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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 some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. 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 optical 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. Content last modified 6/05/2009. (CONFIDENTIAL FR) July 23, 1971. MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Prepared for the Federal Open Market Committee By the Staff BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM July 23, CONFIDENTIAL (FR) 1971. MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent Developments (1) Growth of the narrowly-defined money supply in July appears to be somewhat faster than projected in the last blue book, as best can be judged by information available through the week of the 21st, with data for the latter week partly estimated. The broader money supply (M2) appears to be increasing less rapidly than projected, however, as a substantial shortfall below path in time deposits other than CD's more than offset the overshoot in private demand deposits. And with U.S. Government deposits much weaker than expected and nondeposit sources of funds continuing to decline on balance, the bank credit proxy appears to be falling very considerably short of expectations in July. Growth Rates in Key Monetary Aggregates 1/ (Per cent annual rates of change) Bluebook Current Bluebook Path 2/ Current Estimate Adjusted Proxy Bluebook Path 2/ Current Estimate Bluebook Path2 / Current Estimate 12.5 11.0 7.5 6.6 June 9.5 July 10.0 12.0 10.0 8.0 15.5 6.5 Qtr 2 11.5 11.3 13.0 12.6 7.0 6.5 1/ 2/ 9.1 Tables 7 and 7A in the back of the bluebook show the reconciliation the various aggregates. Alternative B path of the last bluebook. (2) among The actual course of the monetary aggregates in recent weeks is compared with the alternative B paths of the previous bluebook in-the following rable. Recent Paths of the Key Monetary Aggregates (Seasonally adjusted, billions of dollars) SM 1 Bluebook Path _M2 Actual Bluebook Path Actual Adjusted Credit Proxy Bluebook Path Actual Month June July 225.7 227.6 225.6 227.91/ 451.8 455.6 451.4 454.51/ 346.0 350.4 345.7 347.6~/ 226.1 226.8 227.3 227.4 225.3 228.5 227.3 228.2 452.9 453.9 455.1 455.6 451.9 455.0 453.9 454.2 346.3 349.9 351.0 350.0 345.1 347.3 347.4 347.5 Week ending June July July July 30 7 14 21 pe 1/ Estimated on the basis of partial data. pe -- Partially estimated. (3) In the first half of July, following the relatively weak end-of-June behavior of the aggregates, the Desk aimed at a Federal funds rate generally in the lower half of the 5--5-1/2 per cent range; and during those weeks the effective Federal funds rate averaged just slightly over 5-1/8 per cent. As early indications of the strength in M in July were confirmed, however, and with the increase in the discount rate to 5 per cent, the Desk has most recently moved to promote a Federal funds rate at about the upper end of the range. (4) During the first three statement weeks of July member bank borrowings averaged about $930 million, about $415 million above the June average. Apparently in recent weeks many banks that had borrowed relatively little at the discount window have become more willing borrowers, given the spread of the Federal funds rate above the discount rate. Excess reserves have been volatile over the past three weeks, and net borrowed reserves of member banks have ranged from $350 to $950 million, with the average level considerably deeper than in June. Reserve Aggregates (Daily averages in millions of dollars, seasonally adjusted) Nonborrowed Total Required Bluebook Path 1/ Actual Bluebook Path 1/ Actual Bluebook Path 1/ Actual 31,307 31,794 31,257 31,339 30,932 31,416 30,801 30,443 31,087 31,585 31,046 31,127 18.5 3.1 19.0 -14.0 19.0 3.1 31,224 31,359 32,212 31,071 30,867 31,583 30,915 31,069 31,727 30,495 29,984 30,376 31,013 31,334 31,852 30,769 31,026 31,133 Month June July pe Annual Rate of Increase (July over June) Week ending July 7 July 14 July 21 pe -- 1/ Partly estimated. Alternative B. (5) Although M1 in July has turned out to be somewhat stronger than previously projected, the need for reserves in the first three weeks of the month was considerably less than expected (as shown by the difference between "path" and "actual" required reserves in the table above). The lower level of required reserves relative to path was mainly the result of large downward adjustments in preliminary estimates of private demand deposits during the last two weeks of June, and much lower than expected U.S. Government deposits in early July. Thus, with the need for reserves reduced, growth of member bank total reserves in July is falling substantially short of what was implied by the alternative B path at the time of the last Committee meeting, as shown in the table above, despite the sharp rise in member bank borrowings. Nonborrowed reserves were even further below path than total reserves--and showed an actual decline from June to July --as the Desk provided fewer reserves given the increased demand for borrowings by banks. (6) Market interest rate adjustments to the increase in the Federal funds and discount rates have been relatively modest. initial After an upward adjustment of from 10 to nearly 30 basis points to the discount rate announcement, the bill market strengthened, partly in reflection of large foreign demands and expectations of some re-investment demand from holders of "rights" who may not wish to opt for the longerterm offerings in the exchange position of the financing. faded most recently, This strength and the 3-month bill closed on Friday at 5.45 per cent, a little above its level just prior to the discount rate hike, and well above its 5.19 per cent level at the time of the June 29 FOMC meeting. Reflecting the discount rate action and also the Treasury financing, yields on Treasury coupon-bearing securities rose by about 10 to 20 basis points after mid-month. Other short- and long-term yields showed very little reaction to the System's firmer policy stance. (7) On July 21, the Treasury announced that holders of the $5.1 billion of securities maturing on August 16, $4.1 billion of which are publicly held, would be able to exchange those issues for either a 4-1/4 year note yielding 7.06 per cent or a 10-year bond at a yield of 7.11 per cent. It was also announced that, in the case of the 10-year bond, cash subscriptions by individuals up to $10,000 would also be accepted. Although a good deal of individual interest seems to be developing, this latter feature is not expected to raise much new cash according to Treasury comments. A cash auction of an 18-month note in early August is expected to cover attrition in the exchange and to raise around $1 billion in new money, and an additional cash offering of $2 billion or so--probably in tax bills--is anticipated for late August. (8) The table on the following page summarizes seasonally adjusted annual rates of change in major financial aggregates for selected periods. 4th and 1st Qtrs. combined (March over Sept.) Total Reserves Nonborrowed Reserves Second Quarter (June over March) July over June 3.1 8.9 10.3 5.3 -14.0 6.2 11.3 12.2 13.7 12.6 8.2 14.6 14.7 n. a. 9.7 6.5 6.6 Concepts of Money M 1 (Currency plus demand deposits 1/) M 2 (M1 plus time deposits at commercial banks other than large CD's) M 3 (M2 plus deposits at thrift institutions) Bank Credit Total member bank deposits (Bank credit proxy adj.) Loans and investments of commercial banks 2/ n.a. 10.5 Short-term market paper (Actual $ change in billions) Large CD's $6.1 Bank-related commercial paper N.S.A. -2.9 0.0 Nonbank commercial paper -0.4 - 1.0 $ .7 $ 1.6 n.a. n. a. Other than interbank and U.S. Government. Based on month-end figures. Includes loans sold to affiliates and branches. N.S.A. Not seasonally adjusted. 1/ 2/ 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 either end-of-month or last Wednesday of month figures. Prospective Developments (9) The table on the next page shows two paths for monetary aggregates between now and year-end. Money market specifications thought to be consistent with these paths are summarized in the table below.1 / Alternative A 5-1/2% Federal funds rate Member bank borrowings rate 3-month bill Alternative B 5-1/2--6% $.8--$1 billion $.9--$1.2 billion 5-3/8--5-5/8% 5-1/2--6-1/8% Growth in M1 (SAAR) 5-1/2% 6% August September 8-1/2% 8% 3rd Quarter 9% 8-1/2% 4th Quarter 4% 2-1/2% (10) The money market specifications for alternative A represent a continuation of conditions recently prevailing, as would be consistent with a strict interpretation of "even keel". The current Treasury refunding will be settled on August 16, only about a week before the next FOMC meeting. It is possible also that conditions following the settlement date will present more than the usual constraint on open market operations in view of the greater price risk in the distribution process of a long-term offering. Specifications for alternative B, on the other hand, would envisage a gradual firming of the money market, to the extent permitted by the Treasury financing, to a Federal funds rate of 6 per cent by late in the inter-meeting period; a funds rate fluctuating around 6 per cent has been assumed for the alternative B paths for the monetary aggregates. 1/ Weekly paths are appended on p. 16. Alternative Monthly and Quarterly Paths of Key Monetary Aggregates (Seasonally adjusted, billions of dollars) M1 Alt. A M2 Alt. B Alt. A Alt. B 227.9 228.9 230.3 231.8 454.5 457.0 460.3 466.2 454.5 456.7 459.6 463.9 1971 July August September December 227.9 229.0 230.6 232.9 Per Cent Annual Rates of Growth July August September 3rd Q. 1971 4th Q. 1971 12.0 6.0 8.5 12.0 5.5 7.5 8.0 6.5 8.5 8.0 6.0 7.5 8.0 5.0 9.0 4.0 Adjusted Credit Proxy Total Reserves Alt. A Alt. B Alt. A 347.6 350.8 353.5 359.9 347.6 350.7 353.0 358.4 31.3 31.7 31.9 32.8 Alt. B 1971 July August September December 31.3 31.7 31.8 32.6 Per Cent Annual Rates of Growth July August September 3rd Q. 1971 4th Q. 1971 6.5 11.0 9.0 6.5 10.5 8.0 3.0 13.5 7.5 9.0 7.0 8.5 6.0 7.5 11.0 3.0 12.5 6.0 6.0 9.5 -9(11) Growth in narrowly defined money (M1 ), given current money market conditions, is expected to slow between now and year-end. a number of reasons for this. There are First, the apparent broad build-up in pre- cautionary demand balances over the past few months is likely to abate as liquidity demands are sated and as gradual economic recovery helps to restore consumer confidence. Second, the cumulative impact of the higher short-term interest rates of the past several months will be making the high cost of holding cash more and more evident. Third, the recent tendency for credit markets to stabilize may attract funds of small or medium-size investors who had temporarily permitted cash balances to rise in anticipation of higher interest rates. (12) While there are reasons to expect slower growth in M1 , it is difficult to pinpoint the timing. Experience makes it clear that interest rates affect money demand with a lag, but the exact timing of this effect is uncertain. Moreover, shifts in demand for financial assets, given interest rates, are notoriously hard to predict, since they depend to a great extent on the mysterious elements that work on consumer and investor confidence. At the present time, the staff expects M 1 growth to average a little over 7 per cent in August and September together, which would lead to a 9 per cent growth rate for the third quarter. In the fourth quarter, we would expect a drop in the growth rate to around 4 per cent, despite the increase in purely transactions balances required to finance the accelerated growth in nominal GNP expected in the fall. Under alternative B, growth is expected to be only about 1/2 percentage point lower than under alternative A in the third quarter, but about 1-1/2 percentage points lower in the fourth quarter. -10- Time and savings deposits other than large CD's are (13) expected to grow much less rapidly over coming months than in the second quarter, given the recent weakening in such deposits and continued relatively attractive market interest rates. Thus, under alternative A, growth in M 2 is expected to drop to a 6-1/2 per cent annual rate in August, and to 8 per cent in the third quarter; growth would be a little slower under alternative B. (14) Growth in and September is the adjusted bank credit proxy during August expected to be more rapid than in recent months, and the growth rate for the third quarter may be around 9 per cent. Business loan demands are expected to remain fairly weak until around the fourth quarter, but banks are likely to be substantial net buyers of forthcoming Treasury offerings, including the bills to be announced toward the end of August. Banks have obtained a sizable amount of large CD funds in recent weeks, reflecting in part investment by AT&T of the proceeds of its ferred stock offering. late July. recent pre- The last payment on the offering will be made in Apart from this and any investment of foreign funds in CD's, only a modest net growth in large CD's is expected until business loan demands pick up. (15) The deposit patterns described above for alternative A imply a 7-1/2 per cent annual rate of increase in total reserves, seasonally adjusted, from June to September, assuming excess reserves average about $225 million. per cent, In August total reserves are expected to rise by about 13-1/2 reflecting in part the increase in resulting from the expected expansion in U.S. required reserves Government demand deposits in -11the latter half of July and early August and from the lagged effects of the anticipated July money supply expansion. On the assumption that the average level of borrowings is about unchanged from July and August, nonborrowed reserves would grow at about the same rate as total reserves in August; for the third quarter as a whole, however, nonborrowed would be expected to grow at a slower rate of about 3 per cent in view of the sharp drop in such reserves in July. Reserve growth would be somewhat less under alternative B, particularly for nonborrowed reserves, with part of the drop-off in nonborrowed offset by increased borrowing. The following table shows monthly average levels of total and nonborrowed reserves (in millions of dollars)--both seasonally adjusted and unadjusted --believed to be consistent with alternatives A and B. Alt. A Seasonall y Adjusted 1/ Alt. B Not Seasonally Adjusted Not Seasonally Seasonally Adjusted 1/ Adjusted Total Reserves July August September 31,339 31,693 31,888 30,602 30,416 30,531 31,339 31,669 31,824 30,602 30,384 30,469 Nonborrowed Reserves July 30,443 29,683 30,438 August 30,825 29,516 30,675 29,358 September 31,050 29,631 30,836 29,419 1/ The level of this 29,679 series also reflects step adjustments made in the past to avoid discontinuities because of reserve requirement changes. (16) The slowing of growth in M1 and accompanying reserve developments under alternative A would not be expected to lead to higher interest rates in either short- or long-term markets, at least in the -12- immediate future. to be abating. For one thing, growth in the demand for money is likely Also the credit demands of corporations and State and local governments in bond markets are expected to continue around the somewhat more moderate dimensions of the past month or two, and thereby take some rate pressure off long-term markets. In addition, Treasury cash borrowing demands during the third quarter are turning out to be somewhat less than expected in view of the low level at which the Treasury is running its cash balance. In the fourth quarter, however, Treasury cash borrowing is expected to be substantial. (17) The tighter money market conditions assumed under alterna- tive B could lead to a fairly substantial upward interest rate adjustment over the near term. The market at present appears to be uncertain as to how far the System intends to go in combatting high monetary growth rates, and in that respect would be very sensitive to upward movements in the Federal funds rate. With further tightening in the money market, market expectations of another rise in the discount rate--and possibly the prime rate--at a time when a Treasury refunding is in process could lead to strong protective measures by dealers and other active participants. Higher short- and long-term interest rates could also begin to impinge more substantially on savings inflows to nonbank thrift institutions. however, it is long sustained, At the same time, not clear that the upward interest rate pressures would be particularly in long-term markets, in view of the likelihood that credit demands will be moderate and the possibility that a further move toward achieving lower monetary growth rates would over time have a constructive influence on market psychology. -13Possible directive language (18) This section presents possible language for the second paragraph of the directive corresponding to the two alternative policy courses discussed above. (19) Alternative A. This language is proposed for possible use if the Committee decides to call for maintaining about the money market conditions that have recently been attained, subject to a proviso clause. "To implement this policy, to seeks Committee the [DEL: over aggregates monetary in growth moderate more achieve capital in developments of account taking ahead, months the markets.] System open market operations until the next meeting of the Committee shall be conducted with a view and] reserve bank achieving to MAINTAINING PREVAILING [DEL: money market conditions; consistent objectives] these with [DEL: PROVIDED THAT SOMEWHAT FIRMER CONDITIONS SHALL BE SOUGHT, TAKING ACCOUNT OF THE CURRENT TREASURY FINANCING AND OF DEVELOPMENTS IN CAPITAL MARKETS, IF IT APPEARS THAT THE MONETARY AND CREDIT AGGREGATES ARE SIGNIFICANTLY EXCEEDING THE GROWTH PATHS EXPECTED." If the Committee adopts this alternative, it may wish to consider the money market conditions noted for alternative A in paragraph (9) of "prevailing" conditions, as a description and for purposes of the proviso clause to adopt the aggregate growth paths discussed earlier in connection with alternative A been as the "expected" paths. The proviso clause has/formulated in one-way terms, guarding against excesses but not shortfalls, on the assumption that the -14Committee would not want money market conditions to be eased in the coming period if the aggregates should fall short of the indicated paths. The proposed language contemplates that in making operating decisions under the proviso clause the Manager would take account of both the current Treasury financing and developments in capital markets. (20) Alternative B. This language is proposed for possible use if the Committee decides to hold to the course of continued orderly firming of bank reserve and money market conditions, insofar as that might be necessary to maintain downward pressure on the growth rates of the aggregates and insofar as such firming proves to be feasible in light of the current Treasury financing. As will be noted, the language is identical to that adopted at the June 29 meeting except for the inclusion of the Treasury financing, as a factor to be taken into account, along with developments in capital markets. "To implement this policy, the Committee seeks to achieve more moderate growth in monetary aggregates over the months ahead, taking account of THE CURRENT TREASURY FINANCING AND OF developments in capital markets. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those objectives." If the Committee adopts this alternative it may wish to instruct the Manager to seek to firm money market conditions within the ranges mentioned earlier in connection with this alternative--including the proposed 5-1/2 to 6 per cent range for the Federal funds rate--to the extent feasible in light of the Treasury financing and capital market conditions. unless the monetary -15aggregates appear to be increasing at rates well below those discussed earlier under alternative B. On the other hand, the formulation of this alternative--with its greater emphasis on monetary aggregates--would also be consistent with the specifications of alternative A (or some modification thereof) since a more moderate growth in M 1 in particular is indicated in the paths associated with alternative A. -16- Alternative Weekly Paths of Key Monetary Aggregates (Seasonally adjusted, billions of dollars) M1 M2 Alt. A Alt. B Alt. A Alt. B 1971 July 28 227.6 227.6 454.2 454.2 August 4 11 18 25 228.2 229.1 228.9 229.3 228.2 229.0 228.8 229.1 455.2 456.5 456.7 457.8 455.2 456.3 456.4 457.4 Total Reserves Adjusted Credit Proxy Alt. A Alt. B Alt. A Alt. 1971 July 28 347.7 347.7 31.7 31.7 August 4 11 18 25 348.9 349.8 350.8 351.9 348.9 349.7 350.6 351.6 31.6 31.6 31.8 31.7 31.6 31.6 31.8 31.6 B CHART 1 STRICTLY 7/23/71CONFIDENTIAL MONETARY AGGREGATES MONEY SUPPLY M1 BILLIONS OF DOLI PF 90%PATH 111111 q . I I I. . I . I. i i. I I 1 1 1 41 1 1 ~ II1 1 A I I BROADER MONEY SUPPLY M f-2 90% PATH 1430 - Actual -- Currently Projected 1971 --- Wkly. Path, indicated at ,FOMC Meeting r4/2Q/71) A M J J _Z2 -( I I I I 1 I 1970 A S Longer Run Path CONFIDENTIAL (FR) STRICTLY CHART 1A 7/23/71 MONETARY AGGREGATES ADJUSTED CREDIT PROXY BILLIONS OF DOLLARS ]360 1355 10 0% PATH (7/21/71) }340 IL A I sI II I1 -Io 1I TOTAL RESERVES 12 0% PATH I/ I 27 J i A M J J A S '71 - Actual --- Currently Projected --- Wky Path, Indicated at FOMC Meeting t /29/71) ..- Longer Run Path CHART 2 7/23/71 INTEREST BEARING SOURCES OF BANK FUNDS BILLIONS OF DOLLARS -280 260 TOTAL TIME AND SAVINGS DEPOSITS 240 -220 200 TIME AND SAVINGS DEPOSITS OTHER THAN CD'S - 30 - 20 CD'S 1970 1971 CHART 3 MONEY MARKET CONDITIONS AND INTEREST RATES MONEY MARKET CONDITIONS INTEREST RATE Short-term INTEREST RATES Long-term PER CENT WEEKLY AVERAGES PER CENT WEEKLY PRIME COMMERCIAL PAPER 4 6 MONTH NEW CORPORATE Aaa WEDNESDAY FHA MORTGAGES X -1 9 CD CEILING MUNICIPAL Aaa 3 MONTH WEDNESDAY TREASURY GOVERNMENT BONDS 3 MONTH 1970 1971 FNMA MONDAY AUCTION ยข ] I I I.1 I I I I 1970 20 YEAR AVERAGES I II I I I I I I 1971 ~I I. I I I~ 1970 I I I . I I I 1.1.1 1971 Table 1 STRICTLY CONFIDENTIAL (FR) PATHS OF KEY MONETARY AGGREGATES Narrow Money Supply (M1 ) 1/ Period 1 Path as of 2 Current Proj June 29 1971: July Path as of June 29 4 Actuals & Current Prol Monthly Pattern in Billions of Dollars 214.8 217.3 219.4 Jan. Feb. Mar. Apr. May June Actuals & Broad Money Supply (M 2 ) 2/ 3 July 23,1971 Adjusted Credit Proxy 5 Path as of June 29 6 Actuals & Current Proj. Total Reserves 7 Path as of June 29 8 Actuals & Current Proj. 123.0 430.8 437.6 334.1 337.7 340.2 30.2 30.5 30.7 30.8 346.0 341.7 343.8 345. 7 350.4 (347.6) (31.3) 17.2 8.3 19.1 10.9 6.5 11.0 6.6 (8.5) 225.7 221.1 223.9 225. 451.8 142.0 447.3 151.4 227.6 227.9 455.6 ( 454.5) 31.3 31.3 Annual Percentage Rates of Change--Quarterly and Monthly 1970: 1971: 1971: 3rd Qtr. 4th Qtr. 1st Qtr. 2nd Qtr. 3rd Qtr. 6.1 3.4 11.0 9.2 8.9 11.3 ( 9.0) 11.5 9.0 13.0 9.0 17.8 12.6 ( 8.0) 7.0 10.0 (9.0) Jan. Feb. Mar. 1.1 14.0 11.6 11.5 22.1 18.9 10.5 12.9 8.9 Apr. May June 9.5 9.3 15.2 9.1 12.5 12.1 14.4 11.0 7.5 5.3 7.4 6.6 July 10.0 (12.0) 10.0 (8.0) 15.5 (6.5) 6.6 12.2 11.4 9.2 2.7 17.0 0.2 (3.5) Weekly Pattern in Billions of Dollars 1971: June July 2 9 16 23 30 7 14 21pe 28 226.1 225.6 224.2 226.2 225.6 225.3 452.9 450.6 449.5 452.0 451.4 451.9 226.8 227.3 227.4 228.2 228.5 227. 228.2 (227.6) 453.9 455.1 455.6 456.6 455.0 453.9 454.5 (454.2) IJ I NOTES: 346.3 349.9 351.0 350.0 349.8 345.8 345.9 346.5 344.3 345.1 347.3 347.4 347.5 (347.7) 31.5 31.3 31.5 31.0 31.3 31.1 30.9 31.6 (31.7) 5I Annual rates of change other than those fdr the past are rounded to the nearest half per cent. Data shown in parenthesis are current projections. 1/ Currency plus private demand deposits. 2/ M, plus time deposits other than large CD's. pe -- Partially estimated. FR712-D Rev 2/16/71 STRICTLY CONFIDENTIAL(FR) Table 1-A PATHS OF KEY MONETARY AGGREGATES Total Time & U.S. Gov't Deposits Period Path as of June 29 2 Actuals & 3 Current Prol Savings Deposits Path as of 4 Actuals & June 29 Current Prol arge NegotiableCD's Time Deposits other than large CD's Path asof 6 ctuals & June 29 July 23,1971 Large Negotiable Nondeposit Sources of Funds Path as of 8Actuals & Path as of June 29 Current Prol June 29 Current Prol 10 Actuals & Current Proj Monthly Pattern in Billions of Dollars 1971- Jan Feb Mar 6 7 62 4.8 235.3 240 9 246.1 208.2 213.5 218.3 27.1 27.4 27.8 10.1 8.6 7.0 Apr. May June 4.1 5.4 4.2 3.9 254.5 248.3 251.4 254.4 226.1 221.0 223.4 225.8 27.3 27.9 28.6 5.1 4.1 4.4 July 5.4 (3.3) 256.5 (256.8) 728.0 (226.6) (30.2) (4.2) Annual Percentage Rates of Change--Quarterly and Monthly 1970: 3rd C 4th ( 1971. 1971: 16.5 15.4 21.8 1st Q 2hd C 3rd C 27.3 13.5 (10.0) 13.5 8.5 14.5 9.0 27.2 13.7 ( 7.0) Jan. Feb. Mar. 25.5 28.6 25.9 22.3 30.5 27.0 Apr. May June July 10.7 15.0 14.3 (11.5) 14.5 10.0 14.8 13.0 12.9 (4.5) 226.8 225.1 225.2 225.8 225.8 226.6 28.2 28.5 28.2 28.9 28.8 4.2 4.5 4.4 4.4 4.7 227.1 227.8 228.2 228.5 226.5 226.6 226.3 (226.6) 29.6 30.2 30.4 (30.5) 4.2 4.1 4.3 (4.3) 15.0 9.5 Weekly Pattern in Billions of Dollars 1971- June July 2 9 16 23 30 7 14 21 pe 28 4.5 4.2 5.0 3.2 2.7 255.3 253.3 253.8 254.0 254.8 255.4 2.5 2.9 3.7 (3.7) 255.6 256.3 256.7 257.1 256.1 256.7 256.7 (257.1) a a~ NOTES: i Annual rates of change other than those for the past are rounded to the nearest half per cent. Data shown in parenthesis are current projections. pe - Partially estimated. iam FR 712-K Rev2/16/71 Table 2 CONFIDENTIAL (F) AGGREGATE RESERVES AND MONETARY VARIABLES __ Period RETROSPECTIVE CHANGES, SEASONALLY ADJUSTED (Annual rates in percent) Reserve Aggregates' Monetary Variables 1 2 3 Total 4 Money Supply 6 Adjusted Member Nonborrowed Total e e Rev Reserves Reserves Bank Credit Proxy Total Currency Deposits Annually 1968 1969 1970 + 7.8 - 1.6 + 6.4 + 6.0 - 3.0 4 9.5 8 9 PrivTime Private Demand Deposits July 23, Deposits Adlusted 1971 Addenda 10 Nonbank Thrift Instit. Deposits Commercial Paper + 7.8 -- 3.1 + 5.4 + 7.4 + 6.0 + 6.3 + 7.9 + 2.4 + 5.1 +11.1 - 5.0 +18.4 + 6.3 + 3.4 +11.8 n.a. n.a. + 8.3 + 7.8 n.a. + 7.3 + 9.0 - 4.0 n.a. Semi-annually 1st Half 1970 2nd Half 1970 +13.0 + 1.9 +17.1 + 3.3 +20.0 + 3.5 +12.9 + 5.9 + 4.8 + 7.8 + 4.6 + 5.3 + 4.7 + 7.8 +27.9 + 4.7 +10.6 +12.8 + 1.7 1st Half 1971 + 8.9 + 8.2 +13.5 + 8.8 +10.3 + 9.4 +10.5 +20.8 +20.7 -18.6 - + + + + + + + + + 1.4 +14.1 +32.2 + 21.8 + 2.5 + 7.0 + 9.3 +11.6 +17.8 + 7.5 -0.2 Quarterly 1st Qtr. 1970 2nd Qtr. 1970 3rd Qtr. 1970 4th Qtr. 1970 + 2.6 +19.1 + 6.6 + 4.1 +24.4 + 9.4 + 0.6 + 6.0 +24.1 +15.1 + 0.5 + 6.5 +17.2 + 8.3 + + + + Ist Qtr. 1971 2nd Qtr. 1971 +11.0 + 6. 6 +11.0 + 5.3 +17.0 + 9.6 +10.9 + 6.5 + 8.9 +11.3 + 9.0 + 9.6 + 8.9 +11.8 +27.3 +13.5 +23.3 +17.1 -24.7 -13.4 +21.3 -13.9 + 0.5 +25.4 -19.0 + 6.2 +16.8 + 9.9 + 5.2 + 2.3 +10.3 +15.3 + 2.5 +10.5 + 3.0 + 2.2 +19.7 +10.9 + 5.8 +13.7 - 1.2 + 7.0 + 8.1 + 5.3 + 7.3 +34.4 +18.9 -30.0 -16.1 +48.8 +40.1 +22.7 +29.2 +19.0 +18.1 +23.2 + 9.7 + 5.7 + 6.8 + 5.7 + 7.5 +35.6 + 2.5 + 4.4 + 8.9 + 6.6 +11.9 + 5.9 +10.0 -87.5 - 7.2 +10.1 +13.1 +21.4 + 1.1 + 7.0 +16.5 + 1.1 + 2.8 + 6.2 + 7.5 + 4.9 + 4.9 - 0.7 + 2.2 + 6.6 +20.3 +16.1 +19.3 +14.9 +12.2 +11.1 + 5.3 +10.5 +12.9 + 8.9 + 5.3 + 7.4 + 1.1 +14.0 +11.6 + 9.3 +15.2 + 7.4 + 9.8 + 9.7 +12.0 + 9.5 - 1.4 +16.0 +12.2 + 7.8 +17.6 +25.5 +28.6 +25.9 + 6.6 + 9.1 + 7.1 + 9.7 +14.3 1970: - Apr. May June + 6.0 +23.3 +27.5 July Aug. Sept. - 1.9 + 3.6 +18.4 Oct. Nov. Dec. 1971: +12.2 +11.4 + 9.2 + 2. 7 +17.0 +0.2 Jan. Feb. Mar. Apr. May June _________ 2.9 _________ _____ 0.4 + 4.4 +22.8 + 8.8 +15.1 + 8.8 + 9.7 +12.4 - 6.2 - 4.5 __________-j-_____________--_____________1 5.9 5.8 6.1 3.4 6.1 9.4 3.3 5.8 5.3 5.3 6.7 2.7 +11.4 +28.8 +29.8 +15.1 +28.8 +10.7 +15.0 -16.2 +20.4 +49.6 +10.6 + 9.4 +14.5 +32.4 -28.7 +25.1 +18.5 +24.9 +21.8 +14.2 +14.6 - 9.0 +58.1 -10.9 -55.2 + 4.4 -15.8 -29.1 -_____________-I_____________--- FR 712 -E NOTE: reserve requirementsF Aggregate reserve series have been adjusted to eliminate changes in percentage reserve requirements against deposits, but on Eurodollar borrowings are included beginhing October 16, 1969, and requirements on bank-related commercial paper are included beginning October 1, 1970. Table 3 AGGREGATE RESERVES AND MONETARY VARIABLES CONFIDENTIAL (FR) July 23, 1971 SEASONALLY ADJUSTED (In millions of dollars) 1969- Oct. Dee. 26,210 I 26,538 26,806 27,129 I 27,548 27,707 283.5 285.8 285.8 203.2 203.5 203.6 157.6 157.6 157.7 Jan. Feb. March 28,001 27,722 27,723 26,966 26,615 26,782 27,823 27,523 27,536 284.8 282.9 286.2 205.2 204.5 206.6 159.0 158.1 159.8 April May June 28,216 27,890 27,902 27,350 26,916 27,056 28,046 27,692 27,713 290.2 289.1 290.5 208.3 209.2 209.6 161.2 161.6 161.9 July Aug. Sept. 28,041 28,585 29,240 26,694 27,780 28,708 27,896 28,408 29,024 296.0 303.2 308.0 210.6 211.8 212.8 Oct. Nov. Dec. 29,385 29,474 29,925 28,928 29,033 29,584 29,134 29,233 29,703 310.6 314.0 319.6 Jan. Feb. March 30,229 30,515 30,748 29,801 30,176 30,398 30,029 30,255 30,534 April May June 30,816 31,253 31,257 30,644 30,961 30,801 2 9 16 23 30 31,467 31,278 31,455 30957 31,279 30,860 7 p 14 p 31,071 30,867 Nov. 1970: 1971: (In billions of dollars) 27,354 27,783 27,928 194.2 194.0 194.6 11.5 11.1 11.2 182.6 182.9 183.4 302.2 305.5 305.7 28.0 28.4 29.1 10.6 10.6 11.5 182.7 182.9 183.8 304.8 303.4 306.1 29.4 30.0 30.4 198.5 200.3 202.2 12.9 13.2 13.2 185.6 187.1 189.0 309.6 309.3 311.1 31.2 31.7 30.9 162.5 163.7 164.6 208.2 213.2 218.5 16.9 19.0 21.7 191.3 194.2 196.8 315.8 321.9 324.5 28.7 28.5 29.7 213.0 213.5 214.6 164.5 164.8 165.7 222.2 225.0 230.4 23.2 23.9 26.0 199.1 201.1 204.4 324.8 326.7 331.2 30.5 323.9 329.1 333.2 214.8 217.3 219.4 165.5 167.7 169.4 235.3 240.9 246.1 27.1 27.4 27.8 208.2 213.5 218.3 334.1 337.7 340.2 31.0 30.7 29.3 30,611 30,998 31,046 336.6 339.7 341.2 221.1 223.9 225.6 170.5 173.0 174.4 248.3 251.4 254.4 27.3 27.9 28.6 221.0 223.4 225.8 341.7 343.8 345.7 29.4 29.0 28.3 31,093 31,152 30,412 30,529 31,132 31,135 31,211 30,777 31,037 341.7 341.4 342.1 339.9 340.5 225.6 224.2 226.2 225.6 225.3 50.9 51.2 51.2 51.1 51.4 174.6 173.1 175.0 174.5 174.0 253.3 253.8 254.0 254.8 255.4 28.2 28.5 28.2 28.9 28.8 225.1 225.2 225.8 225,8 226.6 345.8 345.9 346.5 344.3 345.1 29.3 29.9 28.6 28.7 27.7 30,495 29,984 30,769 31,026 343.1 343.3 228.5 227.3 51.7 51.8 176.7 175.6 256.1 256.7 29.6 30.2 226.5 226.6 347.3 347.4 28.1 28.3 I 193.3 193.5 195.3 I 29.7 31.2 Week eodion: 1971: June July NOTES: Aggregate reserve series have been adjusted to eliminate changes in percentage reserve requirements against deposits, but reserve requirements on Euro-dollar borrowings are included beginning October 16, 1969, and requirements on bank-related commercial paper are included beginning October 1, paper, and Euro1970. Adjusted credit proxy includes mainly, total member bank deposits subject to reserve requirements, bank-related commercial dollar borrowings of U. S. banks. Weekly data are daily averages for statement weeks. Monthly data are daily averages except for nonbahk commercial FR 712- F paper figures which are for last day of month. p - Preliminary. T.ble 4 (Dollar amounts in MARGINAL RESERVE MEASURES based on period averages of daily 11 millions, Member Period Free reserves Excess reserves Total Banks Reserve Major banks 8 N.Y. Outsice i borrowin C 1 ty a Other Country N.Y. Monthly (reserves weeks ending in)' - 759 916 751 687 765 736 169 210 129 178 159 171 928 1,126 880 865 924 907 148 106 90 227 165 140 287 317 225 331 241 n 28 232 289 287 119 228 217 261 414 278 188 290 261 July August -1,134 - 706 183 175 1,317 881 218 143 460 278 38 273 291 187 September October November December - 374 274 199 84 235 193 210 264 609 467 409 348 101 12 42 36 115 40 17 16 274 313 294 265 119 102 57 30 - 140 71 120 238 264 192 378 335 312 45 29 41 36 30 17 262 248 238 35 29 16 2 6 154 218 152 212 15 78 9 36 119 60 9 38 - 303 211 514 103 85 159 167 138 545 407 71 60 258 26 13 20 27 - 245 380 72 32 92 282 277 472 354 82 26 -63 20 249 284 266 28 43 42 3 10 - 46 42 237 205 283 247 -- 253 229 30 17 -- - 264 297 561 114 121 280 46 67 317 250 - -- 228 22 170 82 265 258 421 290 -108 46 1 51 -- 241 249 231 16 13 13 1970--January February March April May June 1971--January February March April May June 1971--Jan. Feb. 6 24 Mar. Apr. May June July 3 10 17 - 88 339 25 24 - 18 265 68 333 52 15 251 15 31 119 376 257 -- 18 217 22 7 80 277 197 -- -- 184 14 58 208 150 17 -- 127 13 6 . 21 - 3 81 84 1 79 4 28 - 128 48 176 42 34 86 14 5 12 19 26 - 191 131 204 93 365 230 102 174 174 99 306 267 46 39 134 91 40 20 47 36 61 22 74 84 27 18 51 56 2 9 16 23 - 361 80 149 409 285 73 254 210 646 153 403 619 171 46 86 103 100 27 4 161 217 25 152 202 158 55 161 153 30 - 518 212 750 107 112 201 08 -- 7 D - 351 316 667 -- 149 262 256 14 p - 952 41 993 252 306 194 241 21 p - 793 329 1,122 47 344 395 336 p - Preliminary. Table 5 SOURCE OF FEDERAL RESERVE CREDIT Retrospective Changes (Dollar amounts in millions of dollars, based on weekly averages of daily figures) Period U.S. Total Federal Reserve credit (Excl. Government securities _Federal Total holdings float) /I Bills Other Repurchase Agency agreements Securities Bankers' acceptances Member bank borrowings Year: 1969 (12/25/68 - 12/31/69) 1970 (12/31/69 - 12/30/70) +5,539 +3,351 +5,192 +4,276 ) +4,279 ( -+3,220 (- 143) 1971--Jan. 6 13 20 27 + 938 + 722 - 534 - 308 153 - 81 + + 428 (+ 19 (+ - 256 (- + - 26 61 333 218 (+ ((+ (- 74) 412) 412) 367) + + + + 120 407 64 60 5 (+ ((+ ((+ 367) 204) 204) 107) 107) + + + + 4 128 360 30 (- 82) (+ 12) (+ 70) () Feb. Mar. Apr. May June July + 64 - 204 3 10 17 24 + - 8 236 + - 61 171 97) 46) +1,082 928 - 518 3 10 17 24 31 + + + 279 275 761 516 502 + 286 - 414 + 736 - 432 + 530 7 14 21 28 + - 155 255 + 145 - 86 4+ 948 + 423 54 - 43 5 12 19 26 + + + + 771 201 503 115 + + + + 712 272 304 144 + 384 (- - 173 + + 400 ( ) 256(--) 2 9 16 23 30 + - 305 974 . 202 + 160 +1,156 - 57 418 2/ 7 2/ 106 2/ + 13 (- ) - 439 (- ) 7 p 14 p 21 p + + + + 373 + 74 + 562 206 124 + - 67 63 + - + 109 + + - 185 327 83 16 + + 51 59 13 + + 87 + 6 + + 110 643 - 16 + 85 - 509 - 68 + 41 104 604 - 554 + 153 + 372 + + 9 7 90 90 36 + 124 + 17 + + - 298 50 73 - 11 + + - 328 99 167 168 + 50 6 - 4 6 - 70 73 + - 162 119 + - 23 9 + + 207 134 537 + + 47 20 47 159) - 368 360 742 + - 65 (+ 85) +1,523 +1,059 + 707 +1,180 (- + 207 + + + 97 68 62 84 + 113 ) ) - 463 (- 39) + 348 (+ 39) +1,151 ( -) + + + + 106 + 209 131 (- 57) 208 (- 87) 25 (+ 144) + + 71 56 + 27 + 35 + + + + 47 -68 7 - 8 -27 ' 1/ 2/ Figures in parenthesis reflect reserve effect of match sale-purchase agreement. Includes effect of changes in special certificates of $ +94 million of the week of June 9, $ +416 million of the week of June 16, and $ -616 million of the week of June 23. p - Preliminary 35 28 + 245 - 884 Table 6 MAJOR SOURCES ANDUSES OF RESERVES Retrospective and Prospective Changes (Dollar amounts in millions, based on weekly averages of daily figures) re se r v of supply a.,ff e c t i n g. F-actors Other nonmember Foreign Treasur Currency Federal Reserve credit (excl. Gold outside Float deposits deposits and Period float) banks stock I/ 1969 (12/25/68 - 12/31/69 1970 (12/31/69 - 12/30/70 +5,539- +3,351 ^ 1971--Jan. 6 13 20 27 + 938 - - 534 + 64 - 3 10 17 24 + - Feb. Mar. Apr. May June July operations e t I I c a t e (S -2,676 -3,122 f F.R. accounts and gold loans on r e. s e r v e s t c t - 898 + 773 + 241 + 667 + + 54 1 + 188 - 250 + 8 - - - 673 - 4 + 305 1 - - 813 -1,655 Change in total =Bank use oreserves - reserves +1,448 +1,163 Excess res Required serves +1,340 +1,257 + 108 + 657 + 144 + 727 -1,047 + 111 - z 11"I 385 63 + 108 + 191 204 - 275 - 8 + 289 236 + 542 +1,523 - 256 50 - 928 + 418 3 10 17 24 31 7 14 21 28 + + + 279 275 761 516 506 99 - 105 + 508 - - 186 60 + 304 + 279 - - 275 - 249 + + 348 54 - 131 - 384 + 235 + 241 + 301 5 12 19 26 + + + + 771 201 503 115 2 9 16 23 30 + 305 + 7 p 14 p 21 p - 171 229 243 889 - 402 - 50 26 34 + 168 167 350 - 40 37 45 32 306 + + 92 20 - 227 50 - 147 - 88 + 280 + 85 + 368 + 183 - 276 - 197 - + + + + 150 171 24 440 252 + 308 + + 306 561 406 + 317 533 16 4 10 + 844 + 2 - 752 + 17 + 185 + - 2 5 + - 20 41 + 14 - 173 - 14 + 217 + 187 - 357 371 7 + 97 - 515 - 9 - 10 + + 21 1 + 307 - 497 - 14 - 72 - 248 - 211 + 421 - 177 - 13 + 99 + 83 + 218 + - 5 -23 25 - 45 315 33 28 228 - 974 202 + 169 + 522 + 398 - 327 + 291 122 + + 36 1 + + 160 +1,156 - 648 - 776 + 291 - 5 + 33 - 334 - 11 - 28 + + + 54 - 244 + 384 + 259 43 - 4 8 4 - + 176 + - 368 360 742 1/ For retrospective details, see Table 5. 2/ Includes $400 million in special drawing account. p - Preliminary. - 24 + 190 - - 130 + - - - 513 + 60 + 82 + 110 99 69 - 127 33 - 135 - 128 -188 + - 81 178 + 111 + 146 + 181 - 250 - 44 + 351 + 22 S 36 + 84 + + 246 370 72 - 212 - 275 + 288 Table 7 Reconciliation--Money supply and Credit Proxy Adjusted (Billions of dollars, not seasonally adjusted) Levels, Item March May 1971 May to June, 226.1 7.2 1.6 44-.3 449.6 13.3 5.3 217.4 219.7 2. Plus: Time deposits other than large CD's 218.9 224.5 Equals: 436.3 2 2nd Qtr., 3.8 Money supply--M 1 Money supply--M June 6.1 1. 3. Dollar Change 1971 223.5 Plus: 4. 5. U.S. Gov't. deposits at member banks 4.5 6.7 4.4 -0.1 Net domestic commercial bank deposits at member banks 4.3 4.0 4.0 -0.3 28.0 27.6 28.4 6. Large CD's 7. Nondeposit funds 1/ 7.0 4.1 4.4 8. Time deposit of U.S. Gov't. and commercial banks 1.9 1.9 1.9 F.R. Float 2.7 2.7 2.7 Demand deposits at nonmember banks 38.3 39.0 39.9 Time deposits at nonmember banks 56.5 58.2 58.8 Currency component of the money supply 49.5 50.5 51.1 Deposits at Edge Act Corps., agencies and foreign branches 0.8 0.7 0.7 Foreign deposits at F.R. 0.4 0.4 0.4 9. -2.3 0.4 -2.6 Less: 10. 11. 12. 13. 14. -0.1 Equals: 15. Credit Proxy Adjusted 339.2 342.5 344.7 p - Preliminary. 1/ Includes borrowings from banks own foreign branches,commercial minor item. NOTE: Sums of levels and changes may not add because of rounding. paper and other 1971 Table 7A Reconciliation--Money Supply and Credit Proxy Adjusted (Billions of dollars, seasonally adjusted) Levels, 1971 May to June, 1971 2nd Qtr. 1971 Dollar Percentage Dollar Percentage Change Change Change Change May June 1. Money supply--M 1 219.4 223.9 225.6 6.2 11.3 9.1 2. Plus: Time deposits other than large CD's 218.3 223.4 225.8 7.5 13.7 12.9 437.6 447.3 451.4 13.8 12.6 11.0 Item 3. Equals: March Money supply-- Plus: 4. 5. U.S. Gov't. deposits at member banks 4.8 4.2 3.9 -0.9 -0.3 Net domestic commercial bank deposits at member banks 4.7 5.1 4.3 -0.4 -0.8 27.8 27.9 28.6 0.8 7.0 4.1 4.4 50.0 50.9 51.2 1.2 91.8 93.9 95.7 3.9 6. Large CD's 7. Nondeposit funds 1/ 0.7 0.3 -2.6 Less: 8. Currency component of the money supply 0.3 9. Deposits at nonmember banks, and other items 2/ Equals: 10. Adjusted Credit Proxy 340.2 343.8 345.7 6.5 Includes borrowings from banks own foreign branches, commercial paper and other minor items. 2/ Other items include money supply type deposits at Edge Act corporations and domestic branches of foreign banks. NOTE: Sums of levels and changes may not add because of rounding. p - Preliminary. 1/ Table 8 Reserve Absorbtion by Type of Deposit--Selected Periods (Millions of dollars, seasonally adjusted) Dec. 1970May 1971 Change in total reserves Reserves absorbed by: Demand deposits adjusted Interbank deposits U.S. Government deposits Time and Savings deposits Eurodollars and Commercial paper 1/ Excess reserves Adjustment due to lagged accounting Per cent of total reserve change absorbed by: Demand deposits adjusted Interbank deposits U.S. Government deposits Time and Savings deposits Eurodollars and Commercial paper 1/ Excess reserves Adjustment due to lagged accounting 1/ Dec. 1970March 1971 March 1971June 1971 1,328 823 509 704 308 -311 654 289 213 -219 495 449 39 -132 241 -103 33 -85 -9 -21 - 3 43 139 -64 53.0 23.2 -23.4 49.3 35.1 25.9 -26.6 60.2 88.2 7.7 -25.9 47.4 -7.8 2.5 -10.3 -1.1 - 4.1 - 0.6 3.2 16.9 12.6 Member bank borrowings from own foreign branches subject to Regulation M reserve requirements and commercial paper subject to Regulation D.
@FedFRASER