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February 3, 1989

Strictly Confidential (FR)

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)

February 3, 1989

CLASS I - FOMC

MONETARY POLICY ALTERNATIVES
Recent developments
(1) Open market operations over the intermeeting period were complicated by continuing uncertainty about the relationship between borrowing and money market conditions.

Following the December 13-14 FOMC meet-

ing, reserve paths initially were constructed assuming $500 million of
adjustment plus seasonal borrowing.

Federal funds moved up from the pre-

vailing 8-1/2 percent level to average 8-7/8 percent in the period ending
December 28, although borrowing was only $380 million.

The borrowing

assumption was raised further to $600 million on January 5, in accordance
with the Committee's decision at the December meeting, but heavy year-end
recourse to the window pushed actual borrowing for the second maintenance
period to $840 million.

In mid-January, based on historical evidence that

reluctance to borrow at the window typically rises markedly in the early
part of the year, the Desk adopted an extra measure of flexibility toward
the borrowing target.

Federal funds trading has centered between 9 and

9-1/8 percent in recent weeks; borrowing averaged $500 million over the
maintenance period ending January 25 and around $250 million over the
first eight days of the current period.
(2) Prior to the release of strong January employment data, Treasury bill rates had risen only about 1/4 percentage point over the intermeeting period, as some firming in policy had been widely anticipated.
Private short-term rates were unchanged or lower, reflecting as well the

-2-

unwinding of year-end pressures.

After the employment report, money mar-

ket rates rose about 5 to 10 basis points, as markets seemed to anticipate
some additional policy tightening in the near term.

Longer-term interest

rates have generally fallen 15 to 40 basis points and stock price indices
have risen 7 to 10 percent on average; these markets benefited from generally strong demand for dollar assets apparently engendered in part by
damped inflation expectations against a backdrop of actual and expected
monetary policy restraint.

The further flattening of the yield curve has

nearly eliminated the spread between the investment yields on 30-year and
3-month Treasury securities, which had been around 65 basis points at the
time of the last meeting.
(3) The strength of the demand for dollar assets bolstered the
dollar on foreign exchange markets, raising its weighted-average value by
about 6-1/4 percent since the last Committee meeting.

The rise occurred

despite two releases of disappointing monthly trade data, sizable intervention sales of dollars, and two rounds of increases in official lending
rates by European central banks.

As a consequence of the last, the dif-

ferential between U.S. Treasury bill interest rates and a weighted average
of foreign short-term rates was little changed; foreign long-term rates
rose moderately while U.S. bond rates fell.
,with the
Desk accounting for $2.1 billion of this total.
(4) Preliminary data indicate a pause in money growth in January
after moderate increases in December.

For the two months combined, M2

growth averaged 2-1/2 percent, a bit below the Committee's expectation for

-3-

the November through March period, while M1 has been about flat.1

The

sluggish expansion of these aggregates appears to reflect recent increases
in money market yields, which have widened the opportunity costs of holding deposits; this widening has been accentuated by slower-than-usual
adjustment of most retail offering rates over recent months.

Administra-

tive pressure on some thrifts to restrain deposit pricing may be holding
down their deposit rates and, by reducing competitive pressures, may be
curbing increases in deposit rates generally.

Evidence of shifts from M2

balances may be seen in the large volume of noncompetitive tenders at
recent Treasury auctions and in a resumption of inflows to stock and bond
mutual funds.

Reflecting less aggressive pricing of thrift deposits, and

perhaps also some concerns about the resolution of this industry's problems, retail deposit flows at these institutions, which had slowed over
the summer, have been especially weak in recent months.

M3 growth has

averaged 3-3/4 percent over the past two months, falling well short of
expectations.

Banks' funding needs have not increased as rapidly as pro-

jected, owing mostly to a shortfall in business loans; weakness in these
loans was accounted for partly by repayment of previous corporate restructuring loans and partly by subdued credit demands for non-merger-related
purposes.

At thrifts, greater reliance on Federal Home Loan Bank advances

may have substituted for deposits.
(5) Although business borrowing at banks was less than expected,
commercial paper soared.

Problems in the investment-grade industrial bond

1. Monetary data presented in the bluebook incorporate benchmark and
seasonal factor revisions, described briefly in the appendix. The
revised data should be considered confidential until their release,
planned for February 9.

MONETARY, CREDIT, AND RESERVE AGGREGATES

(Seasonally adjusted annual rates of growth)

November

December

January

November QIV '88
to
to
Januaryp January

Money and credit aggregates
M1

2.0

5.5

-4.7

0.4

-0.2

M2

7.0

5.2

-0.4

2.4

2.7

M3

6.9

5.6

2.0

3.8

4.0

Domestic nonfinancial debt

8.7

8.3

7.9

8.1

8.2

Bank credit

6.0

0.1

2.5

1.3

2.3

1.5

-0.2

-13.7

-7.0

-6.7

Total reserves

1.9

-1.5

-10.3

-5.9

-5.3

Monetary base

3.9

5.0

4.7

4.9

4.7

539

472

640

1119

1038

1059

Reserve measures

2

Nonborrowed reserves

3

Memo: (Millions of dollars)
Adjustment plus seasonal
borrowing
Excess reserves

p--preliminary.
1. Money stock data incorporate benchmark and seasonal factor revisions.
2. Monthly reserve measures, including excess reserves and borrowing, are
calculated by prorating averages for 2-week reserve maintenance periods that
overlap months. The January figures assume an average level of adjustment
plus seasonal borrowing of $600 million and excess reserves of $1.2 billion
for the reserve period ending February 8. Reserve data incorporate adjustments for discontinuities associated with changes in reserve requirements.
3. Includes "other extended credit" from the Federal Reserve.

-5-

market and expectations by some issuers that longer-term interest rates
will decline may have shifted some issuers toward shorter-term debt.

Junk

bond issuance has been moderate, but a heavy flow stemming from impending
deals is expected in the near future.

Consumer borrowing and mortgage

activity appear to have been well maintained.

Overall, domestic nonfinan-

cial debt appears to have grown in January near the pace of recent months.

Longer-run strategies
(6) As background for the Committee's consideration of the ranges
for 1989, projected effects of three alternative longer-run monetary
policy strategies are presented below.

Strategy I is a baseline, embody-

ing the monetary policy and economic outlook of the greenbook forecast,
extended judgmentally into 1991.

Strategies II and III are based on

somewhat tighter and somewhat easier monetary policies, respectively, as
indexed by M2 growth that is one percentage point less and one percentage
point more than in the baseline over each of the three years.

Staff

econometric models were used to derive deviations of the forecasts from
the baseline under the two alternative policy strategies.

1988

1989

M2 (QIV to QIV)
I (Baseline)
II
III

5-1/4

Prices: Fixed-weight
deflator (QIV to QIV)
I
II
III
Real GNP (QIV to QIV)
I
II
III

1990

1991

3-1/2
2-1/2
4-1/2

5
4
6

6
5
7

4-1/2

4-1/2
4-1/4
4-1/2

4-3/4
4
5-1/4

4-1/4
3-1/2
5-1/4

2-3/4 (3-1/2)

3 (2-1/4)
2
3-3/4

1
3/4
2-1/4

1-3/4
1-3/4
2

5-1/2
5-3/4
5-1/4

6
6-3/4
5-1/2

6-1/2
7-1/4
5-3/4

1

Unemployment rates (QIV)
I
II
III

5-1/4

1. Drought-adjusted GNP in parentheses.

(7) Under the baseline of strategy I, policy exerts some restraint
on output, putting in place conditions that lead to some moderation in the
pace of inflation starting in 1991.

Given the rise in real interest rates

over the near term to a fairly high level, nominal rates can begin to edge
off in the latter part of the forecast period, as inflation moderates.
Even so, real rates remain high enough to keen real output below its
potential.

The behavior of nominal rates means that velocity will level

out, and the associated acceleration of M2 growth is still consistent with
restraint on inflation.
(8) The tighter policy of strategy II would lead to quicker and
larger decreases in inflation.

That result, however, involves still

higher real interest rates over the forecast horizon in order to induce a
substantial slowing of output growth and an appreciable rise in unemployment to well above the rate associated with steady inflation--assumed to
be around 5-3/4 percent in these simulations.

The level of the unemploy-

ment rate at the end of 1991 implies even greater progress against inflation in 1992, absent a sharp turnaround in policy.

The dollar would be

higher under this strategy than in the staff forecast.

The negative

effects of this on the improvement in trade, however, might be offset by
the additional restraint on domestic demand and the better performance of
prices and costs for U.S. producers.
(9) The faster money growth of strategy III would avoid a marked
slowing in economic growth, keeping the unemployment rate at or a little
below its current level over the near term and allowing only a small rise
through 1991.
ing out.

Inflation accelerates substantially in 1990, before level-

Faster expansion of domestic demand tends to deepen external

imbalances, and the greater downward movement of the dollar contributes to
the higher inflation.

Nominal interest rates initially are somewhat lower

under this strategy, but the pressure of faster income growth and higher
inflation results in nominal rates equal to those under the other two
strategies by 1991.
(10)

The table below gives inflation projections for the three M2

paths based on the single-equation model relating the level of prices to
M2 presented to the FOMC in November.

In this model, M2 determines a

long-run level of prices, assuming velocity and output are at their trend
levels.

Inflation would accelerate or decelerate depending on whether

actual prices were below or above this long-run level.

The results of the

equation simulation tend to give a little more optimistic outlook for
inflation under the three alternatives.

1988

1989

1990

1991

4-1/2

4-1/2
4-1/2
4-3/4

4-1/4
4
4-1/2

3-1/2
3
4-1/4

Prices: Fixed-weight
deflator (QIV to QIV)
I
II
III

Long-run ranges for 1989
(12)

The table below gives two alternative sets of ranges for

growth in M2, M3, and the debt of nonfinancial sectors from the fourth
quarter of 1988 to the fourth quarter of 1989.

The ranges of alternative

I are those adopted on a tentative basis by the Committee in late June.
Alternative II would reduce the money ranges somewhat further, more comfortably encompassing staff expectations for growth in M2 and M3 in the
greenbook forecast, and allowing for the slower money growth strategy
outlined in the previous section.

Alt. I
(tentative ranges)

Alt. II

Memo:
1988 ranges

Growth from QIV '88
to QIV '89
M2
M3
Debt
(13)

3 to 7
3-1/2 to 7-1/2
6-1/2 to 10-1/2

2 -1/2

to 6-1/2
3 to 7
6-1/2 to 10-1/2

4 to 8
4 to 8
7 to 11

The proposed alternatives retain the 4 percentage point widths

for all the ranges, first adopted last February. 2

The rationale for

widening the range for M2 rested primarily on the combined effects of the
rather interest-sensitive nature of this aggregate over the one-year target period and uncertainty about levels of interest rates that would
accompany pursuit of policy objectives over the year.

M3 and debt are

2. The report of the Senate Banking Committee following the July monetary policy hearings recommended that the ranges be narrowed. In addition, it implied that the ranges should be centered on the Committee's
expected outcome, in that the Committee report asked for ex post explanations of any deviations from the center of the ranges. The report
also recommended consideration of a range for the monetary base as a
replacement for M1; a Board staff report summarizing material that
served as a basis for earlier FOMC discussions of this issue was sent to
the Banking Committee in December.

-10-

less sensitive to intermediate-term variations in interest rates.

How-

ever, some special uncertainties in the financial sector in 1989 might
argue against narrowing any of the ranges.

As noted below, the approach

to resolving thrift difficulties could affect both M2 and M3.

In addi-

tion, the unpredictable outlook for corporate restructuring activity,
which might be affected by, among other things, actual or proposed legislative action, adds to uncertainties with respect to growth of debt and
M3.
(14)

The staff expects that M2 growth of only 3-1/2 percent in 1989

will be associated with the greenbook forecast.

The sluggish growth of M2

is an aspect of the tighter monetary policy in the latter part of 1988 and
the additional firming of interest rates in 1989 thought likely to be
needed to contain inflation.

Although nominal GNP is projected to in-

crease 7 percent this year, the same as in 1988, the upward movement in
rates and associated rise in opportunity costs are expected to increase M2
velocity 3-1/2 percent this year, compared with 1-1/2 percent last year.
(See chart 1.)

A substantial part of the velocity increase would seem

already to be in train from the lagged effects of the interest rate increases that have occurred over the second half of 1988.

Even with no

additional increase in rates, velocity would be expected to rise nearly
3 percent in 1989.

The projection for M2 is a little below model fore-

casts for this aggregate, given greenbook income and market interest
rates.

This is based on the assumption that the usual relationship of

deposit to market interest rates is not restored in 1989, leaving opportunity costs a bit higher than generated by the models.

Moreover, future

steps to deal with the thrift situation could further adversely affect

Chart 1

ACTUAL AND PROJECTED VELOCITY OF M2 AND M3*
M2 VELOCITY
Ratio scale
-i
2.5

-42

-4 1.5

I1 1

I I I II

1960

1965

I

I I I I I I I I I I I I I I Illll lllll l llll
i
---ll
1970

1975

1980

i1
L

1990

1985

M3 VELOCITY

Ratio scale
-- 2.5

-

2

-

1.5

'---a

I I I I I I I I 1 1 I I I I I I I I I I I I I I I Iill
1
1 11 I 1 1 1 1 1 1 1 1 1 1 1 1 1 ill

1960

1965

1970

* Projectons me based on staf forecasts of GNP and money.

1975

1980

1985

ll

lill11
11 1 1I
111111
*

1990

Chart 2

ACTUAL AND PROJECTED VELOCITY OF M1 AND DEBT*
M1 VELOCITY
Ratio scale

I I I I I I I I I II
1960

1965

I I I I I I I I I I I I I Itllllliiil11

1970

1975

1980

1985

DOMESTIC NONFINANCIAL DEBT VELOCITY

1990

Ratio scale
S1.25

-1

-

I I I I I I I I I I I I I I I 1 1 I I I I I I I IiiilttiliiiliiiliiiliiibJ
I I
1 1 1 1
1 1
.1
i l

f
1960

1965

1970

1975

' Projections ar bsed on staff forecats of GNP, money, and debt

1980

1985

199 0

0.75

0.5

-11-

returns on deposits, for example through an increase in insurance premiums .
(15)

M3 growth also is expected to slow substantially this year--to

about a 4-3/4 percent pace--under the greenbook forecast.

This slowing

reflects a projected deceleration in asset expansion and associated funding needs at thrifts as well as greater reliance on managed liabilities
outside M3 at all depository institutions as core deposit growth moderates.

At banks, credit growth is expected to be supported by increased

demands from businesses, which will be funding greater external credit
needs from short-term sources in a rising rate environment.

Even so,

capital requirements will foster continued securitization and sale of
loans, contributing to a slight moderation in credit growth at these
institutions in 1989.

At thrifts, some easing in the demands for mortgage

credit together with administrative restraints on lending by insolvent or
undercapitalized thrifts, should depress overall thrift asset growth
appreciably.

The staff forecast has thrift credit growth slowing substan-

tially in 1989--to 6-1/4 percent from 7-3/4 percent in 1988--but risks may
be on the side of even slower growth of assets and liabilities.

Moreover,

3. In assessing the demand for money, no special allowance has been
made for any distorting effects of the recovery from the drought on
nominal GNP. In terms of affecting the demand for money and velocity,
such effects might go in offsetting directions. The lower level of
spending relative to income as inventories were rebuilt might raise V2
growth to the extent demands for M2 were related to spending, but lower
V2 growth to the extent that higher savings rates were associated with
greater accumulation of financial assets.
Conceptually, the retirement of equity in corporate restructurings
may have boosted the demand for M2 by those receiving the proceeds.
Aside from some short-run effects as funds are held temporarily in the
process of completing these transactions, however, little effect of this
phenomenon has been apparent, and no allowance in the M2 forecast has
been made for the projected slackening of share retirements over coming
quarters this year.

-12-

assistance to troubled thrifts from the government could substitute in
part for deposit sources of funds.

Thrifts already have been using FSLIC

notes to collateralize FHLB advances, and any cash infusions might have
similar effects on their appetite for deposits.
(16)

Debt of domestic nonfinancial sectors is projected to grow

8-1/2 percent in 1989, marginally below its 1988 rate.

Federal borrowing

moderates a little, reflecting a drawdown of cash balances rather than a
reduction of the deficit and underlying pressures on financial markets.
Overall, nonfederal borrowing is projected to be maintained at about its
1988 pace.

In the corporate sector, borrowing is expected to strengthen

somewhat as the financing gap widens and corporate restructuring and
equity retirement activity remains brisk, though trending down from the
record pace in late 1988 and early 1989.

In the household sector, growth

of mortgage debt is expected to slow as higher interest rates restrain
housing activity; consumer credit expansion also should moderate, in line
with a smaller rise in outlays on consumer durables.
(17)

Although alternative I encompasses staff money growth fore-

casts thought to be consistent with the greenbook economic projection for
1989, both M2 and M3 likely would be well down in the lower halves of
their ranges.

Alternative II would more nearly center projected growth

within the annual ranges, although still involving some expected shortfall
from the midpoints, especially for M2.

Alternative II affords more room

for unexpectedly slow money growth, for example should offering rates
adjust even more sluggishly than the staff envisions.

Alternative II also

provides more scope for greater monetary policy tightening than in the
staff forecast, should additional restraint on aggregate demand be needed

-13-

to check inflation pressures or should the Committee wish to make more
progress against inflation than in the staff projection.

At the same

time, should constant or moderately declining interest rates prove consistent with satisfactory economic performance, the upper bound of alternative II would provide adequate room for the implied faster money growth.
(18)

On the other hand, alternative I already represents reductions

in the M2 and M3 ranges for 1989 of 1 and 1/2 percentage point, respectively, from those for last year, and the Federal Reserve's resolve at
least to resist any increase in inflation is not widely questioned.

More-

over, should a major initiative to close the deficit over time be forthcoming, market interest rates would come under downward pressure, and
alternative I would better encompass the somewhat faster money growth
needed should the System wish to assure that economic growth would not
slacken over the near term.

Alternative I may be a more natural transi-

tion to the appropriate sequence of monetary ranges in future years, when
nominal interest rates may not be rising and velocity would level out or
even decline.

For example, in 1990 M2 and M3 are seen as accelerating to

5 and 5-1/2 percent, as interest rates are assumed to move lower later in
the year.

If the Committee wishes to have scope to continue reducing the

ranges in 1990 and beyond, it may be desirable to avoid larger decreases
at this time.
(19) Under the staff forecast, M1 would be about unchanged on balance over 1989, as declines in demands for both demand deposits and NOW
accounts, stemming from the projected rise in opportunity costs and
declines in required compensating balances, are about offset by growth in
currency in line with that of nominal GNP.

This currency growth would

-14-

support expansion in the monetary base over 1989 of 4-1/2 percent, 2-1/2
percentage points slower than last year.

-15-

Short-run policy alternatives
(20)

The two near-term policy alternatives presented involve

adjustment plus seasonal discount borrowing of $600 million for alternative B with funds trading at around 9 percent or a bit above, and borrowing of $800 million for alternative C with funds 1/2 percentage point
higher.

The funds rate that is likely to be associated with a particular

borrowing level and with the current 6-1/2 percent discount rate clearly
has become harder to predict in light of the substantial downward shift in
the borrowing relationship that started around mid-October of last year.
Additional near-term uncertainties can be identified.

If the beginning-

of-year reluctance to borrow extends well into February or turns out to be
a more fundamental shift, adhering to a given borrowing objective would be
associated with somewhat higher federal funds rates.

However, some tem-

porary downward pressure on the funds rate relative to staff expectations
might accompany the sizable boost to free reserves projected in coming
weeks from market factors, as currency and required reserves decline seasonally and the Treasury balance runs off.

In addition, massive flows of

funds through the banking system in coming weeks, associated with payment
for the RJR-Nabisco takeover and the Treasury's midquarter refunding, may
contribute to temporary volatility in money market rates.

In light of

these considerations, it may be appropriate for the Desk to continue to
view the borrowing assumption with some flexibility.

4. Since that time, the borrowing shortfall has averaged around $400
million, although it was even greater in the two maintenance periods
ending December 14 and 28 and in the most recent period ending January
25. Anticipations of System tightening and year-end pressures in
December and a usual beginning-of-year pullback in borrowing in January
likely enlarged those shortfalls. Thus, the expected relationship
assumes that only the average downward shift of approximately $400 million since mid-October will prove permanent.

-16-

(21)

Anticipated money growth rates from December to March are

shown in the table below for both alternatives, along with implied growth
through March from the fourth-quarter base of the annual targets. (Detailed data are presented on the table and charts on the following pages.)
Under both alternatives, M2 would remain around the lower bound of its 3
to 7 percent tentative annual range by March, while M3 would stay in the
lower half of its 3-1/2 to 7-1/2 percent tentative annual range.
Alt. B

Alt. C

Growth from December
to March
M2
M3
M1

2
3-1/2
-2

1-1/2
3-1/4
-2-3/4

Growth from QIV '88
to March
M2
M3
M1

3
4-1/4
-1/2

2-3/4
4
-2-1/2

7 to 11

7-1/2 to
11-1/2

Associated federal
funds rate range
(22)

Short-term rates seem to have built in a further firming step

for policy in the near term.

With funds continuing to trade at or a

little above 9 percent, as expected under alternative B, some of the rate
increases registered most recently may unwind, with Treasury bill rates
moving back to around 8-3/8 percent or a little below.

Bond yields are

unlikely to move substantially, absent more indications of strength in the
economy or intensifying pressures on prices.

As maintaining the reserve

pressures of alternative B causes international investors to begin reconsidering the likelihood of an imminent U.S. monetary policy tightening,
the value of the dollar could begin to slip.

Alternative Levels and Growth Rates for Key Monetary Aggregates
M1

M3

M2
Alt. B

Alt. C

Alt. B

Alt. C

Alt. B

Alt. C

3042.3
3060.0
3073.3

3042.3
3060.0
3073.3

3875.3
3897.6
3915.9

3875.3
3897.6
3915.9

785.4
786.7
790.3

785.4
786.7
790.3

3072.4
3080.8
3088.8

3072.4
3079.3
3085.7

3922.4
3937.8
3950.9

3922.4
3937.2
3948.7

787.2
786.6
786.4

787.2
786.0
785.0

2.8
7.0
5.2

2.8
7.0
5.2

5.3
6.9
5.6

5.3
6.9
5.6

2.6
2.0
5.5

2.6
2.0
5.5

-0.4
3.3
3.1

-0.4
2.7
2.5

2.0
4.7
4.0

2.0
4.5
3.5

-4.7
-0.9
-0.3

-4.7
-1.8
-1.5

Quarterly Ave. Growth Rates
1988 Q1
Q2
Q3
Q4
1989 Q1

6.2
6.9
3.8
3.8
2.9

6.2
6.9
3.8
3.8
2.7

6.8
7.2
5.5
4.9
4.2

6.8
7.2
5.5
4.9
4.1

3.2
6.3
5.2
2.4
-0.4

3.2
6.3
5.2
2.4
-0.7

Nov. 88 to Mar. 89
Dec. 88 to Mar. 89
Jan. 89 to Mar. 89

2.8
2.0
3.2

2.5
1.6
2.6

4.1
3.6
4.4

3.9
3.3
4.0

-0.1
-2.0
-0.6

-0.7
-2.7
-1.7

5.3
2.9
2.7
2.9
3.0

5.3
2.7
2.7
2.7
2.7

6.2
4.2
4.0
4.3
4.2

6.2
4.1
4.0
4.2
4.0

4.3
-0.4
-0.2
-0.4
-0.4

4.3
-0.7
-0.2
-0.7
-1.0

Levels in billions
1988 October
November
December
1989 January
February
March
Monthly Growth Rates
1988 October
November
December
1989 January
February
March

Q4
Q4
Q4
Q4
Q4

87
88
88
88
88

to
to
to
to
to

Q4 88
Q1 89
Jan. 89
Feb. 89
Mar. 89

1988 Target Ranges:
1989 Ranges (Tentative):

4.0 to 8.0
3.0 to 7.0

4.0 to 8.0
3.5 to 7.5

Chart 3

ACTUAL AND TARGETED M2

Billions of dollars

3300

7%

Actual Level
- -Estimated Level
* Short-Run Atenatives

3250

The range for 199 Is th one doapld
tentativly a the Jaiy mnwg.

3200

S3150

3100

*'

c

3050

,-'

- 3000

-

-

O

N

1987

D

J

F

M

A

M

J

J

1988

A

S

O

N

D

J

F

M

A

M

J

J

1989

A

S

O

2950

2900

I I
D
N

2850

Chart 4

ACTUAL AND TARGETED M3

Billions of dollars

4250
-

Actual Level

4200

--Estimated Level
* Short-Run Altematives

4150

The range for 198e is te one adoped
tentahvely al the Jiy mteag.

4100

4050
4000
3950
3900

3850

3800

3750

3700

3650

D

ON
1987

J

F

MA

M

J
J
1988

A

S

ON

D

J

F

MA

M

J
J
1989

A

S

ON

D

3600

Chart 5

M1

Billions of dollars

Actual Level
-- Estimated Level
------ Growth From 1987.04
* Short-Run Altematives

----

15% -

--

--- '

860

840

10%

-- 820

800

5%

Se

780

c--

--

0

------

---

-

-

-----

-- 760

0%
,
•

I

.

..

a

I

a

a

1

i

1

m

I

I

I

I

I

O

N

1987

D

J

F

M

A

M

J

J

1988

A

S

O

N

D

I

I

I

1

1

1

1

1

1

1

1

1

1
1

1

1

1

|

]

J

F

M

A

M

J

J

1989

A

S

O

N

D

Chart 6

DEBT

Billions of dollars

10200
--

Actual Level

* Projected Level
9900
The range or 1989 s M on adoped
u
Sentilvly a the y mn-e .

9600

-1 9300

-- 9000

--

8700

-- 8400

--

I
O

i
N

1987

I
D

I

J

i

I

F

M

A

I

I

I

I

I

I

I

M

J

J

A

S

O

N

1988

I

D

I

J

I

F

I

M

I

A

I

M

I

J

I

J

1989

I

A

I

S

I

O

I

N

8100

7800
D

-18-

(23)

Increases in short-term market rates over recent months should

restrain M2 growth through this quarter under alternative B. Some rebound
from a weak January seems in store in February and March, but M2 growth is
expected to reach only about 3 percent over the next two months, given the
glacial adjustment speed of offering rates recently, especially for liquid
accounts.

5

With demand deposits expected to continue to run off in

February and March, M1 would decline slightly further.

The 2 percent M2

growth of alternative B from December to March implies quarterly average
growth of only 3 percent for this aggregate.

M2 demand is not expected to

respond to the anticipated bulge in nominal GNP in the current quarter
resulting from an imputed bounceback of farm activity from the drought
last year.

Consistent with the GNP outlook in the greenbook, the income

velocity of M2 would increase this quarter at a 5-3/4 percent annual rate,
nearly twice its rate of change over the second half of 1988.
(24)

M3 growth under alternative B should strengthen from its

January lull to a 4-1/2 percent annual rate over February and March,
bringing growth from December to March to a 3-1/2 percent annual rate.
Total thrift deposits, flat in December and January, are expected to expand weakly over February and March, and S&Ls should continue their reliance on new FHLB advances and other non-M3 borrowing.

A bulge in bank

credit associated with financing of the RJR-Nabisco takeover, while other
LBO and merger-related lending remains heavy, should induce substantial
issuance of large CDs this month and next.

Corporate restructuring

5. Growth of M2 may be somewhat elevated in February, and depressed in
March, by short-term placement of funds borrowed for the RJR-Nabisco
buyout. These funds reportedly will be held in highly liquid instruments for a time prior to disbursement to shareholders.

-19-

activity also will be boosting overall debt issuance by domestic nonfinancial sectors for a time.

The debt aggregate is projected to grow at a

9-1/2 percent annual rate over the first quarter--somewhat faster than in
1988 and in the upper half of its tentative range.

Net equity retirements

are forecast at a record $200 billion annual rate for the quarter, while
the corporate financing gap holds steady at around an $80 billion annual
rate.
(25)

The rise in the funds rate to around 9-1/2 percent or slightly

higher associated with discount borrowing of $800 million under alternative C would be larger than is currently built into market rates.

Short-

term rates would move up across the board, though by less than 1/2 percentage point, with the 3-month Treasury bill rate rising to around 8-3/4
percent.

The upward pressure on bond rates from market perceptions of a

higher path for short rates in the intermediate term might be largely
offset by expectations that policy actions of this size and speed were
likely to slow growth and reduce inflation.

Higher short-term rates

likely would induce some further firming of the exchange value of the
dollar.

The increase in short-term rates would further damp expansion of

the monetary aggregates.

The projected 1-1/2 percent growth of M2 over

the first three months of the year under this alternative would place it
in March a little below the lower bound of the cone associated with its
tentative annual range, and the upward movement of rates is likely to keep
M2 growth relatively damped into the spring.

M3 growth of about 3-1/4

percent from December to March would leave this aggregate just 1/2 percentage point above its tentative lower bound by quarter end.

-20-

Directive language
(26)

Presented below for Committee consideration is draft language

relating to the ranges for 1989 and to the operating paragraph for the
intermeeting period.

With respect to the long-run ranges, alternative

language is offered that would fold the M1 sentence into the first paragraph and apply to the broader aggregates as well as to M1 the notion that
they are evaluated in light of conditions in the economy and financial
markets.

This might be considered more consistent with the treatment of

the aggregates in the operational paragraph.
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price stability over time, promote growth in output on a sustainable
basis, and contribute to an improved pattern of international transactions.

In furtherance of these objec-

tives, the Committee at THIS [DEL:meeting ESTABLISHED [DEL:
its]
in
it had established in
late June reaffirmed]the ranges [DEL:
February] for growth of ____ ____ [DEL: percent for[DEL:
TO
4 to 8]
both
TO
PERCENT FOR M3, measured from the fourth
M2 and ____ ____

1988].
1987]
quarter of 1988 [DEL: to the fourth quarter of 1989 [DEL:
The monitoring range for growth of total domestic non7
to
TO
also
financial debt was SET[DEL: maintained]at ____ ____[DEL:
11]percent for the year.

[DEL: 1989
Per

the

Committee agreed on tentative ranges

for monetary growth, measured from the fourth quarter of
1988

tothe fourth quarter of 1989, of 3 to 7 percent

for M2 and 3-1/2 to 7-1/2 percent for M3.

The

Committee

-21-

set the associated monitoring range for growth of total
domestic nonfinancial debt at 6-1/2 to 10-1/2 percent.

It was understood that all these ranges were provisional
and that they would be reviewed in early 1989 in the
light of intervening developments.]
[No para]

The Committee AGAIN DECIDED [DEL:
reaffirmed its

decision in February] not to establish a specific target
[DEL:for and also decided not to set a tentative range]
1988
for M1 GROWTH IN 1989.

The behavior of this aggregate

[THE MONETARY AGGREGATES] will continue to be evaluated
in the light of movements in its velocity [THEIR
VELOCITIES], developments in the economy and financial
markets, and the nature of emerging price pressures.

OPERATIONAL PARAGRAPH
In the implementation of policy for the immediate
future, the Committee seeks to DECREASE SOMEWHAT/
MAINTAIN/increase somewhat the existing degree of pressure on reserve positions.

Taking account of indica-

tions of inflationary pressures, the strength of the
business expansion, the behavior of the monetary
aggregates, and developments in foreign exchange and
domestic financial markets, somewhat (SLIGHTLY) greater
reserve restraint would (MIGHT), or (SOMEWHAT) slightly
lesser reserve restraint (WOULD) might, be acceptable in

-22-

the intermeeting period.

The contemplated reserve con-

ditions are expected to be consistent with growth of M2
and M3 over the period from DECEMBER [DEL:
November]through
March at annual rates of about ____ AND ____ and 6-1/2]
[DEL:
3

percent, respectively.

The Chairman may call for Com-

mittee 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:11]percent.
TO
7
to

APPENDIX
MONEY STOCK REVISIONS

Measures of the money stock have been revised to incorporate
the results of the annual benchmark and seasonal factor review. The
attached tables compare growth rates of the old and the revised series.
These data are to be regarded as strictly confidential until their
release scheduled for February 9.
Benchmark Revisions
Deposits of commercial banks and thrifts have been benchmarked
using call reports through June 1988 and incorporate revisions from
other sources as well. The benchmark revisions had negligible impacts
on monetary growth over 1988 and on the quarterly pattern of growth
within the year.
Seasonal Revisions
The seasonal factor review continued to employ the X-11 ARIMA
procedure. Although revisions to seasonal factors had little effects on
the broad patterns of growth in 1988, some redistribution of growth
occurred from the first to the second half of the year. Growth of M1
was increased by about 0.4 percentage point, M2 by 0.7 percent, and M3
by 0.5 percent, on a second quarter to fourth quarter basis.

Appendix Table 1

Comparison of Revised and Old M1 Growth Rates
(percent changes at annual rates)

Revised
(1)

Old
(2)

1987--0ct.
Nov.
Dec.

15.1
-4.3
-3.7

14.0
-5.6

1988--Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
1989--Jan.

Difference
(1) - (2)
(3)

I

Difference due to
Benchmark
Seasonals
(I
4)
(5)

Monthly

-3.0

1.1
1.3
-0.7

0.1
0.1
-0.2

1.0
1.2
-0.5

9.7
2.7
5.8
11.5
-0.2
8.4
9.3
0.0
2.0
2.6
2.0
5.5

12.8
1.1
5.4
11.3
0.2
9.8
9.0
0.3
-0.2
1.7
0.3
6.3

-3.1
1.6
0.4
0.2
-0.4
-1.4
0.3
-0.3
2.2
0.9
1.7
-0.8

0.2
0.0
0.0
0.3
0.2
0.4
0.5
-0.4
0.2
-0.1
0.1
0.0

-3.3
1.6
0.4
-0.1
-0.6
-1.8
-0.2
0.1
2.0
1.0
1.6
-0.8

-4.7

-1.2

-3.5

0.0

-3.5

Quarterly
1987--QIV

3.9

1.1

0.1

1.0

1988--QI
QII
QIII
QIV

3.8
6.3
5.2
1.3

-0.6
0.0
0.0
1.1

0.0
0.2
0.2
0.0

-0.6
-0.2
-0.2
1.1

5.1

-0.3

-0.4

3.3

0.5

0.4

6.2
4.2

0.2
0.1

0.1
0.0

Semi-Annual
1988--QIV '87 to
QII '88
QII '88 to
QIV '88

Annual (OIV TO OIV)
1987
1988

Appendix Table 2
Comparison of Revised and Old M2 Growth Rates
(percent changes at annual rates)
|
|
I

Revised
(1)

Old
(2)

Difference
(1) - (2)
(3)

1987--Oct.
Nov.
Dec.

7.2
0.8
2.0

5.7
0.8
1.9

1.5
0.0
0.1

0.3
0.0
-0.1

1.2
0.0
0.2

1988--Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

8.7
8.4
7.6
8.5
3.8
5.2
4.3
2.3
2.1
2.8
7.0
5.2

10.1
8.6
8.7
9.5
4.5
5.7
3.7
2.3
1.0
1.3
7.0
4.9

-1.4
-0.2
-1.1
-1.0
-0.7
-0.5
0.6
0.0
1.1
1.5
0.0
0.3

0.0
0.5
-0.4
-0.3
-0.5
-0.2
-0.1
-0.6
-0.2
0.1
0.0
0.0

-1.4
-0.7
-0.7
-0.7
-0.2
-0.3
0.7
0.6
1.3
1.4
0.0
0.3

1989--Jan.

-0.4

1.2

-1.6

0.0

-1.6

1987--QIV

4.9

3.9

1.0

0.3

0.7

1988--QI
QII
QIII
QIV

6.2
6.9
3.8
3.8

6.8
7.7
3.6
3.0

-0.6
-0.8
0.2
0.8

0.1
-0.2
-0.3
-0.1

-0.7
-0.6
0.5
0.9

1988--QIV '87 to
QII '88

6.6

7.3

-0.7

-0.1

-0.6

QII '88 to
QIV '88

3.8

3.3

0.5

-0.2

0.7

4.2
5.3

4.0
5.4

0.2
-0.1

0.2
-0.2

0.0
0.1

Difference due to
Benchmark
Seasonals
(4)
(5)

Monthly

Quarterly

Semi-Annual

Annual (OIV TO QIV)
1987
1988

Appendix Table 3
Comparison of Revised and Old M3 Growth Rates
(percent changes at annual rates)

Old

Difference
(1) - (2)

I

Revised

(1)

(2)

(3)

1

1987--Oct.
Nov.
Dec.

8.0
4.9
2.2

7.3
4.9
1.6

0.7
0.0
0.6

0.2
-0.2
-0.3

0.5
0.2
0.9

1988--Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

8.0
9.7
7.9
7.6
4.7
6.6
7.1
3.8
2.6
5.3
6.9
5.6

8.6
10.5
8.2
7.6
5.5
7.8
7.0
3.8
1.7
4.7
6.9
4.5

-0.6
-0.8
-0.3
0.0
-0.8
-1.2
0.1
0.0
0.9
0.6
0.0
1.1

0.0
0.3
0.4
-0.1
-0.5
-0.3
-0.3
-0.2
-0.2
-0.1
0.0
0.0

-0.6
-1.1
-0.7
0.1
-0.3
-0.9
0.4
0.2
1.1
0.7
0.0
1.1

1989--Jan.

2.0

2.6

-0.6

0.0

-0.6

1987--QIV

6.4

5.5

0.9

0.2

0.7

1988--QI
QII
QIII
QIV

6.8
7.2
5.5
4.9

7.0
7.7
5.7
4.4

-0.2
-0.5
-0.2
0.5

- 1
0.0
-0.4
-0.1

-0.3
-0.5
0.2
0.6

1988--QIV '87 to
QII '88

7.0

7.4

-0.4

0.0

-0.4

QII '88 to
QIV '88

5.3

5.1

0.2

-0.3

0.5

5.7
6.2

5.4
6.4

0.3
-0.2

0.3
-0.1

0.0
-0.1

Difference due to
Benchmark
Seasonals
(4)
(S)

Monthly

Ouarterly

Semi-Annual

Annual (OIV TO OIV)
1987
1988

ry 6,

1989

SELECTED INTEREST RATES
(percent)
Short-Term

Lona- i arm

--- Treasury bills---secondary market--

federal
funds

3
month

6
month

12
month

-U.S. Gov't. constant----- maturity yields-cds
sec mkt
3-month

comm.
paper
1-month

money
market
mutual
fund

bank
prime
loan

3-year

10-year

conventional home-.ortgages
sec mkt primary market

--

30-year

corp. A
utility
rec off

muni.
Bond
Buyer

fixedrate

fixedrate

ARM

Monthly
FEB 88
MAR 88
APR 88
AY 88
JUN 88
JUL 88
AUG 88
SEP 88
OCT 88
NOV 88
DEC 88
JAN 89

7.62
5.95

6.84
5.24

7.36
5.36

7.64
6.40

8.49
5.83

8.12
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

8.87
6.38

87--High
Low

8.16
5.61

8.26
5.81

8.40
6.15

9.33
6.58

9.41
6.50

8.18
6.03

10.50
8.50

9.16
7.33

9.36
8.16

9.42
8.40

10.73
9.63

8.34
7.64

11.33
9.98

10.81
9.84

8.54
7.49

6.58
6.58
6.87
7.09
7.51
7.75
8.01
8.19
8.30
8.35
8.76
9.12

5.66
5.70
5.91
6.26
6.46
6.73
7.06
7.24
7.35
7.76
8.07
8.27

5.93

6.21
6.28
6.56
6.90
6.99
7.22
7.59
7.53
7.54
7.87
8.32
8.37

6.60
6.63
6.92
7.24
7.51
7.94
8.35
8.23
8.36
8.78
9.25
9.20

6.55
6.57
6.80
7.07
7.41
7.72
8.09
8.09
8.12
8.38
9.31
9.03

6.22
6.04
6.09
6.20
6.51
6.77
7.06
7.40
7.50
7.64
8.00
8.33

8.51
8.50
8.50
8.84
9.00
9.29
9.84
10.00
10.00
10.05
10.50
10.50

7.38
7.50
7.83
8,24
8.22
8.44
8.77
8.57
8.43
8.72
9.11
9.20

8.21
8.37
8.72
9.09
8.92
9.06
9.26
8.98
8.80
8.96
9.11
9.09

8.43
8.63
8.95
9.23
9.00
9.14
9.32
9.06
8.89
9.02
9.01
8.93

9.75
9.91
10.23
10.61
10.41
10.40
10.45
10.26
10.11
10.12
10.08
10.09

7.83
8.08
8.22
8.30
8.14
8.15
8.16
7.96
7.78
7.80
7.88
7.63

10.02
10.12
10.44
10.73
10.62
10.64
10.87
10.62
10.41
10.56
10.98
10.97

9.89
9.93
10.20
10.46
10.46
10.43
10.60
10.48
10.30
10.27
10.61
10.73

7.61
7.52
7.58
7.71
7.85
7.84
8.01
8.14
8.12
8.15
8.39
8.55

8.40
8.50
8.71
8.92
9.23

8.19
8.27
8.38
8.45
8.53

7.55
7.56
7.60
7.68
7.75

10.00
10.00
10.00
10.00
10.21

8.34
8.53
8.71
8.87
8.99

8.69
8.85
8.93
9.06
9.13

8.79
8.92
9.03
9.12
9.13

10.02
10.08
10.20
10.20
10.15

7.64
7.77
7.86
7.93
7.96

10.37
10.53
10.64
10.70
10.79

10.12
10.24
10.31
10.39
10.44

8.11
8.14
8.14
8.21
8.26

5.91

6.21
6.56
6.71
6.99
7.39
7.43
7.50
7.86
8.22
8.36

Heekly
NOV
NOV
NOV
NOV
NOV

2 88
9 88
16 88
23 88
30 88

8.36
8.31
8.26
8.33
8.44

7.36
7.50
7.83
7.97
7.96

7.48
7.66
7.90
8.01
8.08

7.51
7.68
7.90
8.00
8.08

OEC
DEC
DEC
DEC

7 88
14 88
21 88
28 88

8.59
8.51
8.87
8.86

7.97
8.00
8.16
8.13

8.16
8.25
8.23
8.26

8.18
8.34
8.40
8.33

9.22
9.27
9.33
9.21

9.26
9.27
9.41
9.30

7.85
7.95
8.09
8.18

10.50
10.50
10.50
10.50

9.00
9.10
9.16
9.16

9.05
9.10
9.13
9.12

9.05
8.98
9.02
8.96

10.02
10.15
9.98
10.12

7.96
7.94
7.82
7.71

10.72
11.08
11.00
11.33

10.46
10.71
10.68
10.77

8.35
8.43
8.45
8.45

JAN
JAN
JAN
JAN

4 89
11 89
18 89
25 89

9.22
9.08
9.13
9.06

8.16
8.28
8.24
8.25

8.28
8.46
8.34
8.29

8.40
8.49
8.33
8.27

9.17
9.23
9.24
9.17

9.18
9.04
9.04
9.00

8.39
8.28
8.35
8.37

10.50
10.50
10.50
10.50

9.23
9.33
9.17
9.11

9.19
9.25
9.06
8.99

9.05
9.06
8.90
8.84

10.19
10.11
10.05
10.00

7.73
7.66
7.55
7.56

11.19
10.99
10.92
10.78

10.80
10.81
10.71
10.60

8.53
8.54
8.58
8.54

FEB 1 89

9.16

8.34

8.38

8.34

9.18

9.03

8.40

10.50

9.13

8.99

8.81

10.10

7.58

10.85

10.55

8.56

Daily
JAN 27 89
FEB 2 89
FEB 3 89

9.17
9.03

8.33
8.38
8.48

8.35
8.41
8.52

8.31
8.36
8.48

9.18
9.19
9.25

9.02
9.03
9.06

10.50
10.50
10.50

9.09
9.12
9.19p

8.95
8.98
9.01p

8.76
8.82

9.04p

8.84p

NOTE: Neekly 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 FNMA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for
contract rate on new
fixed-rate mortgages(FRMs) with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial
commitments for 1-year, adjustable-rate mortgages(ARMs) at S&Ls offering both FRMs and ARMs with the same number of discount points.

Strictly

Money and Credit Aggregate Measures

III
Class

Seasonally adjusted

Period

Mt

M3

L

loans
and
investment

5

s

7

a

in M3 only
4

U.S
government'

olher'

lotal'

9

10

2

in M2
3

9.4
4.0
5.4

7.4
3.3
5.8

8.2
11.2
10.0

9.1
5.4
6.4

8.3
5.3

9.7
7.9
7.2

14.7
8.9
8.1

12.9
10.0
9.0

13.3
9.8
8.7

3.8
6.3
5.2
1.3

6.8
7.7
3.6
3.0

7.8
8.2
3.1
3.6

8.1
7.4
13.7
9.4

7.0
7.7
5.7
4.4

6.8
9.1
7.2

5.3
11.1
7.3
4.4

8.0
8.2
7.3
7.9

8.2
8.9
9.0
8.5

8.1
8.7
8.6
8.4

12.8
1.1
5.4
11.3
0.2
9.8
9.0
0.3
-0.2
1.7
0.3
6.3

MONTHLY
1988-JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEP.
OCT.
NOV.
DEC.
pe

10.1
8.6
8.7
9.5
4.5
5.7
3.7
2.3
1.0
1.3
7.0
4.9

9.2
11.2
9.8
8.8
6.1
4.3
1.8
3.1
1.4
1.2
9.3
4.5

3.1
17.7
6.2
0.6
9.4
15.9
19.6
9.3
4.0
17.1
6.4
2.7

8.6
10.5
8.2
7.6
5.5
7.8
7.0
3.8
1.7
4.7
6.9
4.5

10.5
8.6
7.3
11.9
8.7
4.5
11.5
5.4
1.7
5.1
9.2

6.1
10.3
9.1
11.6
12.5
10.3
6.3
7.2
-0.7
7.1
6.0
0.1

4.0
10.6
15.1
7.1
2.7
6.0
5.8
10.5
12.2
5.1
6.7
7.6

7.4
7.9
7.5
9.2
10.0
9.0
9.1
8.8
7.8
8.2
9.3
8.4

6.6
8.6
9.3
8.7
8.3
8.3
8.3
9.2
8.8
7.5
8.7
8.3

2059.0
2079.9
2088.7
2100.4
2113.7

6698.6
6742.1
6788.4
6841.0
6889.1

-1

LEVELS ($BILLIONS) :
MONTHLY
1988-AUG.
SEP.
OCT.
NOV.
DEC.

3

3

816.9
819.6
831.3
835.7
837.6

3848.5
3853.8
3868.8
3890.9
3905.4

3067.5
3066.7

2280.9
2280.1
2281.8
2280.1

836.1
839.5
838.5
835.5

3070.5
3064.6
3070.4
3072.6

2277.4
2278.3
2286.9
2286.7

838.0
840.8
843.7
842.4

2374.9
2373.6
2387.5
2398.1
2398.3

3903.9
3907.1
3906.0
3902.2
3908.6
3905.4
3914.2
3914.9

3067.8

793.1
786.3
783.6
785.8

.1.

7

2249.2
2251.8
2254.0
2271.5
2280.0

3031.6
3034.2
3037.5
3055.2

786.9
787.5
785.7
786.6
2
9
16 p
23 p

2

1

782.5
782.4
783.5
783.7
787.8

NEEKLY
1988-DEC.

1.

6, 1989
Domestic nonfinancial debt'

Bank credit

Itotal

OMC

15.6
6.2
4.2

QUARTERLY AVERAGE
1988-1st QTR.
1988-2nd QTR.
1988-3rd QTR.
1988-4th QTR.

1989-JAN.

nontransactions
components

M2

1

ANN. GROHTH RATES (%l
ANNUALLY (14TO Q4)
1986
1987
1988

1989-JAN.

FEB.

stock measures and liquid assets

___ _Money

ConfidentialF(FR)

3067.8

3067.6

U

.L _________________ U

4582.6
4589.2
4608.8
4644.0

U

U _________________L

Debt data are on a monthly average basis, derived by averaging end-of-month levels of adjacent months,
discontinuities.
p-preliminary
pe-preliminary estimate

U

8757.6
8822.1
8877.1
8941.3
9002.8

I.

and have been adjusted to remove

Strictly Confidential (FR)

Components of Money Stock and Related Measures

II
Class FOMC

seasonally adjusted unless otherwise noted

Period

Curency

Demand
dipeeiu

Other
checkable
deposits

Overnight
RPs and
Eurodollars

MMOAI
NSA

Small
donmi nation
time

Savings
depositl

NSA'
__

LEVELS I*BILLIONSI :
ANNUALLY 14TH QTR.
1986
1987
1988

4

Money market
mutual lunds NSA
general
Institupurpose
lions

deposits'

_ ____
__________
____dealer'
5

9

depositl'
10

Savings
bonds

Shortterm
Treasury

Commerclal paper'

42

13

14

11
t

504.9

441.5
479.2
532.6

82.6
109.8
124.4

81.0
92.2
101.7

89.7
99.4

77.9

525.2

414.3

913.1

221.1

89.6

484.7

108.9

90.8

263.3
265.0
266.9

82.9
78.3
75.0

524.1
522.6
524.7

414.4
416.2
419.8

924.6
941.5
953.5

225.2
231.0
234.8

94.4
98.7
97.4

482.6
488.6
490.3

109.6
113.9
111.7

290.2
287.4
289.9

270.1
271.9
274.4

76.1
80.7
81.0

523.3
519.6
522.3

422.7
425.1
429.0

964.8
972.0
974.9

235.8
231.8
228.9

91.9
90.0
86.3

492.1
495.4
501.8

114.3
120.6
123.8

206.3
207.2
208.5

290.6
290.1
288.4

278.2
278.0
278.2

77.8
80.1
77.6

521.1
517.0
510.7

432.0
434.2
433.4

978.5
985.7
997.4

229.6
230.8
230.8

84.8
84.0
83.7

509.4
515.3
523.9

209.5
210.3
211.7

288.6
286.9
288.1

278.0
279.1
280.5

76.0
75.2
79.9

506.8
505.9
502.0

431.2
433.6
431.6

1009.9
1019.0
1027.1

231.2
238.0
240.8

84.6
87.4
87.6

530.7
532.1
534.9

196.5

288,0

1988-JAN.
FEB.
MAR.

198.4
199.3
200.9

289.9
287.8
287.9

APR.
MAY
JUNE

202.5
203.6
204.9

JULY
AUG.
SEP.
OCT.
NOV.
DEC.

858.9

1989

45

84.7
87.2
86.5

528.9

6,

Bank.
accp
tanc

1curllle

____

6

Term
Eurodollars
NSA'

207.6
219.7
236.7

228.6
259.7
279.2

569.2

only

8

Term
RPe
NSA'

899.4
1018.7

294.6
291.7
287.9

77.9
81.1
77.0

and brokers

7

Large
denominalion
time

362.2
415.4
432.1

179.3
194.9
210.5

MONTHLY
1987-DEC.

1.
2.
3.
4.

FEB.

283.8
267.9

228.5
255.2

37.8
45.1

100.2

260.1

258.9

45.7

85.4
85.5
90.0

101.4
102.6
103.5

262.5
258.3
252.8

269.0
274.1
280.3

43.6
40.9
40.6

89.1
91.8
93.1

104.6
105.4
106.1

263.5
265.1
256.6

288.2
301.1
301.2

41.2
40.9
40.6

125.0
123.1
121.5

96.2
102.3
101.4

106.9
107.4
107.7

266.5
273.1
278.0

311.5
312.5
307.9

40.6
41. 1
41.9

123.9
126.6
122.8

99.1
102.2
103.9

108.3
108.4

281.3
282.9

309.2
321.0

41.3
40.8

Net of money market mutual fund holdings of these items.
Includes retail repurchase agreements. All IRA and Keogh accounts at comercial banks and thrift institutions are subtracted from mall
Excludes IRA and Keogh accounts.
Nat of large denomination time deposits held by money market mutual funds and thrift institutions.
p-preliminary

time deposits.

1
NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES
Millions of dollars, not seasonally adjusted

February 6, 1989
Treasury bills
Net
purchases

Period

Redemption. (-)

o Nt
Net
change

STRICTLY CONFIDENTIAL (FR)
CLASS II-FOMC

Treasury coupons
3
I
Net purchase
within
1-year

I

1-5

5-10

over 10

Rde)ption. (-)

Not
change

Feceral
agencies
redemptions
(-)

Net change
outright
holdings
total

Net

1sf

15,468
11,479
18,096
20,099
12,933
7,635

2,400
7,700
3,500
1,000
9,029
2,200

13,068
3,779
14,596
19,099
3,905
5,435

484
826
1,349
190
3,358
2,177

1,896
1,938
2,185
893
9,779
4,686

890
236
358
236
2,441
1,404

383
441
293
158
1,858
1,398

3,566
3,440
4,185
1,476
17,366
15,099

16,342
6,964
18,619
20,178
20,994
14,513

-5,445
1,450
3,001
10,033
-11,033
1,557

1987--Q3
04

4,690
4,334

8,229

-3,539
4,334

143
1,449

2,356
2,639

619
596

493
445

3,610
5,059

12
9,323

-1,433
2,533

1988--Q1
02
03
04

319
423
1,795
5,098

2,200

-1,881
423
1,795
5,098

1,092

-800
3,661

-175
1,017

-975
6,737

1,084

1,824

562

3,903

-3,011
7,030
1,717
8,776

-3,514
5,220
1,393
-1,541

3,903

515
-10
1,280
300
3,585
4,892

-5,941
-1,655
8,989
-6,150
3,096
1,512

-925

-6,813

323
2,985
-14
60
278

1,627
-1,362
1,341
-1,160
5,629

3,468
75
260

3,518
693
352
230

-4,050
-2,601
3,351
3,094

100

100
-20
-282

4,882
-4,141
-6,394
4,259

-653

-3,729

1983
1984
1985
1986
1987
1988

2,200

515

1988--July
August
Septmber
October
November
December

--1,280

1,280
375
3,599
1,125

--

-154

1989--January

515

600

--

375
-3,599
1,125
-754

2
9
16
23
30

323
2,985

7
14
21
28

50
702
92
281

50
702
92
281

Jan.

4
11
18
25

Nov.

Feb.

Memo:
c

-20

60
278

Dec.

562

323
2,985

60
278

1,824
-3

1,084

--

-20
-134
i00

1

LVEL (bil.$)'
February 1

1,824

I

-117.1

Change froam nd-of-pariod to end-of-pariod.
Outright transactions in market and with foreign accounts.
Outright transactions in market and with foreign accounts,
short-trm notes acquired in exchange for maturing bills.
maturity shifts and rollovers of maturing coupon issues.

-20

-3

-630

55.5

and
Excludes

12.7

-23

26.9

120.9

244.8

seurt2es
4. Reflect net change and redmptions (-) of Treasury and agency securities.
5. Includes change in RPs (+), matched sale-purchase transactiona (-), and matched
purchase sale transactions (+).
6.

The level

as follows:

of agency issues were

within
1-year
2.3

1-5

5-10

3.3

1.0

fl7TI10
over
.2

total
6.8