.9
4.6
5.9
4.3
4.0
5.0
6.0
4.5
5.5
4.0
4.5
5.6
6.4
5.2
5.9
4.7
4.9
QI
QII
5
4%
5
44
5
4k
6
54
5i
5
5%
4t
QIII
QIV
4%
4%
5
5
5k
5
5
5
5%
5%
5%
5%
5
5
5
December
January
February
March
Growth Rates
Monthly
1980
January
February
March
Dec. '79-Mar. '80
Mar. '80-Jan. '80
Quarterly Average
1980
Annual
1979 QIV to 1980 QIV
-12-
Alternative Levels and Growth Rates for Key Monetary Aggregates (cont'd)
M-3
M-2
1979
1980
December
January
February
March
Alt. A
Alt. B
Alt. C
Alt. A
Alt. B
Alt. C
1523.9
1534.4
1540.7
1549.8
1523.9
1534.4
1540.4
1549.2
1523.9
1534.4
1539.8
1548.0
1772.1
1784.5
1795.0
1806.4
1772.1
1784.5
1794.2
1804.8
1772.1
1784.5
1793.7
1803.8
8.3
4.9
7.1
8.3
4.7
6.9
8.3
4.2
6.4
8.4
7.1
7.6
8.4
6.5
7.1
8.4
6.2
6.8
6.8
7.3
6.6
7.1
6.3
6.8
7.7
9.0
7.4
8.8
7.2
8.5
7
7
7k
8h
7
6
7%
8%
6%
6%
7%
8
7k
8k
7%
7%
7%
8%
8
7%
7k
8
8k
8
8
8
8
Growth Rates
Monthly
1980
January
February
March
Dec. '79-Mar. '80
Mar. '80-June '80
Quarterly Average
1980
QI
QII
QIII
QIV
Annual
1979 QIV to 1980 QIV
-13continues at banks and thrift institutions; (c) that growth in small
time deposits speeds up from the pace of recent weeks; and (d) that growth
in money market funds slows from the very rapid rate of January, reverting
to the pace of late last year.
The monetary base might be expected to grow
at an annual rate of 5¾ from January to March, but total reserves may show
little change (assuming some decline in excess reserves and relatively
little expansion in member bank deposits).
(16)
Given a GNP projection in which the economy is not as weak
as earlier anticipated, alternative B may be accompanied by little change
in the funds rate over the next few weeks.
Under such circumstances, there
may be little if any reduction in the demand for borrowing under alternative
B from around the $1¼ billion average level of January.
On that assumption,
nonborrowed reserves, like total reserves, would change little from
January to March.
(17)
The easing of money and credit demands in the second
quarter, when the economy is projected to weaken more substantially than
in the first, enhances the probability of some decline of interest rates
at that time, particularly if the Committee were to opt for the slight
acceleration in M-1A growth over the March to June period to the 5½ percent
annual rate proposed in alternative B.
Such growth would bring M-1A by
June to around the mid-point of a 3½ to 6½ percent target band for 1980.
The charts on the next two pages show actual growth rates in all of the
monetary aggregates through January, and projected growth rates based on
the proposed short-run alternatives, in relation to longer-run targets for
Chart 1
Actual and Targeted M-1A and M-1B
M-1A
Billions of dollars
400
SLonger-Run Range
**** Short-Run Alternatives
-
395
-
390
-
385
-
380
-
375
-
370
-
365
* 6%%
* 3%%
L
I
I
O
I
N
D
i
J
I
M
F
I
I
I
I
I
I
I
I
I
M
A
I
I
I
I
i
J
A
I
I
I
S
1
I
O
/360
D
N
1980
1979
Billions of cotlars
V-1 B
420
Longer-Run Range
..... Short-Run Alternatives
415
7%
410
405
A
4%
400
tilll
395
390
385
--
-
-
*
II
I
O
-
N
1979
I
I
I
F
M
i
{
A
M
J
l~
J
1980
380
375
A
S
O
N
D
Chart 2
CONFIDENTIAL (FA)
Clau "- FOMC
Actual and Targeted M-2 and M-3
M-2
-
Billions of dollars
- 1680
Longer-Run Range
***
Short-Run Alternatives
-
1660
-
1640
-
1620
--
1600
-
1580
9%
6%
.ool
_0
- 1560
1540
1520
- 1500
I
,
S
N
O
I
J
1
I
I
F
M
I
A
I
M
I
1979
I
I
I
J
J
A
I
S
S
0
1980
M-3
***
1430
I
N
0
Billions of dollars
1930
9%%
Longer-Run Range
Short-Run Alternatives
1
- 1910
-
1890
S%%
1870
S--
-
1850
.
1830
'.>
/
-
1
1790
*"
/
-
1770
SI
O
1750
I
1[
N
O
J
F
M
A
M
1979
*Note: A.B. and C altnative are indistingushble on tfhe
J
1980
ascls.
I
J
A
I
S
I
O
1730
I
N
D
1980.
These longer-run targets are taken for these purposes to be those
of longer-run alternative II.1/
(18)
Unusually large personal income tax refunds projected
to begin late this winter may pose a special problem for setting monetary
targets over the next few months.
2/
In the past, these refunds have often
added temporarily to growth in monetary aggregates, and to the volatility
of transactions balances.
Impacts are quite uncertain, however, depending
on how quickly returns are filed and processed and also on the nature of
the public's response to receipt of the funds.
If the flow of refunds
turns out as projected, it is possible that growth of M-1A in the months
from February to April could be 1 to 3 percentage points higher, with
offsetting effects in the ensuing three months.
But given the uncertainty
of impacts on the aggregates, no special adjustment was made to the money
supply objectives presented in this blue book.
However, in framing its
policy and in guiding the Manager, the Committee may wish to recognize that
M-1A and other aggregates might tend to expand more than targeted over the
next few months because of a transitory factor whose impact cannot be
readily quantified in advance.
(19)
Alternative A would call for a more rapid increase in money
targets for the current and next quarter, implying a step-up in M-1A growth
from January to March to about a 5½ percent rate, with more rapid expansion
in the second quarter.
The monetary base and total reserves over the next
two months might be expected to grow at annual rates of 6 and 1 percent
1/
2/
The longer-run targets are shown in the usual cone shape and also as
channels of constant width equal to the dollar range in the fourth
quarter of 1980.
Such refunds expanded by about $2 billion per year during the previous
four years, but are expected to rise by as much as $12 billion more
in 1980 as compared with the previous year.
-15respectively under such a policy. This somewhat greater reserve supply
would tend to be associated with some downward pressure on money market
rates, with the federal funds rate possibly declining to the 13 percent
area over the next few weeks.
With an unchanged discount rate, the lower
funds rate might be consistent with member bank borrowing of around
$1 billion.
about a 2
On that assumption nonborrowed reserves would expand at
percent annual rate over the last two months of the current
quarter.
(20)
The more rapid rate of growth in money of alternative A
would, as shown in the charts following page
13, cause aggregates growth
to rise by March to levels above the mid-point paths of alternative II;
by June the aggregates would be further above mid-point paths.
Thus, if
monetary growth over 1980 is to be kept around the mid-point of the
alternative II range, reserve supply would have to be more restrained
in the second half of the year--with the federal funds rate probably rising
at a time when the economy is projected to be weakening even further.
(21)
Alternative C contemplates a reduction in money targets
for the current quarter to a 4 percent annual rate, as indexed by M-1A.
This would probably lead to some rise in the funds rate over the next
few weeks unless the economy weakens more than projected.
Growth of the
monetary base would probably be at an annual rate of 5 percent, while
total reserves are likely to decline slightly.
Initially assuming a level
of borrowing of about $1.5 billion, nonborrowed reserves would decline at
about a 6 percent annual rate over the January to March period.
As shown
in the charts, alternative C implies that the money stock will be below
mid-point paths in March and further below them in June.
Consequently,
-16in order to achieve longer-run targets, policy would have to be more
expansive in the second half of the year, leading to more substantial
downward pressures on short rates at that time than under alternative B.
(22)
A rise or fall in short-term rates could prompt some
sympathetic movement in bond yields, but developments in the bond market
are likely to be more influenced by incoming evidence on inflation prospects
and by international events.
Even if bond yields were to move somewhat
higher, mortgage rates would be unlikely to rise significantly, given the
already slack demand for residential mortgage loans at current rate levels;
a retracing of recent bond rate increases would reinforce the tendency
apparent in the mortgage market of late toward some easing of lending
terms.
(23)
Under any of the alternatives, bank credit growth is likely
to be stronger over the first quarter than the unusually low 3 percent
rate of the final quarter of 1979.
Business loan growth appears to
have picked up recently at large banks.
And over the first quarter as
a whole, the external needs for funds by businesses are expected to rise,
including the need to finance enlarged tax payments.
Thus, banks over
the next few months may become more active in issuing managed liabilities
than they were in the fourth quarter.
-17Directive language
(24)
Given below are suggested operational paragraphs for
the directive consistent with the form of the directive adopted at
recent meetings.
It calls for expansion of reserve aggregates at a pace
consistent with the desired rates of growth in M-1A and M-1B over the first
quarter of 1980, provided that the federal funds rate on a weekly average
basis remains within a specified range.
The specifications adopted at
the last meeting are shown in strike-through form.
In the short run, the Committee seeks expansion of reserve
aggregates consistent with growth over the first quarter of 1980 at
an annual rate OF ABOUT ____
and [DEL:
on-the-order
of 7] ____
[DEL: between
4 and 5] percent for[DEL:
M-1]M-1A
percent for [DEL:
M-2,]M-1B, provided that in
the period before the next regular meeting the weekly average federal
funds rate remains within a range of [DEL:
11½
to15½] ____
TO ____ percent.
If it appears during the period before the next meeting
that the constraint on the federal funds rate is inconsistent
with the objective for the expansion of reserves, the Manager for
Domestic Operations is promptly to notify the Chairman who will
then decide whether the situation calls for supplementary instructions from the Committee.
Appendix I
Impact of Seasonal Factor Changes and
Redefinition on Growth Rates
of Narrow Money Stock Measures
(percent annual rate)
1979
Estimated difference due to:
Changes in
Seasonal Factors
Redefinition
Old
New
M-1
M-1A
-1.7
11.4
9.6
3.1
0.3
9.5
8.0
4.4
2.0
-1.9
-1.6
1.3
January
February
March
-4.3
-2.7
2.0
-5.1
-0.3
6.5
-0.8
2.4
4.5
April
May
18.3
0.7
14.7
-0.3
June
15.1
14.1
-3.6
-1.0
-1.0
-5.5
2.1
-0.5
1.9
-3.1
-0.5
9.7
7.3
6.9
-0.7
0.6
-4.6
-0.9
-1.2
-4.1
0.2
1.8
-0.5
2.0
5.2
6.2
-0.5
3.9
0.8
-0.5
4.3
4.0
0.0
-0.4
-3.2
Quarterly
QuarterlyQI
QII
QIII
QIV
Difference
M-1A less M-1
1.1
-1.3
-2.1
2.6
0.9
-0.6
0.5
-1.3
Monthly
July
August
September
October
November
December
- 10.4
6.7
11.5
1980
January
1/
Last month of quarter to last month of quarter.
-2.5
1.5
3.8
February 1, 1980
Appendix II-A
Comparison of Actual Level of Reserves to Their Path
(Millions of dollars, not seasonally adjusted)
Average Level
January 16 to
February 6 1/
(inclusive)
Monetary Base
Original path
Actual
Deviation
155,655
155,313
-342
Total Reserves
Original path
Actual
Deviation
45,155
45,071
-84
Nonborrowed Reserves
Original Path
Actual
Deviation
44,155
43,835
-320
Member Bank Borrowings
Original path
Actual
Deviation
Excess Reserves
Original path
Actual
Deviation
1,000
1,236
236
250
367
117
1/ Week of February 6 is estimated, of course, and assumes
the following: excess reserves of $300 million, borrowing
$700 million and nonborrowed reserves of 42,958 million.
February 1, 1980
Appendix II-B
Deviations in Uses of Total Reserves from Expectations
(Millions of dollars, not seasonally adjusted)
January 16 to
February 6
(inclusive)
A.
B.
C.
D.
Deviation of total reserves
from original path
-84
Deviation of excess reserves
from original path
117
Deviation of required reserves
from original path
Member bank required reserves
by type:
M-1 type deposits1/
Time and savings deposits
included in M-2
Large negotiable CDs
Domestic net interbank demand
deposits
U.S. Government demand
deposits
Marginal reserves
E.
1/
-201
-157
7
26
-84
8
-1
Implied effect on reserves of
deviations in nonreservable
money components from expectations.
Nonmember bank demand deposits
0
Nonmember bank time and savings
deposits
-5
Currency
13
Derived as residual.
Appendix III
RECONCILIATION TABLE
(billions of dollars)
Alt. II
Average
Level QIV
1979
Dollar
Change
in 1980
Less Foreign Deposits
380.8
19.2
5.0
Equals New M-1A
Plus Other Checkable Deposits
269.7
15.9
18.5
2.5
5.0
Equals New M-1B
385.6
21.0
5.4
948.2
59.8
6.3
667.9
45.2
1616.1
105.0
153.1
29.2
Less foreign demand deposits
in old M-3
11.1
0.7
Plus overnight RP's and
Eurodollars
24.5
4.0
Plus money market mutual fund
shares
40.3
34.7
Plus demand deposits at MSB's
1.2
0.1
Less new M-2 consolidation
2.7
0.3
1515.2
113.6
Plus large time deposits at banks
and thrift institutions 1/
216.6
27.5
Plus term RP's at banks and S&L's
30.2
0.9
1762.1
142.0
Growth
Rate
Old M-1
Old M-2
Plus Deposits at Thrifts
Equals Old M-3
Less large time deposits at
all institutions in old M-3
Equals New M-2
Equals New M-3
1/
Excluding large time deposits held by money market mutual funds.
6.5
7.5
8.0
TABLE 1
STRICTLY CONFIDENTIAL (FR)
CLASS II - FOMC
FEBRUARY 1, 1980
SELECTED INTEREST RATES
(percent)
Short-Term
Federal
funds
CDs
Treasury Bills
Secondary
Market
3-mo-m-yr
3-mo
1-yr
(3)
(2)
9.30
9.62
6.16
6.55
3-mo
(5)
9.58
6.42
10.96
6.76
8.64
12.65
8.87
14.53
9.R4
9.08
9.44
9.40
10.72
9.35
9.32
9.48
9.54
9.50
9.35
9.46
10.51
10.19
10.13
9.28
9.27
9,50
9.53
9.06
10,06
10.47
10.94
11.43
9.46
9.61
9.06
9.24
9.52
10.26
9.19
9.45
10.13
13.77
13.18
13.78
11.70
11.79
12.04
11.23
7
14
21
28
13.77
13.30
13.10
12.46
12.16
12.11
11.87
11.22
11.74
5
12
19
26
13.77
13.79
13.90
13.49
11.58
12.11
12.21
12.01
10.88
10.97
2
9
16
23
30
14.04
13.94
13.91
13.77
13.54
13.89
13.40p
12.60
8.85
11.89
1978--Dec.
10.03
1979--Jan.
Feb.
Mar.
10.07
10.06
10.09
Apr.
May
June
10.01
10.24
10.29
July
Aug.
Sept.
1979--High
Low
Oct.
Nov.
Dec.
1980--Jan.
Market
(4)
1978-High
Low
Dec.
Auction
6-mo
(1)
10.25
6.58
15.61
9.93
1979--Nov.
Long-Term
Treasury Bills
Daily--Jan. 24
31
Bank
omi
Bank
Paper
__
(6)
10.52
6.68
14.26
9.66
Pime
Rate
(7)
U.S. Govt.
Constant
Maturity Yields
3-yr
(8)
9.58
(10)
Corp.-Aaa
Muni-
Utility
cipal
New
Issue
su
Recently
Offered
(12)
9.54
8.48
11.45
9.39
Bond
Buyer
(13)
6.67
5.58
7.38
6.08
(11)
Home Mortgages
Primary Secondary Market
P
y
FNMA
GNMA
(14)
Auc.
(15)
Sec.
(16)
10.38
8.98
10.60
9.13
9.68
8.43
12.90
10.38
13.29
10.42
11.77
9.51
v
15.75
11.68
11.50
8.76
(9)
9.13
7.81
10.87
8.79
10.37
11.55
9.33
9.01
8.88
9.28
9.41
6.51
10.35
10.50
9.38
10.25
9.95
9.90
11.75
11.75
11.75
9.50
9.29
9.38
9.10
9.10
9.12
8.94
9.00
9.03
9.54
9.53
9.62
9.51
9.56
9.62
6.47
6.31
6.33
10.39
10.41
10.43
10.70
10.54
10.43
9.67
9.67
9.70
11.75
11.75
9.43
9.42
11.65
8.95
9.18
9.25
8.91
9.09
9.19
8.92
9.70
9.83
9.50
9.74
9.84
9.50
6.29
6.25
6.13
10.50
10.69
11.04
10.59
10.84
10.77
9.78
9.89
9.75
10.11
10.71
11.89
9.85
9.95
9.76
9.87
10.43
11.63
11.54
11.91
12.90
8.94
9.14
9.69
8.95
9.03
9.33
8.93
9.53
9.49
9.87
10.66
10.67
11.09
9.77
9.90
10.31
13.66
13.90
13.43
13.23
13.57
13.24
14.39
15.55
10,95
10.30
10.65
10.39
10.30
10.12
10.91
11.36
11.33
6.13
6.20
6.52
7.08
7.30
7.22
11.09
11.09
11.30
11.34
11.86
11.85
9.58
9.48
9.93
10.97
11.42
11.25
11.64
12.83
12.90
12.52
12.75
12.49
11.25
11.57
11.35
12.09
11.95
12.04
11.02
14.53
14.28
14.06
13.14
14.26
14.09
13.58
12.90
15.25
10.76
10.87
10.76
10.74
10.37
10.42
10.39
10.38
10.11
11. 5'
11.50
11.45
11.20
11.45
11.41
11.38
11.17
7.27
7.31
7.38
7.26
12.85
12.80
12.80
12.90
-12.93
-12.57
11.73
11.51
11.69
11.36
13.06
13.26
13.82
13.36
12.70
12.96
13.69
13.35
15.54
15.29
10.66
10.71
10.76
10.69
10.35
10.35
10.41
10.43
10.06
10.09
10.15
10.17
11.22
11.28
10.86
11.77
11.77
12.00
11.85
11.16
11.37
11.35
11.39
7.17
7.26
7.22
7.23
12.90
12.90
12.90
12.90
-12.42
-12.55
11.29
11.18
11.49
11.39
12.03
11.92
11.75
12.08
12.21
10.88
10.91
10.76
10.94
11.19
11.88
11.86
11.78
11.89
11.85
13.42
13.47
13.35
13.36
15.25
15.25
10.70
10.73
10.74
13.40
13.20
13.10
12.95
13.02
13.06
15.25
15.25
10.86
11.14
10.43
10.61
10.64
10.83
11.13
10.17
10.31
10.37
10.64
11.03
11.42
11.54
11.69
12.11
2 2
1 . 9p
7.32
7.30
7.28
7.33
7.52
12.85
12.90
12.87
12.89
n.a.
-12.70
-13.11
--
11.39
11.63
11.51
11.92
12.10
12.17
12.00
11.11
11.17
13.37
13.29
13,01
13,04
15.25
15.25
10.97
11.17p
11.01
3
ll.1 p
10.87
9
ll.0 p
9.39
9.38
8.81
8.87
9.16
9.89
11.22
10.92
11.31
11.27
10.75
10.95
10.16
9.95
-
11.57
7.75
15.30
15.46
15.71
15.75
15.25
15.25
15.25
7.38
11.18
10.71
11.66
11.28
11.28
8.95
8.06
10.42
8.82
9.30
8.61
11.50
9.40
8.98
9.17
9.85
11.51
11.61
12.08
NOTE: Weekly data for columns 1, 2, 3, and 5 through 10 are statement week averages of daily data. Weekly data in column 4 are average rates set in the
auctions of 6-month bills that will be issued on the Thursday following the end of the statement week. For column 11, the weekly date is the mid-point of
the calendar week over wnich data are averaged. Columns 12 and 13 are 1-day quotes for Friday and Thursday, respectively, following the end of the statement
week. Column 14 is an average of contract interest rates on commitments for conventional first mortgages with 80 percent loan-to-value ratios made by a
sample of insured savings and loan associations on the Friday following the end of the statement week. Column 15 gives FNMA auction data for Monday
preceding the end of the statement week.
Column 16 is a 1-day quote for Monday preceding the end of the statement week. The FNMA auction yield is the average
yield in a bi-weekly auction for short-term forward commitments for government underwritten mortgages. GNMA yields are average net yields to investors on
mortgage-backed securities for immediate delivery, assuming prepayment in 12 years on pools of 30-year FHA/VA mortgages carrying the coupon rate 50 basis
points below the current FHA/VA ceiling.
* 90-119 day maturity prior to November 1979
STRICTLY CONFIDENTIAL (FR)
TABLE 2
NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES 1/
(millions of dollars, not seasonally adjusted)
Treasury
Bills Net
e
Change /
1975
1976
1977
1978
1979
1978--Qtr. IV
1979--Qtr.
Qtr.
Qtr.
Qtr.
I
II
III
IV
1979--July
Aug.
Sept.
Oct.
Nov.
Dec.
1979--Nov.
Dec.
1980--Jan.
ithi
1 year
Treasury Coupons
Net Purchases 3/
1 - 5
55 - 10
Over
Over 10
10
10
5
Total
Total
-468
863
4,361
870
6,243
337
472
517
1,184
603
3,284
3,025
2,833
4,188
3,456
1,510
1,048
758
1,526
523
1,070
642
553
1,063
454
6,202
5,187
4,660
7,962
5,035
-5,072
212
1,135
250
247
1,844
-3,750
465
5,363
4,164
48
42
395
118
426
640
1,289
1,101
134
93
700
309
81
310
51
2,302
1,351
2,252
1,712
1,399
218
57
120
237
699
354
96
140
73
142
81
87
693
976
634
-219
2,297
2,086
28
703
90
398
-
---
7
14
21
28
-198
1,937
5
12
19
26
122
301
1,379
2
9
16
23
30
484
-200
-1,272
-639
-400
S-
---
682
1
1
Within
1 year
-
CLASS II
Federal Agencies
Net Purchases 4/
55 - 10
10
OveHoldings
Total
Over 10
55
1,613
891
1,433
127
454
-2
3
---
S -
-
-
S S -
-
-229
258
288
L70
L10
L91
L91
- FOMC
FEBRUARY 1, 1980
288
3
--
-399
371
482
482
-
Net Change
Outright
Total 5/
7,267
6,227
10,035
8,724
10,290
1,272
3,607
-2,892
-1,774
-2,597
-3,283
-882
-1,795'
8,129
4,839
-2,130
3,427
2,687
2,015
-1,665
-1599
2,297
2,701
-2,499
2,078
-3,380
-198
-2,903
-643
1,667
1,066
---
--
--
----
--
--
--
--
1,937
--
--
--
--
--
--
--
--
359
--
--
--
--
--
--
--
--
--
--
122
90
-
398
--
81
--
51
-
620
-
---
---
---
---
-.---
-
--
-
-
--
---
---
---
------
----
-----
-----
-----
359
S-S
-
--
et
RPs
6
615
301
1,379
484
-200
-1,272
-639
-400
680
2,542
-2,019
-3,801
-2,279
1,922
-1,125
455
-1,426
-2,978
7,200
-3,432
-1,593
5,709
-6,966
1.9
4.2
1.4
71.0
.7
-6.1
8.2
12.7
126.8
12.8
27.9
17.7
LEVEL--Jan. 30
47.5
(in billions)
Change from end-of-period to end-ot-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.
In addition to net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowings from the System
and redemptions (-) of agency and Treasury coupon issues.
Includes changes in both RPs (+) and matched sale-purchase transactions (-).
The Treasury sold $2,600 million of special certificates to the Federal Reserve on March 31, 1979 and redeemed the last of them on April 4, 1979.
$640 million of 2-year notes were exchanged for a like amount of cash management bills on April 3, 1979. On April 9, 1979, the bills were exchanged for
new 2-year notes.
On October 1, 1979, $668 million of maturing 2- and 4-year notes were exchanged for a like amount of short-term bills, because the note auctions were
delayed. On October 9 and 10, the bills were exchanged for new 2- and 4-year notes, respectively.
Corrected
2/4/80
Appendix III
RECONCILIATION TABLE
(billions of dollars)
Average
Level QIV
1979
Old M-1
Alt.
Dollar
Change
in 1980
II
Growth
Rate
380.8
19.2
11.1
0.7
Equals New M-1A
Plus Other Checkable Deposits
369.7
15.9
18.5
2.5
5.0
Equals New M-1B
385.6
21.0
5.4
948.2
59.8
6.3
667.9
45.2
1616.1
105.0
Less large time deposits at
all institutions in old M-3
153.1
29.2
Less foreign demand deposits
in old M-3
11.1
0.7
Plus overnight RP's and
Eurodollars
24.5
4.0
Plus money market mutual fund
shares
40.3
34.7
Plus demand deposits at MSB's
1.2
0.1
Less new M-2 consolidation
2.7
0.3
1515.2
113.6
Plus large time deposits at banks
and thrift institutions 1/
216.6
27.5
Plus term RP's at banks and S&L's
30.2
Less Foreign Deposits
Old M-2
Plus Deposits at Thrifts
Equals Old M-3
Equals New M-2
Equals New M-3
1/
1762.1
0.9
142.0
Excluding large time deposits held by money market mutual funds.
5.0
6.5
@FedFRASER