The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Strictly Confidential (FR) Class I FOMC January 4, 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 January 4, 1980 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) M-1 in November and December expanded at annual rates of 1 and 5-1/2 percent,respectively.1/ Over the three months from September to December, this aggregate grew at.a 3 percent annual rate, below the objective of just over 4 percent that was consistent with the Committee's decision at the November FOMC meeting.2/ (Actual and targeted growth rates for the fourth quarter and the year 1979 are shown in the table below.) The 7 percent rate of expansion of M-2 for the three-month policy period was also below its targeted growth rate of 8-1/2 percent, with growth in the interest-bearing component of this aggregate slowing as the quarter progressed. September to December Targeted Actual 1978:Q4 to 1979:Q4 Targeted Actual Monetary Aggregates M-1 4¼ 3.1 3 to 6 3/ 5.5 M-2 8½ 6.9 5 to 8 8.3 M-3 7½ 6.3 6 to 9 8.1 Total Reserves 13½ 13.9 -- 2.8 Nonborrowed Reserves 10¾ 13.1 -- 0.8 9¼ 8.3 -- 7.6 Reserve Aggregates-4/ Monetary Base All data on monetary aggregates in the Bluebook incorporate benchmark revisions based on December 1978 and March 1979 Call Report data for nonmember banks; the revised aggregates will be published January 10 and are discussed in appendix A. 2/ At the November meeting, the FOMC decided on a 5 percent growth for M-1 from October to December. Since October had grown by 2½ percent, this implied growth from September to December of 4.2 percent. 1/ 3/ 4/ Represents the original 1½ to 4½ percent range specified by the FOMC, adjusted upward by staff's estimate that ATS effects will reduce measured M-1 growth by about 1½ percentage points over the longer-run policy period rather than the 3 percentage points originally estimated in February. Targeted reserve aggregate paths reflect adjustments made subsequent to the November FOMC meeting for apparent sustained changes in deposit mix and higher than anticipated levels of excess reserves. -2Inflows to MMC's and large denomination time deposits accounted for all of the growth. M-3 registered a 6-1/4 percent rate of growth during the last three months of the year as thrift institutions--particularly credit unions and mutual savings banks--were less successful than banks in attracting deposits in the current environment of high interest rates. As shown in Charts 1 and 2, the deceleration of growth in the monetary aggregates over recent months kept the growth of M-1 and M-3 within the Committee's desired longer-run ranges for the year ending with the fourth quarter of 1979. However, M-2 was somewhat above the upper end of its longer-run range and--even with the sharp fourth quarter deceleration--bank credit exceeded its longer-run growth range. (2) Over the fourth quarter, growth in total reserves was close to the target path developed by the staff to be consistent with the Committee's desired growth for the key monetary aggregates, while growth in nonborrowed reserves was above path, as may be seen from the bottom panel of the table on the preceding page. Growth in the monetary base was below target as the public's desire to increase holdings of currency--the principal component of the base--turned out to be below even the relatively slow growth that the staff had anticipated. The total reserves supplied could have been sufficient to offset the impact on M-1 of weak currency growth since more reserves than expected were being released in December by shortfalls relative to expectations in non-money liabilities of banks. However, banks in December held an unusually and unexpectedly high level of excess reserves, thereby absorbing the reserves that might otherwise have been used to support money. Chart 1 CONFIDENTIAL (FR) Class II Actual and Targeted M-1 and M-2 M-1 --- FOMC 1/4/0o Billions of dollars 385 Current Longer-Run Range S380 Q - 4 '78- / ,^ Q4 - '79 ^-.- 375 3% - - -- 370 -r ' -- 365 c- SI O N I I I D J F I M A I I M J - 360 - 355 350 I J A S N O D 1979 1978 M2 Billions of dollars 950 -- a Current Longer-Run Range S- 940 - 930 - 920 - 910 - 900 Q4 '78-Q4 '79 .. 5% Y , -- 890 -- 880 - I SI O N 1978 0 J I F M A M I I J J 1979 I A 860 I S 870 O N D CONFIDENTIAL (FR) Class I - FOMC 1/4/80 Chart 2 Actual and Targeted M-3 and Bank Credit M-3 Billions of dollars 1640 S--- Current Longer-Run Range 9% - 1620 1600 6% - Q4 '78-Q4 '79 1580 -1560 -1540 -1520 - I A S O N 1500 1480 D 1979 1150 Range 1125 10% 1100 7%% 1075 Q4 '78-04 79 1050 1025 1000 975 0 1978 1979 N -3(3) In addition, the relation between reserve and money growth over any particular time span can diverge because of lagged reserve accounting. Demand deposits were weak relative to path in December, thereby affect- ing the demand for total reserves in late December and early January (and tending to reduce the rate of growth in December to January). Given the recent weakness in level of borrowings declined from the the FOMC meeting. total reserves on average from reserve demand, the $1.7 billion level initially set at Most recently, the Desk had expected a level of borrow- ings in the $1.1 to $1.3 billion range, reflecting both weakness in required reserves and an upward adjustment of some $150 million in the nonborrowed reserve path for the three weeks ending January 9 in view of the projected weakness in total reserves. (4) The drop in member bank borrowing since the Committee meet- ing has not been associated with any decline in the federal funds rate, as may be seen in the table below. In part, the unusually strong demand by banks for excess reserves in recent weeks may have held up the funds rate. But in addition, in December banks may have shied away from use of the discount window, thereby exerting somewhat pressure on the funds market, following relatively active use of the window in late October and November. Average Federal Member bank Excess funds rate (percent) borrowing ($ millions) reserves ($ millions) November 21 28 13.10 12.46 1,865 2,021 115 135 December 5 13.77 1,819 235 12 19 26 13.79 13.90 13.49 1,291 1,684 1,224 586 119 496 2 14.04 1,431 678 January -4(5) On balance, since the November FOMC meeting, most short- term market rates--apart from the funds rate--declined about 20 to 50 basis points, and yields on Treasury bonds have fallen about 10 basis points. Yields on high grade corporate and municipal banks, essentially unchanged. in contrast, have been Mortgage rates have edged higher since the last Committee meeting, and commitments and lending declined sharply at S&Ls in November. raising lion in The Treasury borrowed heavily during the intermeeting period, $3.5 billion of new cash at its regular bill auctions, $5.3 bil- cash management bills, and another $4.8 billion of new cash in note auctions. Business borrowing in securities markets, on the other hand, was relatively light. (6) The dollar's exchange value has dropped by almost 3 percent on a weighted-average basis since the last FOMC meeting, reflecting market reaction to political developments in the Middle East and to a relative increase in foreign interest rates. . U.S. authorities purchased, net, $300 million equivalent of marks toward repayment of Federal Reserve swap indebtedness through year-end, but in early January U.S. authorities sold about $220 million equivalent of foreign currencies, mainly DM. Exchange markets have been thin and volatile--day-to-day fluctuations in rates and the size of bid-asked spreads have been unusually wide. Gold resumed its feverish rise, most recently being quoted at $590 per ounce, up $200 from the last Committee meeting. -5(7) The table on the next page shows seasonally adjusted annual rates of changes, in percent, for selected monetary and financial flows over various time periods. This is followed by a table that shows rates of growth by the redefined monetary aggregates over the same time periods, in comparison to current definitions. Past Six 1977-1 . . 1978-' 1979 1 ' Months Dec. '79 over June '79 Past Three Months Dec. '79 over Sept. '79 Past Month Dec. '79 over Nov. '79 Nonborrowed reserves 3.8 5.4 2.6 12.6 13.1 29.6 Total reserves 5.2 6.1 4.0 12.4 13.9 16.0 Monetary base 8.4 9.0 7.6 10.5 8.3 9.3 M-l (Currency plus demand deposits 2/) 7.9 6.7 5.7 6.4 3.0 5.4 M-2 (M-l plus time deposits at commercial banks other than large CD's) 9.3 8.6 8.4 9.6 6.9 5.7 M-3 (M-2 plus deposits at thrift institutions) 11.2 9.4 8.0 8.6 6.3 6.2 M-4 (M-2 plus CD's) 10.0 10.5 7.3 10.7 8.7 4.2 M-5 (M-3 plus CD's) 11.6 10.5 7.4 9.3 7.4 5.3 10.8 13.6 12.0 10.5 5.0 7.9 2.0/ -0.8 Concepts of Money Bank Credit Loans and investments of all commercial banks 3/ Managed Liabilities of Banks (Monthly average change in billions) Large CD's Eurodollars Other borrowings- 0.9 1.9 -0.25 / 1.65 -0.4 0.8 2.7- 1.7 -02-/ 1.0 1.3 1.0- 0.2- -2.9' _/ December to December 2/ Other than interbank and U.S. Government. -6.2- 3/ Includes loans sold to affiliates and branches. 4/ Primarily Federal funds purchases and securities sold under agreements to repurchase. 5/ Through November 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. Past Six Months Dec. '79 over Past Three Months Past Month Dec. '79 over Dec. '79 over June '79 Sept. '79 Nov. 1 1 1977 1 1978- M-I (Currency plus demand deposits 2/) 7.9 6.7 M-2 (M-1 plus time deposits at commercial banks other than large CD's) 9.3 8.6 6.9 11.2 9.4 6.3 6.2 1979- '79 Current Concepts of Money 5.4 M-3 (M-2 plus deposits at thrift institutions) M-4 (M-2 plus CD's) 10.0 10.5 7.3 10.7 8.7 4.2 M-5 (M-4 plus CD's) 11.6 10.5 7.4 9.3 7.4 5.3 Redefined Concepts of Money M-1A (Currency plus demand deposits 2/) M-1B (M-1A plus other checkable deposits) 7.7 6.8 5.2 6.0 3.9 4.9 8.1 7.6 7.0 6.6 3.8 4.7 6.6 6.9 M-2 (M-IB plus small time and savings deposits, money market mutual fund shares and overnight RP's and Eurodollars) 10.9 7.9 7.7 8.2 M-3 (M-2 plus large time deposits and term RP's) 12.3 10.8 9.2 10.8 10.0 12.5 December to December Other than interbank and U.S. Government. Other than interbank and U.S. Government and foreign banks and official institutions. -8- Alternative longer-run targets and strategy (8) This section of the bluebook presents material to provide a basis for preliminary Committee discussion of longer-run target ranges for the aggregates for 1980, and perhaps beyond--preparatory to making a decision on these matters at the February meeting. The table below shows two alternative sets of ranges for 1980 (QIV '79 to QIV '80) as a starting point for discussion. The ranges shown in the upper panel are in terms of monetary aggregates as currently defined, while preliminary estimates of consistent target ranges based on new definitions of the aggregates are presented in the lower panel. These new definitions will be ready for publication in February, and the Committee would presumably make its decision at the February meeting in terms of the newly defined measures. (The monetary targets for the current and new series are reconciled in appendix B.) Addendum: Growth rate Alt. I Alt. II Current in 1979 M-1 4½ to 7½ 3 to 6 3 to 6 5.5 M-2 6 to 9 5 to 8 5 to 8 8.3 M-3 6½ to 9½ 5½ to 8½ 6 to 9 8.1 Current definitions 7½ to 10½ 12.5 7 to 10 6½ to 9½ M-1A 4½ to 7½ 3 to 6 -- 5.0 M-1B 5 to 8 3½ to 6½ -- 7.3 M-2 7 to 10 6½ to 9½ -- 8.2 M-3 7 to 10 6½ to 9½ -- 8.9 Bank Credit New definitions -9- (9 ) Alternative I represents a continuation of current policy with respect to growth of M-1 after adjustment is made for shifts out of existing demand deposits into ATS accounts. In recent months, it has been assumed that such shifts would reduce M-1 growth for 1979 as a whole by about 1-1/2 percentage points, with the bulk of the shift having occurred in the first half of the year. The staff's judgment at present is that the initial stock adjustment to the introduction of the new payments service has been virtually completed and therefore that growth in ATS accounts in the future will not reflect significant shifts out of 1/ existing demand deposit accounts. Thus, the 4-1/2 to 7-1/2 percent M-1 growth under alternative I for 1980 would be equivalent--after allowance for estimated ATS effects--to the 3 to 6 percent target for 1979. The consistent M-2 range for 1980, given the staff's projection of the time and savings deposit components of M-2, would be 6 to 9 percent. If the present 5 to 8 percent range for M-2 were retained, growth would probably again be near the upper end of the range. (10) Alternative II presents a set of monetary growth ranges for 1980 indexed by a 3 to 6 percent rate of growth for M-1. The sizable difference in growth rates of M-1 between alternatives I and II--a difference of 1-1/2 percentage points--has been chosen to help clarify differential economic impacts of policy alternatives. Of course, the Committee may wish to choose growth rates between I 1/ Legislation has been enacted that authorizes ATS accounts and credit union share drafts until March 31 and that also authorizes NOW accounts in New Jersey. It is expected that the impact of NOW accounts in New Jersey on measured M-1 growth will be very small. However, if NOW accounts are extended nationwide later in 1980, this would probably entail large shifts out of existing demand deposits and a re-evaluation of FOMC targets. -10and II, or even higher than I or lower than II. Economic effects of various longer-run strategies are noted in the ensuing paragraphs. (11) The implications for the economy of alternative I, which assumes a 6 percent M-1 growth over the projection period, are laid out in detail in the Greenbook. A summary of effects of this assumption on nominal GNP, real GNP, prices, and unemployment is shown in the first row of each panel of the table on the next page. The second row of each panel shows the projected effects of holding M-1 growth to 4½ percent--the midpoint of the alternative II range--over each of the next three years. As compared with the higher money growth rate, the lower M-1 growth rate reduces the rate of increase in prices by about a percentage point after three years (the end of 1982), but retarding effects on real GNP throughout the period are substantial. The differential impacts of alternative M-1 strategies assume the rather long lag between monetary policy changes and price effects that has characterized past experience and that is reflected in our quarterly econometric model. If price expectations in labor and product markets have become more directly sensitive to announced monetary policy, the damping effects on price from a slowing in money growth might well be more pronounced, and the retarding effects on output less so. Announcement of a 4½ percent M-1 target may also have a favorable effect on the exchange value of the dollar since it would probably be taken to signify stronger efforts to contain inflation. But any benefits achieved by announcement of a relatively low money growth target would be quickly dissipated if sustained inflationary momentum, in combination with a need to moderate economic weakness, made it impractical for the Committee to hold money growth to the target. -11- Economic Implications of Alternative Long-Run Policy Strategies 1980 1981 1982 7.0 5.6 7.0 7.0 10.1 7.3 9.0 9.4 10.1 7.4 7.5 8.0 -2.3 -3.3 -2.3 -2.3 1.3 -0.9 0.4 1.4 2.3 0.5 0.3 1.0 9.5 9.1 9.5 9.5 8.7 8.2 8.5 7.8 7.7 6.8 7.2 7.0 8.1 8.4 8.1 8.1 8.8 10.1 9.1 8.7 9.3 11.6 10.5 9.7 Nominal GNP (% Change, Q4/Q4) Strategy Strategy Strategy Strategy I II III IV Real GNP (% Change, Q4/Q4) Strategy Strategy Strategy Strategy I II III IV Implicit GNP Deflator (% Change, Q4/Q4) Strategy Strategy Strategy Strategy I II III IV Unemployment Rate (%, Q4 Level) Strategy Strategy Strategy Strategy NOTE: I II III IV Strategy I represents 6% M-1 growth in each year; II represents 4k% growth in each year; III represents 6% M-1 growth in 1980, 5% in 1981, and 4% in 1982; IV represents the same strategy as III with regard to M-l, but also includes a federal tax cut. The tax cut amounts to about $30 billion, half of which reflects a reduction in corporate income tax rates, effective mid-1980,and the other half a rollback of social security rate and base increases scheduled for 1981. -12- (12) A faster rate of growth in M-1 than the midpoint of alternative I--say one near the 7 percent upper end of the range--would raise output and prices,with impacts roughly equal in magnitude to the constraining effects of alternative II. While such an accelerated rate of M-1 growth for 1980 could be construed as a temporary accommodation to the increase in energy prices imposed by OPEC, it is also likely that its announcement would further fuel inflationary expectations and adversely affect the dollar in exchange markets. Thus, it could result in an even more rapid increase in prices, less stimulative impacts on output, and,over time,further upward pressures on interest rates. (13) The third row of each panel in the table indicates the probable results of a strategy of maintaining a 6 percent rate of growth in M-1 for 1980, but reducing this growth rate gradually over the next two years to 5 percent and then to 4 percent. This strategy would be associated with less output loss over the period than strategy II and would restrain inflation more than strategy I. Whether such a policy can be undertaken with even less adverse effects on output and employment depends, of course, on success of the policy in reducing inflationary expectations, particularly as such expectations affect decisions in labor and product markets. Announcement of a firmly held intention to lower growth rates might tend to reduce such expectations more than would announcement of only, for example, a one-year goal of 6 percent M-1 growth. On the other hand, announcement of multi-year targets leaves the System more exposed to the possibility that unforeseen events will require adjustments in the announced targets, and therefore heightens the risk that the credibility of the targeting process may be impaired. -13- (14) While there is not yet any clear Administration or Congressional impetus for a discretionary fiscal policy change, the forecasted weakness of the economy does suggest the distinct possibility of a tax cut initiative later this year. To provide the Committee with some idea of how such an action--particularly one designed to have a relatively favorable price impact--might affect the environment for monetary policy, a tax cut projection has been included in the fourth row of each panel. The rate of price increase is reduced by a rollback of social security tax increases now scheduled for the beginning of 1981. Thisand an assumed general corporate tax cut taking effect in the third quarter of 1980,also would tend to increase real spending. Policy alternatives for the short-run (15) Shown below for Committee consideration are three alternative growth rates for the monetary aggregates covering the first three months of 1980 and associated federal funds rate ranges for the period between now and the February meeting. Aggregates in the upper panel are based on the current definitions, which would provide the basis for operations until the next meeting. Preliminary estimates of consistent rates of growth on the new definitions are shown in the second panel to help prepare the transition to such measures at the February meeting. More detailed data for current definitions, including growth rates on a quarterly average basis related to alternative longer-run paths, are shown in the tables on pp. 15 and 16 . -14- Alt. A Alt. B Alt. C M-1 6.0 5.0 4.0 M-2 7.5 7.0 6.5 M-3 8.0 7.5 7.0 M-1A 6.0 5.0 4.0 M-1B 6.2 5.2 4.2 M-2 9.0 8.5 8.0 M-3 8.7 8.2 7.7 10½ to 15½ 11½ to 15½ 11½ to 16 Annual growth rates, December to March Current definitions: Revised definitions: Federal funds rate range until next FOMC meeting (16) The Committee's choice of a shorter-run monetary growth path for the first three months of 1980 may depend in part on the longerrun target it chooses and in part on the pattern of money growth it wishes to see over the course of the year. (The relation of the proposed shorter- run targets to the midpoints of longer-run alternatives I and II is displayed in chart 3, following page 16). Growth through the year can be targeted at a pace roughly equal to the longer-run objective, or growth can be higher (lower) early in the year and offsettingly lower (higher) later in the year. Given the projected pattern of money demand, various target paths during the year selected by the Committee would have differing effects on interest rates, on exchange markets, and on the probability of success in attaining particular long-run targets. In the ensuing analysis the transactions demand for money is assumed to be weakest in the first -15Alternative Levels and Growth Rates for Key Monetary Aggregates M-1 Alt, A Alt. B Alt. C 382.1 382.1 383.4 385.0 386.9 382.1 383.2 384.5 386.0 1979 December 1980 January February March 383.7 385.5 387.8 Alt. B Alt. C 952.7 957.9 964.3 970.9 952.7 957.6 963.4 969.2 952.7 957.2 962.5 967.9 6.5 8.0 8.2 6.2 7.3 7.2 Alt. A Growth Rates Monthly 5.0 5.6 7.2 1980 January February March Alt. I 3.5 4.1 4.7 4.1 5.0 5.9 Alt. II Alt. I Alt. II Alt. I Alt. II Alt. I Alt. II Alt. I Alt. II Alt. I Alt. Quarterly Average QII QIII 5 6 6% 5 5 4 QIV 6 3k 6 4k 1980 QI 7 6 7k 7% 7% 6k 6k 6k 1979 QIV to 1980 QIV 6 4% 74 6% 7% 6h 7\ 6k II -16Alternative Levels and Growth Rates for Key Monetary Aggregates (cont'd) M-3 1979 December 1980 January February March Alt. A Alt. B 1624.2 1633.3 1644.2 1656.1 1624.2 1632.9 1643.3 1654.4 Alt. C 1624.2 1632.5 1642.4 1653.0 Bank Credit __ Alt, A Alt. B Alt. C 1140.5 1148.4 1156.8 1167.0 1140.5 1148.0 1156.0 1165.5 1140.5 1147.8 1155.5 1164.6 Growth Rates Monthly 8.3 8.8 1980 January February March 10.6 Alt. I Alt. II Alt. I Alt. II 6- 6% 7k 6% Alt. I Alt. II Alt. I Alt. II Alt. I Alt. II Alt. I Alt. II Quarterly Average 1980 QI QII QIII QIV 7% 8 8 7% 8 8k 8% 64 7% 7% 7% 7% 74 7% 7 9 9 74 8 8 8 8k 8 Annual 1979 QIV to 1980 QIV 7k 7 7% 7 7% 7 8k 8s 8 Chart 3 Alternative M-1 Growth Paths Billions of dollars ------- Midpoints of alternative I and I1 longer-run ranges (Q]z 1979 to QIZ 1980) S... . Alternative shorter-run growth rates 6% 404 / Se 400 r I S*/ * 396 * ' • 392 • 4' 4' / 4' 4';- 4' 4' 388 4'I 4'4 4'4 4' 384 380 376 O N 1979 D J F M A M J J A S 1980 4' 4' 4'4': 4; N -17half of the year, when economic activity and nominal GNP growth are projected to be weakest, and then to strengthen, along with nominal GNP, in the second half. The recent relatively slow growth of M-1 raises the possi- (17) bility that the record level of interest rates following the October 6 program may have induced another round of one-time shifts out of existing money balances. Even if any such shift has about run its course, demands for cash in the first quarter of 1980 may still be fairly weak, given the less than 5 percent annual rate of increase in nominal GNP that is projected for that period. Thus, achievement of the 6 percent annual growth rate for M-1 over the first quarter in alternative A--which appears to involve increases of about 8 and 3 percent in the monetary base and total reserves, respectively--may be accompanied by relatively substantial declines of interest rates from current levels. The federal funds rate may drop to, or conceivably below, (18) the bottom of the 10½ to 15½ percent range specified for alternative A over the next few weeks, and the 3-month bill rate could be in a 9 to 10 percent area. If the discount rate were not changed from the present 12 percent level, borrowings would decline to minimal levels of about $200 to $300 million, and nonborrowed reserves would expand by about 15 percent over the quarter. Of course, if the discount rate were reduced significantly under the circumstances, member bank borrowing would be somewhat higher. (19) A sizable rally in bond markets would seem likely under this alternative, even though some pick-up in bond offerings may be expected as corporations take the opportunity to fund large short-term indebtedness. -18Mortgage rates also would decline, as spreads widen against bond yields and thrift institutions become more confident about the availability of lower cost deposits to fund mortgage acquisitions. (20) The substantial decline in short rates that appear to be implied by alternative A probably would be accompanied by significant downward pressures on the international value of the dollar, especially if the dollar also remains under pressure because of the crises in the mid-East. Downward pressures would be strongest if market participants come to expect a further decline in U.S. interest rates and interpret the decline of interest rates as a sign that the Fed's resolve to combat inflation has weakened. (21) However, assuming that the decline in economic activity has begun to abate by summer, but that the rate of inflation has not slowed significantly, interest rates would probably begin rising during the spring or summer if M-1 growth over the year 1980 were held to 6 percent or less, as shown in the first and fourth columns of appendix C. For a given longer- run growth rate, interest rates would be at higher levels by year-end under this alternative than under alternatives B and C, partly because it will provide a little greater stimulus to economic activity and partly because the larger expansion of M-1 in the first quarter will allow less scope to accommodate the subsequent increase in the transactions demand for money as nominal GNP expands in the second half. (22) In order to achieve the 5 percent rate of growth of M-1 in the first quarter specified under alternative B, a decline in interest rates from current levels would also be likely. The funds rate, for example, would probably drop over the next few weeks into the lower half of the 11½ to 15½ percent rate range shown for this alternative, with the 3-month bill rate declining to the 10 to 11 percent area. Over the first quarter the -19monetary base and total reserves might have to increase at about 7½ and 2½ percent rates, respectively, and with member bank borrowings falling to around $800 to $900 million, nonborrowed reserves would expand by about 8 percent over the 3-month period. (23) Even the more modest decline in money market rates associated with alternative B is likely to induce a rally in bond markets as it becomes clear that interest rates have peaked. mortgage rates would probably be moderate, though. The decline in Net inflows of funds to thrift institutions are likely to pick up only modestly from their second half of 1979 pace, and costs of such funds would not decline as much as under alternative A. The exchange value of the dollar under alternative B is likely to decline somewhat as market participants focus on the decline of interest rates, but there would be less downward pressure than under alternative A, in part because any interest rate declines under alternative B would be associated with slower money growth. (24) The more modest money growth over the next few months under alternative B provides more scope for expansion in M-1 in the second half of 1980 than does alternative A. Moreover, the smaller reduction of interest rates, as compared with alternative A, would provide less stimulus to nominal GNP and money demand later this year. Thus, under this alternative interest rates may drift downward through summer under longer-run alternative I, shown in the second column of appendix C. However, under the more restrictive longer-run policy of alternative II, interest rates would probably begin rising by spring as the quantity of money demanded tended to expand more rapidly than the supply that would be provided consistent with the 4½ percent midpoint of the alternative II path. -20(25) Alternative C contemplates a rate of growth of M-1 of about 4 percent in the first three months of 1980, which, given the staff's GNP outlook, would probably involve little, if any, decline in interest rates from current levels in that period. a bit below the 13 The funds rate may be percent midpoint of the 11½ to 16 percent federal funds rates specified for this alternative, with the 3-month bill rate around 11½ to 12 percent. The first quarter rate of increase in the monetary base and total reserves is likely to be about 7 and 1½ percent, respectively; assuming borrowings of about $1¼ billion or a bit higher, nonborrowed reserves might increase at about a 4 percent rate. Longer-term interest rates probably would decline no more than modestly from current levels over the next few weeks, as it became clear to market participants that, despite relatively slow growth in M-1, very little ease was developing in money market conditions. Alternative C would tend to help support the exchange value of the dollar since it would be associated with maintenance of a relatively high level of interest rates. (26) The relatively high level of interest rates of alternative C in the first quarter would probably not be long sustained, however, if the Committee sought a 6 percent growth rate for M-1 for the year 1980. The funds rate would be expected to decline by early spring, and reach levels by year-end lower than under alternative B. However, should the Committee seek to restrain M-1 growth to a 4½ percent rate during 1980, interest rates would probably change little over the balance of the year. -21Directive language (27) Given below are suggested operational paragraphs for the directive consistent with the form of the directive adopted at the October and November meetings. It calls for expansion of reserve aggregates at a pace consistent with the desired rates of growth in M-1 and M-2 over the first quarter of 1980, provided that the federal funds rate on a weekly average basis remains within a specified range. The range for the funds rate adopted on November 20 is shown in strikethrough form. to restrain In the short run, the Committee seeks [DEL: to a pace] consistent with expansion of reserve aggregates [DEL: , and M-3 in] OVER the [DEL: deceleration in] growth of M-1, AND M-2 [DEL: 1979 to] 1980 AT ANNUAL rates OF ABOUT [DEL: fourth] FIRST quarter of [DEL: ____ AND ____ that would hold growth PERCENT RESPECTIVELY [DEL: of these monetary aggrgegates over fourth quarter of 1978 the whole period the from to the fourth quarterof ranges], longer-run the-Committee's 1979 within provided that in the period before the next regular meeting the weekly average federal funds rate remains within a range of [DEL: 15½]____ to 11½ 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. -22- Appendix A BENCHMARK REVISIONS TO THE MONETARY AGGREGATES Money stock measures and related data have been benchmarked to the final December 1978 and preliminary March 1979 call reports. The December 1978 M-1 benchmark was minor, raising the level of the series about $300 million in that month. The March adjustment was somewhat larger and raised the level of M-1 an additional $700 million. By the end of 1979 the benchmarked M-1 is about $1.5 billion higher than the old series. The December 1978 benchmark adjustment raised the level of M-2 about $3.2 billion. Most of this adjustment reflected strong growth in time deposits at foreign related institutions in late 1978. The March benchmark raised the M-2 series an additional $1.2 billion and by the end of 1979 the level of the revised series was about $4 billion higher than the old series. The attached table shows the impact of the benchmark revisions on annual, quarterly and monthly M-1 and M-2 growth rates. M-1 growth was unchanged for the year 1978, but M-2 growth was raised about a quarter of a percentage point from 8.4 to 8.7 percent. In 1979 the growth rates of both measures were raised slightly--M-1 from 5.1 to 5.4 percent and M-2 from 8.0 to 8.3 percent. The benchmarked series will be published on January 10 and are confidential until then. -23Money Stock Growth Rates (Percent annual rates) M1 1/ Annual- Old 1978 1979 7.2 5.1 M2 Benchmarked Old Benchmarked 8.4 8.0 8.7 8.3 7.6 1.8 8.6 12.0 8.8 8.5 2.8 8.7 11.9 8.9 -1.1 2.3 3.8 14.1 5.4 14.2 12.9 11.0 12.4 8.5 6.1 5.9 0.0 2.6 4.1 14.3 5.4 14.2 12.8 11.0 12.3 8.6 6.2 5.7 Quarterly4.1 -2.1 7.6 9.7 4.9 4.3 -1.3 8.1 9.7 5.0 1978. Oct. Nov. Dec. 1.7 -2.0 2.0 1.7 -1.7 2.7 1979 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. -5.0 -3.7 1.3 -4.3 -2.7 2.0 18.3 0.7 15.1 10.0 6.7 11.5 2.5 1.3 5.4 1978 QIV 1979 QI QII QIII QIV Monthly 1".7 0.7 14.8 10.4 6.8 11.2 2.5 1.0 5.7 1/ Based on quarterly average data. -24Appendix B RECONCILIATION TABLE (billions of dollars) Average Level QIV 1979 ALT. Dollar Change in 1980 380.8 22.8 13.1 0.8 Equals New M-1A Plus Other Checkable Deposits 367.7 15.3 22.0 2.0 6.0 16.3 2.0 4.4 Equals New M-1B 383.1 24.0 6.3 18.3 4.8 948.1 70.4 61.5 6.5 668.2 56.9 49.9 1616.2 127.3 111.4 18.0 21.0 Old M-1 Less Foreign Deposits Old M-2 Plus Deposits at Thrifts Equals Old M-3 Less large time deposits at all institutions in old M-3 161.2 I Growth Rate ALT. Dollar Change in 1980 6.0 17.0 13.1 Plus Overnight RP's and Eurodollars 23.0 Plus money market mutual fund shares 40.5 20.0 Plus demand deposits at MSB's 1.0 0.1 0.1 Less new M-2 consolidation 3.0 0.5 0.5 Plus large time deposits at banks and thrift institutions 1/ Plus term RP's at banks and S&L's Equals New M-3 I/ 0.8 25.0 1503.4 131.1 118.2 217.5 18.0 22.0 29.0 1749.9 2.0 151.1 Growth Rate 4.5 0.8 Less Foreign demand deposits in old M-3 Equals New M-2 II 3.0 143.2 Excluding large time deposits held by money market mutual funds, 6.9 -25- Appendix C PROJECTED FEDERAL FUNDS RATES FOR 1980 UNDER ALTERNATIVE MONETARY ASSUMPTIONS Long-Run Alternative I QI1 1/ Long-Run Alternative II Alt. A (1) Alt. B(2) Alt. C (3) Alt. A (4) Alt. B (5) Alt. C (6) 10% 12% 13% 10% 12% 13k QI 10 11 11i 12 13 13% QII QIII 11 10% 10o 14% 14 13% QIV 11% 10% 10 15k 144 14 1/ Consistent with M-l and interest rate assumptions underlying the Greenbook GNP projections. JAN. Table 1 4, 1980 Money and Credit Aggregate Measures Period Tot NonTot borrowed Money Stock Measures Bank Credit Bank Reservesy Monetary Base Total Loans and Invest- M-l M-1+ M-2 M-3 M-4 M-5 M-6 M-7 g 10 11 12 10.i 11.7 10.6 9.9 11.5 1. _ments 1 2 3 ,4 8 1 PER CENT ANNUAL RATES OF GROWTH) ANNUALLY: 1976 U.7 1977 1978 '.3 6.7 0.9 3.1 6.8 6.7 8.3 9.1 7.5 11.1 13.5 5.8 7.9 7.2 12.6 9.3 5.2 10.9 9.8 8.7 12.7 11.7 9.5 7.1 10.1 10.6 11.5 SEMI-ANNUALLY: 1ST HALF 2ND HALF 1978 1978 151 HALF 1979 QUARTERLY: 7.6 5.6 -3.9 7.6 5.7 -6.1 8.8 9.u 12.5 13.6 8.0 6.1 4.8 12.8 3.4 12.7 0.9 -1.7 1978 0.7 2.6 1ST QTH. 1979 1979 ZN80 04. 3R) QTk. 1979 QUARTERLY-AVt -4.5 -35. 1C .6 -5.8 -8.3 11.7 12.5 13.3 11.9 15.8 4.7 8.5 13.7 13.9 11.3 4TH 01,. 41H QTk. 1978 1ST OTR. 2ND QTR. 3RD QTR. 1979 1979 1979 v.v 11.6 7. 4.7 ) 6.2 4.1 8.3 10.2 lj.6 10.1 10.7 -0.7 7- 4.6 -2.1 6.7 4.9 9.2 9.6 -5.3 7.15 d.1 4.3 2.3 10. 10.1 11.4 ik.u 5. 7.2 9.7 9.0 9.b 9.2 3.0 4.5 12.4 5.2 6.5 6.8 9.8 12.7 9lu.8 10.1 10.7 10.2 ^1.6 3.5 5.3 d.O 5.4 4.7 6.8 4.9 10.5 9.2 8.9 7.6 6.8 8.5 1U.2 8.9 11.2 12.u -6.J 8.2 9.8 13.4 -1.3 8.1 9.7 -5.3 -8.6 5.6 3.v -2.9 14.1 -4.9 5.9 7.9 1.4 8.. -1.7 2.7 -4.9 -1.8 7.8 11.7 14.5 5.7 12.5 7.2 10.9 8.8 1.8 -20.9 1.6 -3.5 -30.3 9.1 20.7 10.0 4.2 0.7 8.6 8.5 -0.7 18.7 -4.3 12.9 -2.7 2.0 18.3 0.7 15.1 10.4 6.7 -8.6 -6.4 3.5 4* 4.8 4.3 6.2 5.8 3.6 7.0 6.2 6.2 9.3 3.1 7.9 9.4 8.7 11.0 8.0 -3.4 3.9 8.4 11.6 L.? 9.1 MONTHLY' 1979--h V. OEC. 1979--JAN. FEB. MAR. APR. MAY JUNE JULY MAG. SEPT. OCT. NOV. P i.u -21.2 -5.5 -4.7 -1.5 12.7 7.2 11.5 20.3 5.0 4.7 4.8 3.2 6.2 11.2 12.1 13.9 10.6 4.7 1/ BASED ON DATA ADJUSTED FOR CHANGES BASED ON QUARTERLY AVERAGE DATA. 2/ P - PRELIMINARY 8.0 13.9 8.8 12.6 13.4 11.6 21.7 6.4 -0.5 IN RESERVE 11.5 2.5 .... I1.3 II REQUIREMENTS. -1. C 11.8 -1 . 12.6 10.4 6.3 10.6 4.8 11.3 6.7 9.9 7.2 -4.8 -11.8 10.9 7.2 5.4 -0.1 7.9 -0.5 5.9 11.3 11.6 13.9 11.4 10.2 7. 7.1 10.5 10.4 11. 8.9 a.( 7.3 9.5 8.4 N.J 11.1 5.6 11-.4 12.1 11.u 13.9 l,.9 10.0 Table 2 JAN. 4, 1980 Money and Credit Aggregate Measures Seasonally Adjusted, Billions of Dollars Bank Bank Reserves ReervCe Period Nonborrowed Total 1 Bsank Total Loans and Monetary Base Money Stock Measures M- 1 M-l+ M-2 740.6 809.4 1235.6 1374.3 8u3.0 8A3.1 879.0 1503.3 M-3 M-4 M-5 M-6 M-7 Investments ANNUALLYI 1436.1 1601.8 1765.8 1483.8 975.6 1298.u 1448.0 1600.0 1495.0 1503.3 971.0 975.6 1590.4 1600.0 1753.0 1765.8 b132.8 1851.2 883.9 1507.7 1513.9 1521.9 979.5 983.0 982.9 1608.2 1616.0 1620.9 177o.1 1785.3 1794.5 1865.9 1579.0 la91.b 584.u 583.1 589.2 894.4 898.4 909.0 1535.4 1541.6 1556.9 989.4 989.0 1630.4 1909.0 993.9 1641.8 1808.4 1813.1 1825.1 373.5 375.6 379.2 594.3 597.6 601.2 918.7 927.1 936.6 1571.6 1584.6 159~.0 1003.3 1013.0 1024.7 1656.2 1670.5 1687.1 1839.4 1852.8 1869.d 1 954.1 197..u 195.8 380.0 380.4 598.8 592.9 943.3 948.2 1608.6 1615.9 1034.4 1043.2 1699.6 1710.9 1882.3 1893.7 Z013.9 2030.7 152,386 152,015 152,757 152,465 381.1 379.9 381.4 380.3 594.9 592.7 593.6 947.4 948.3 949.4 591.8 948.4 1041.3, 1042.7 1044.6 1044.4 152,780 153,379 153,008 153,662 380.5 381.6 381.1 383.1 591.4 592.5 591.9 593.3 949.7 951.2 951.7 954.2 1045.7 1046.5 1045.9 1047.6 37,242 39,179 41,572 37,189 38,610 40,703 120,801 130,896 142,685 808.1 895.9 1018.1 313.8 361.5 517.2 560.6 586.1 1978--NOV. DEC. 41,573 41.572 40,87 40,70 141,748 142,685 1011.1 1018.1 360.7 361.5 587.U 586.1 875.6 1979--JAN. FEB. 40,764 40,055 40,109 143,700 143,616 144,176 1034.5 1045.6 1052.5 360.2 359.4 581.9 578.8 578.3 879.0 880.9 MAR. 41,767 41,028 41,100 APR. MAY JUNE 40,910 40,749 40,697 39,993 38,984 39,279 144,748 145,129 145,877 1064.7 1072.5 1083.8 365.5 365.7 370.3 JULY AUG. SEPT. 41,127 41,375 41,773 39,957 40,290 40,432 147,240 148,725 150,445 1095.9 1106.5 1126.5 P 42,480 42,658 40,457 40,747 151,770 152,367 1132.5 1132.0 7P 14P 21P 28P 42,637 42,306 42,9555 42,577 40,709 40,448 41,090 40,556 1976 1977 1978 338.7 1658.1 1851.2 MONTHLY1 OCT. NOV. 360.0 879.0 1632.1 1917 . 1934.o WEEKLY: 1979-NOV. DEC. 5P 12P 19P 26P 43,208 43,441 42,944 43,259 1980-JAN. 2P 43.284 41,388 42,149 41,260 42,035 L 41,853 L 154,942 I _____ I I I I U WEEKLY DATA ARE DAILY AVERAGES FOR STATEMENT WEEKS. MONTHLY DATA ARE DAILY AVERAES. WEEIL T UAIA M3, n , M6, NM, AND TOTAL LOANS AND INVESTMENTS. 1/ BASED ON DATA ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS. DATA SHOWN IN MILLIONS OF DOLLARS. P - PRELIMINARY MOTESs I I t R 'Ul AV irlCL m Table JAN. 3 4, 1980 COMPONENTS OF MONEY STOCK AND RELATED MEASURES Tme ad Currency Period Demn Den n Depsit vlnge IbaipeeIts Other Thn CDs sav Tt Ttal Cgss ANJALLY 2 3 Credit Union SharesI Other Short Term Private v U.S.Gov't Short-term Ungs sonds"l Securities Assets Shares ______________ 1 Mutual Savings Bank A S&L 4 2/ 5 6 7 (Per oset annal rate 9 10 11 1 of growth) 1976 9.5 4.6 8.1 15.0 25.0 7.5 -23.3 1977 1978 15.4 17.8 9.3 10.3 7.4 6.2 6.9 11.4 12.8 7.1 11.2 9.7 11.1 1.8 11.4 16.7 12.8 32.8 14.0 10.2 19.5 15.0 6.6 5.4 12.6 8.9 13.5 *t6.7 1ST HALF 1978 2ND HALF 1978 9.3 10.7 7.6 4.6 12.2 12.6 7.6 11.4 2.9 0.7 11.7 20.5 42.6 19.0 8.5 11.5 17.0 12.0 6.3 4.3 12.5 4.9 50.9 1ST HALF 1979 8.3 1.4 5.3 7.6 -7.6 19.3 -7.1 8.2 4.5 0.7 39.5 62.2 10.5 -2.6 13.9 10.0 -7.4 24.1 36.6 10.7 7.7 4.0 6.2 69.3 2/ 12.1 SEMI-ANNUALLYS 43.9 QUARTERLYS 4TH QTR. 1978 1ST QTR. 1979 2ND QTR. 1979 7.4 8.0 -5.0 12.6 5.7 0.4 4.9 11.4 -11.4 0.6 17.0 19.1 9.9 -57.0 9.5 5.9 1.5 9.8 0.0 0.0 36.1 41.7 54.9 51.5 13.4 8.5 14.0 13.8 5.4 19.3 15.1 8.0 19.8 0.5 -2.7 bO.3 1978 11.5 1.8 13.5 11.5 -1.2 21.9 25.0 11.8 10.1 4.0 7.3 44.4 1ST QTR. 1979 2ND QTR. 1979 3RD QTR. 1979 9.1 7.3 11.1 -5.3 8.3 9.3 9.5 1.1 8.9 5.8 9.3 13.3 -11.8 -3.5 5.8 19.3 18.4 18.5 29.9 -41.0 -17.7 9.6 6.7 7.5 0.8 8.3 19.3 1.5 0.0 0.0 29.2 46.4 8.0 66.9 49.2 58.3 1978-NOV. DEC. 10.0 12.4 -5.9 -0.9 24.1 7.7 12.2 6.3 -10.6 -9.7 30.8 18.1 92.1 15.1 9.8 9.5 4.6 9.1 j4. 4.5 -14.4 45.3 75.0 U1.1 1979-JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. 8.6 7.3 6.1 8.4 6.0 9.5 10.6 14.1 15.1 4.7 4.6 -9.1 -6.4 0.5 22.1 -1.4 16.8 10.7 4.4 10.1 0.9 0.0 0P 10.2 8.3 -1.3 1.9 -1.3 0.8 11.9 14.3 15.3 16.7 15.4 3.2 6.0 5.5 11.5 8.6 13.7 14.0 13.9 13.1 12.7 9.6 -15.2 -12.6 -6.7 0.0 -6.7 8.4 10.0 6.1 0.0 -17.0 -35.1 17.0 19.6 13.8 19.8 19.1 17.3 17.1 18.7 21.3 32.2 37.3 48.4 19.1 -36.4 -48.5 -55.6 -75.5 -2.8 17.0 30.7 40.9 51.4 9.7 9.6 8. 5.5 3.9 8.1 7.9 7.2 8.6 6.5 5.5 -t.5 -6.8 16.C 6.8 4.5 17.8 24.2 21.5 12.7 -10.5 -6.3 1.5 -1.5 0. 0.0 0.0 0.0 0.0 0.1 1.5 1.5 0. 28.1 19.2 58.2 55.5 38.2 27.5 -1.o -11.7 4.7 -1.2 1.2 61.9 53.5 4Z.3 44.5 50.1 53.0 55.9 58.6 57.9 >3.3 49.2 3RD QTR. 1979 QUARTERLY-AV$ 4TH QTA. MONTHLYS PREVIOUS MONTH REPORTED DATA. 2/ BASED ON QUARTERLY AVERAGE DATA. P - PRELIMINAIY. Table 4 JAN. 4, 1980 COMPONENTS OF MONEY STOCK AND RELATED MEASURES Ti Mn Period Currency Demand Deposits T , Sa inp .. Other Than CDs l Savingsl Othr __otal CD s vis an & &L Stahares 1 2 3 4 5 6 7 8 80.8 88.6 97*7 233.0 250.1 263.8 489.2 544.4 614.1 426.7 470.7 517.5 202.1 219.7 221.6 224.7 251.0 295.9 62.4 73.7 96.6 456.1 518.3 571.2 MONTHLY: 1978--NOV. DEC. 96.7 97.7 264.0 263.8 610.2 614.1 514.8 517.5 223.4 221.6 291.5 295.9 95.4 96.6 1979--JAN. FEB. MAR. 98.4 99.0 99.5 261.8 260.4 260.5 619.3 623.6 622.9 518.9 521.5 523.9 218.8 216.5 215.3 300.1 305.0 308.5 APR. MAY JUNE 100.2 100.7 101.5 265.3 265.0 268.7 623.9 623.2 623.6 528.9 532.7 538.8 215.3 214.1 215.6 JULY AUG. SEPT. 102.4 103.6 104.9 271.1 272.1 274.4 629.8 637.3 645.4 545.1 551.4 557.4 OCT. NOV. P 105.4 105.8 274.6 274.6 654.4 662.8 31 105.7 271.9 NOV. 7P 14P 21P 28P 106.0 105.9 105.9 106.0 DEC. 5P 12P 19P 26P 10>.6 106.1 106.2 106.5 Credit Union S Bd i r U.. 't Sc Private S ortteM ts A Total ton Deposit Gov't Fnds Demand y Depo 0 11 1e 13 38.9 46.6 53.1 71.9 76.6 80.6 66.2 77.2 85.3 47.7 56.3 85.3 54.6 61.8 84.9 11.4 11.7 15.5 566.7 571.2 52.7 53.1 8u.3 80.6 82.2 85.3 79.9 85.3 82.5 84.9 21.1 15.5 100.5 102.1 99.0 575.8 580.4 584.7 52.9 52.6 53.3 80.7 80.6 80.6 87.3 88.7 93.0 89.7 93.7 97.0 83.1 95.8 100.8 14.8 10.2 9.4 313.6 318.6 323.2 95.0 90.6 84.9 587.4 589.3 593.3 53.6 53.8 54.6 80.6 80.6 80.6 97.3 100.4 102.7 100.6 104.8 109.5 104.9 111.2 115.8 8.. 9.3 13.8 217.4 218.5 218.5 327.8 332.9 338.8 84.7 85.9 88.1 597.2 600.8 605.1 55.7 56.7 57.3 80.6 80.6 80.7 102.6 101.6 102.0 114.6 120.2 126.0 119.5 130.3 131.4 16.0 16.0 15.9 563.3 567.8 215.4 209.1 347.9 358.7 91.1 95.0 608.4 611.2 56.8 56.5 80.8 80.8 101.9 102.0 131.6 137.0 130.4 125.5 15.7 11.1 657.4 564.9 212.6 352.3 92.5 16.5 275.2 274.1 275.5 274.3 660.2 662.8 663.2 664.1 566.3 568.4 568.0 568.2 210.4 209.4 208.8 208.2 355.9 358.9 359.1 360.0 93.9 94.4 95.3 95.9 11.2 10.0 10.8 12.2 274.9 275.4 275.0 276.5 665.2 664.9 664.8 664.5 569.2 569.7 570.6 571.2 207.5 207.5 207.4 206.9 361.7 362.1 363.2 364.3 96.0 95.2 94.2 93.4 11.4 13.5 11.9 14. - 9 14 ANNUALLYS 1976 1977 1978 WEEKLYS 1979-OCT. 1/ 2/ 3/ 4/ P - ESTIMATED MONTHLY AVERAGE LEVELS DERIVED BY AVERAGING END OF CURRENT MONTH AND END OF PREVIOUS MONTH REPORTED DATA. INCLUDES PRIVATE DOMESTIC NONFINANCIAL INVESTORS' HOLDINGS OF COMMERCIAL PAPER, BANKERS ACCEPTANCES, SECURITY RP'S AND MONEY MARKET MUTUAL FUND SHARES. BORROWINGS BY BANKS FROM OTHER THAN COMMERCIAL BANKS IN THE FORM OF FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, AND OTHER LIABILITIES FOR BORROWED MONEY. PLUS NET LIABILITIES TO RELATED FOREIGN INSTITUTIONS, INET EURODOLLAR BORROWINGS,) LOANS SOLO TO AFFILIATES, LOAN RPS, AND OTHER MINOR ITEMS. INCLUDES TREASURY DEMAND DEPOSITS AT COMMERCIAL BANKS AND FEDERAL RESERVE BANKS AND TREASURY NOTE BALANCES. PRELIMINARY STRICTLY CONFIDENTIAL (FR) TABLE 5 SELECTED INTEREST RATES (percent) Short-Term 1978--High Low (1) 10.25 6.58 CD Secondary Treasury Bills Market Auction Market 1-yr 6-mo 3-mo 3-mo (4) (2) j(3) (3) 10.96 9.62 9.58 9.30 6.16 6.76 6.55 6.42 1979--High Low 15.61 9.93 12.60 8.85 11.89 8.64 12.65 8.87 1978--Dec. 10.03 9.08 9.44 Federal funds om ar 3-o* Bank P e Rate U.S. Govt. Constant Maturity Yields 3-yr 10-yr 30-yr Long-Term MiniCorp.-Aaa cipal Utility Bond New Recently Issue Offered Buyer (11) (1z) (1) 6.67 9.30 9.54 8.61 8.48 5.58 CLASS II - FOMC JANUARY 4, 1980 Home Mortgages Primary Secondary A Au. (14) (15) 10.38 10.60 8.98 9.13 12.90 13.29 10.38 10.42 Market NMA Sec. (16) (0) (9) (kU) 10.52 6.68 11.57 7.75 9.59 7.40 9.14 7.83 8.98 8.08 14.53 9.84 14.26 9.66 15.75 11.50 11.83 8.78 10.89 8.79 10.45 8.82 11.50 9.40 11.45 9.39 7.38 6.08 9.40 10.72 10.37 11.55 9.33 9.01 8.88 9.28 9.41 6.51 10.35 10.50 9.38 9.50 9.35 9.46 10.51 10.19 10.13 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 (0) (7I 9.68 8.43 11.77 9.51 1979--Jan. Fib. Mar. 10.07 10.06 10.09 9.35 9.32 9.48 9.54 9.39 9.38 Apr. May June 10.01 10.24 10.29 9.46 9.61 9.06 9.28 9.27 8.81 9.50 9.53 9.06 10.06 10.16 9.95 9.85 9.95 9.76 11.75 11.75 11.65 9.43 9.42 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 July Aug. Sept. 10.47 10.94 11.43 9.24 9.52 10.26 8.87 9.16 9.89 9.19 9.45 10.13 10.11 10.71 11.89 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 8.98 9.17 9.58 9.48 9.93 9.53 9.49 9.87 6.13 6.20 6.52 10.66 10.67 11.09 9.77 9.90 10.31 Oct. Nov. Dec. 13.77 13.18 13.78 11.70 11.79 12.04 11.23 11.22 10.92 11.34 11.86 11.85 13.66 13.90 13.43 13.23 13.57 13.24 14.39 15.55 15.30 10.95 11.18 10.71 10.30 10.65 10.39 9.85 10.30 10.12 10.97 11.42 11.25 10.91 11.36 11.33 7.08 7.30 7.22 11.09 11.09 11.30 11.64 12.83 12.90 12.52 12.75 12.49 11.25 11.57 11.35 1979--Nov. 7 14 21 28 13.77 13.30 13.10 12.46 12.16 12.11 11.87 11.22 11.74 11.31 11.27 10.75 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 15.46 15.71 15.75 11.56 11.12 11.31 10.64 10.87 10.69 10.71 10.34 10.45 10.36 10.35 10.07 11.50 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 Dec. 5 12 19 26 13.77 13.79 13.90 13.49 11.58 12.11 12.21 12.01 10.88 10.97 10.95 10.86 11.77 11.77 12.00 11.85 13.06 13.26 13.82 13.36 12.70 12.96 13.69 13.35 15.54 15.29 15.25 15.25 10.61 10.86 10.68 10.71 10.29 10.45 10.37 10.45 10.03 10.18 10.13 10.18 11.22 11.28 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 2 9 16 23 30 14.04 12.03 10.88 11.88 13.42 13.20 15.25 10.73p 10. 4 5p 10.20p 11.41p 7.32 n.a. -- 11.39 13.87 13.95p 11.97 12.10 10.84 11.04 13.50 13.59 13.27 13.05 15.25 15.25 10.71 10.79 10.46 10.60p 10.19 10.30p 1980--Jan. Daily--Dec. 27 3 Jan. - NOTE: Weekly data for columns 1, 2, 3, 5, 6, and 7 are statement week averages of daily data. Weekly data in column 4 are average races set in the auctions of 6-month bills that will be issued on the Thursday following the end of the statement week. For columns 8 through 11, the weekly date is the mid-point of the calendar week over which 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 bi-weekly auction for short-term forward commitments for government underwritten mortgages. GNNA 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 'oupon rate 50 basis points below the current FHA/VA ceiling. * 90-119 day maturity prior to November 1979. STRICTLY CONFIDENTIAL (FR) TABLE 6 NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES 1/ (millions of dollars, not seasonally adjusted) Treasury Coupons Treasury Bills Net Change2 Federal Agencies Net Purchases 3/ 1 ear 5 - 10 Over 10 Total 5 - 10 824 469 792 45 317 460 203 428 104 5 138 114 213 24 -- -- - -- - -- - 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 1978--Qtr. IV -5,072 212 1,135 250 247 1,844 1979--qtr. I Qtr. II Qtr. III Qtr. IV -3,750 465 5,363 4,164 48 42 395 118 426 640 1,289 1,101 134 309 81 93 310 51 700 682 2,302 1,351 -170 110 191 2,252 1,712 1,399 218 57 120 237 699 354 96 140 73 142 81 87 693 976 634 191 -- -219 2,297 2,086 28 90 703 -398 81 -51 731 -620 -- - 7 14 21 28 -198 1,937 -359 - ----- --- --- ---- 5 12 19 26 122 -301 1,379 -90 -- -398 - -81 --- -51 --- 620 -- 2 484 - -- -- -- 1979--July Aug. Sept. Oct. Nov. Dec. 1979--Nov. Dec. 1980--Jan. --- Outrightet WiHoldingsRPs WWithin - 5 -468 863 4,361 870 6,243 1975 1976 1977 1978 1979 191 105 --47 131 -- - FOMC 4, 1980 Net Change Net Purchases 4/ 1 1 -5 CLASS II JANUARY Over 10 Total 1,613 891 1,433 127 454 / ol 7,267 6,227 10,035 8,724 10,290 1,272 3,607 -2,892 -1,774 -2,597 -3,283 -2,130 -882-1,7959 8,129 4,839 680 2,542 -2,019 -3,801 3,427 2,687 2,015 -1,665 -2,279 1,922 2 3 -- -399 371 482 -- 3 --- ---- 482 - - --- --- -- --- 9 -159 ' 2,297 2,701 -2,499 2,078 -3,380 -- ---- ----- ----- ----- -198 1,937 -359 -2,903 -643 1,667 1,066 --- ---- ---- ----- ----- 122 615 301 1,379 -1,125 455 -1,426 -2,978 - -- -- -- -- 484 7,200 1.9 4.2 1.3 - -229 258 288 -288 -- -- 9 16 23 30 LEVEL--Jan. 2 50.0 17.7 27.9 (in billions) _1 Change from end-of-period to end-of-period. 12.8 12.7 71.0 .7 8.2 128.8 -7.0 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.
@FedFRASER