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Strictly Confidential (FR) Class I FOMC MONETARY POLICY ALTERNATIVES Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System STRICTLY CONFIDENTIAL (FR) CLASS I - FOMC March 23, 1990 MONETARY POLICY ALTERNATIVES Recent Developments (1) Open market operations since the last FOMC meeting have been aimed at maintaining reserve pressures at the level prevailing since late last year. The federal funds rate stayed mostly around 8-1/4 percent. Abstracting from special situation borrowing by the Bank of New England, initially classified as adjustment borrowing, the allowance for adjustment plus seasonal borrowing incorporated in the nonborrowed reserve objective during the intermeeting period was $150 million. Seasonal plus adjustment borrowing averaged $160 million in the three maintenance periods since the February meeting. Borrowing generally has run well below this level, except for occasional surges on settlement Wednesdays owing to unexpected movements in the supply and demand for reserves; not only was adjustment borrowing usually quite low, but the increase in seasonal borrowing has been somewhat less than typical over this part of the year. Market concerns about financial strains on some institutions evidently have made banks even more chary of being seen at the window, and needs for liquidity have been held down by sluggish loan demand and robust inflows of retail deposits. (2) Although the federal funds rate was steady over the intermeeting period, other short-term rates edged higher as have yields on 1. This average excludes the adjustment credit of the Bank of New England in the first maintenance period. This borrowing was classified as extended credit on February 21, the last day of that period. intermediate-term issues, maintaining a modest upward tilt to the Treasury yield curve out to 3 years. Somewhat mixed economic information received over the intermeeting period evidently was interpreted as pointing, on balance, to some firming of economic activity and the persistence of price pressures. The Federal Reserve, consequently, is now seen as unlikely to ease policy any further in the near term, especially against the background of its stated commitment to reducing inflation gradually, and possibly even having to tighten over a somewhat longer horizon. Treasury bond yields, though fluctuating over a fairly wide range, fell slightly on balance over the period, despite increases in long-term rates in other major countries, which reflected importantly increases in inflation expectations, as discussed below in paragraph (3). Indeed, bond yields may have been held down to an extent by shifting demands toward dollar assets, as evidenced also by a rise in the foreign exchange value of the dollar. Stock prices also were firm, with major indexes rising 1 to 2 percent over the intermeeting period. The collapse of Drexel Burnham Lambert had little impact on financial markets outside the noninvestmentgrade sectors. Its collapse, along with potential sales by some large institutional holders, contributed to a widening of the spread between yields on junk bonds and other long-term securities. In addition, some corporations that had been issuing low-grade or unrated commercial paper through Drexel were unable to roll over maturing issues. (3) The dollar's exchange value has appreciated by about 3 percent on a weighted-average basis since the last Committee meeting, rising 6 percent against the yen and sterling and 3 percent against the mark. The dollar's strength generally seemed to reflect various political and financial difficulties in foreign countries. Despite a favorable result for the ruling LDP in the Japanese parliamentary elections, a generally bearish mood continued to prevail in Japanese financial markets. Stock prices declined by about 20 percent while long-term bond yields rose by more than 50 basis points. Three-month interest rates in Japan also rose by 50 basis points, all in advance of the Bank of Japan's one percentage point increase in its discount rate on March 20. In Germany, increased inflation expectations, related to monetary unification, propelled bond rates more than 50 basis points higher, while 3-month German rates rose by 30 basis points. period. German stock prices rose slightly, on balance, over the In the United Kingdom, an uncertain political situation combined with a more pessimistic outlook for inflation and the external deficit to depress sterling. the Desk accounted for nearly $1.7 billion, $1.5 billion against yen and $200 million against DM. All of the Desk's sales of dollars after March 2--$830 million--were for the Treasury's account. (4) M2 accelerated to a 9-1/2 percent rate of increase in February but, based on partial deposit data through March 19, is estimated to be slowing to a 6 percent rate this month. This pattern would bring the rate of increase from December to 6-1/2 percent, a bit below the 7 percent path specified by the Committee for the December-to-March period. Demands for M2 this quarter likely have been boosted by strength in nominal income, by some acceleration in personal income tax refunds, and, perhaps earlier in the quarter, by a reluctance to commit funds to junk bond and stock markets in view of unsettled conditions. However, the opportunity costs of holding M2 instruments have risen over the first three months of the year, as retail deposit offering rates have remained relatively flat, especially at shorter maturities, while most market rates have risen. In addition to the usual lag of deposit behind market rates, depository institutions may have held down offering rates as core deposits remained fairly strong relative to asset growth. The damping influence on M2 demand of higher opportunity costs is evidenced by the recent strength in noncompetitive tenders at Treasury auctions, and, along with the ebbing effects of earlier market rate decreases, has contributed to a small estimated increase in M2 velocity in the first quarter, after two quarters of substantial declines.2 (5) Following a 5-1/2 percent rate of expansion in February, growth of M3 is estimated at a 1-1/2 percent rate in March. Over the first three months of the year, M3 has grown at a 3 percent rate, 1/2 percentage point below the pace specified by the Committee for the December-to-March period. Expansion of M3 thus far this year has been curbed by continued contraction of the thrift industry, though apparently the rate of decline has been slower than in the fourth quarter. In addi- tion, a variety of influences have damped M3 growth at banks: growth of 2. Currency growth, though moderating, remained strong in March, following three months of expansion averaging 11 percent; foreign demands appear to account for the unusual strength in currency. Even so, M1 growth was held down to only about 4-1/2 percent over the first three months of the year by slow growth in transaction deposits. Reflecting rapid increases in currency, the monetary base expanded at a 10 percent rate from December to March. bank credit was weak in January, while the financing of stronger asset growth in February and March relied heavily on non-M3 managed liabilities and government deposits. Although banks have tapped the Eurodollar deposit market for funds this year, holdings of those deposits by U.S. residents--a component of M3--has continued to decline, further depressing growth of this aggregate. Apparently, U.S. residents have found these investments less attractive at the unusually narrow spreads prevailing relative to returns on domestic investments. (6) Growth in the debt of nonfinancial sectors over the first quarter is estimated to have continued at about the 7-1/2 percent pace of the last three months of 1989, leaving this aggregate around the middle of its monitoring range. Treasury borrowing has picked up, seasonally ad- justed, in anticipation of funding RTC working capital needs; borrowing by private sectors, however, evidently moderated slightly. ing remained subdued. Business borrow- Equity retirements dropped further, reflecting inhospitable conditions in the junk bond market and more stringent credit standards by banks and other lenders; on the other hand, business needs for external funds to finance increases in capital spending widened as internal funds dropped further. A survey of large banks also suggested they were taking a more cautious approach to lending to below investmentgrade business borrowers for other purposes; however, recent business-loan price information does not provide any evidence of widespread increases in spreads of loan rates over funding costs. For the first time in the cur- rent expansion, banks showed virtually no overall increases in their willingness to extend consumer installment loans over recent months, and a -6- substantial proportion have tightened standards on home equity lines of credit. Nevertheless, consumer credit extended by banks and others so far this year appears to be expanding at around its moderate fourth-quarter pace, maintained in part by generous auto incentive packages. Mortgage rate spreads suggest that credit for residential first mortgages is generally available, but survey evidence coupled with Call report data indicate that banks have reduced the availability of commercial real estate credit, particularly for construction and land development purposes. MONEY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) Jan. Feb. Mar. Dec. QIV'89 to to Mar.pe Mar.pe Ml -0.2 10.0 4-1/4 4-3/4 5 M2 3.8 9.4 6 6-1/2 6-3/4 M3 1.8 5.5 1-1/2 3 3 Domestic nonfinancial debt 5.4 8.0 n.a. 6-3/4 6-1/21 Bank credit 2.7 8.6 7-1/4 6-1/4 5-1/2 -6.1 -3.5 18-1/2 3 4 Total reserves -2.7 6.5 3-1/4 2-1/4 3 Monetary base 10.9 9.4 9-3/4 10 9 414 913 159 1016 988 862 Money and credit aggregates Reserve measures Nonborrowed reserves Memo: 2 (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves n.a. - Not available. pe - Preliminary estimates. 1. Through February. 2. Includes "other extended credit" from the Federal Reserve. NOTE: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. Reserve data have been revised to reflect annual revisions to seasonal factors and to adjust for discontinuities associated with the annual indexations of the reserve requirement exemption and low reserve tranche. Policy Alternatives (7) Three policy alternatives are presented for Committee consideration. Under alternative B, maintaining federal funds trading around 8-1/4 percent is anticipated to be associated with about $150 million of adjustment plus seasonal borrowing, the assumption used since the last FOMC meeting in constructing reserve paths. Although seasonal borrowing should increase over coming weeks, underlying demands for adjustment borrowing, absent unusual settlement day pressures, are likely to remain weak. Alternative A embodies a 7-3/4 percent federal funds rate and a borrowing assumption of $100 million, while the 8-3/4 percent funds rate of alternative C reflects borrowing of $200 million. Predicting the rela- tionship between the federal funds rate and discount window borrowing remains difficult, however, justifying continued flexibility in the Desk's approach to the borrowing objective. (8) Projected growth rates for the monetary aggregates from March to June under the three policy alternatives are given in the table below. (The table and charts on the following pages show more detailed data.) Under all the alternatives, M2 and M3 are likely to remain within the upper and lower halves of their respective annual growth ranges through June. The monthly pattern of monetary growth is highly uncertain because of normal difficulties in assessing the effects of individual tax payments around the mid-April tax season. Last year, liquid balances were depressed by tax payments in April and by still more in May, before rebounding sharply over the summer. We have assumed that the element of surprise in tax payments reflected in the behavior of money in 1989 will -9- be absent this year, so that deposit flows will be better captured by the current seasonal factors and hence will be smoother, seasonally adjusted. Still, with total individual nonwithheld tax payments expected to exceed last year's elevated pace by a little, the possibility of above-normal reductions in liquid balances to pay those taxes poses a downside risk to the money paths given below. Another such risk, particularly at the M3 level, is the possibility of very large expenditures by the RTC. These expenditures tend to depress M3 by, in effect, substituting Treasury financing for monetary liabilities. The staff has assumed a substantial pickup in RTC activity in the second quarter, though by less than the announced plans of the RTC. Alt. A Alt. B Alt. C 7 4-1/2 6 6 4 4-1/2 5 3-1/2 3 6 to 10 6 to 10 7 to 11 Growth from March to June M2 M3 Ml Associated federal funds rate ranges (9) Financial market participants evidently expect no monetary policy change in the near term, meaning that a funds rate around the 8-1/4 percent level of alternative B is built into the current structure of market interest rates. Even so, alternative B would involve some easing in Treasury bill rates from most recent levels to the extent that supply pressures in the market dissipate. That will depend to some extent on the pace of RTC activity and associated working capital needs. Greater RTC Alternative Levels and Growth Rates for Key Monetary Aggregates M2 M3 M1 Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Levels in billions 1990 January February March 3232.0 3257.2 3273.4 3232.0 3257.2 3273.4 3232.0 3257.2 3273.4 4047.1 4065.8 4070.8 4047.1 4065.8 4070.8 4047.1 4065.8 4070.8 794.7 801.3 804.1 794.7 801.3 804.1 794.7 801.3 804.1 April May June 3291.1 3310.1 3330.8 3289.8 3306.2 3322.6 3288.5 3302.3 3314.4 4085.0 4100.0 4116.6 4084.4 4098.0 4111.5 4083.8 4096.0 4106.4 807.7 811.6 816.1 807.1 810.1 813.1 806.5 808.6 810.1 Monthly Growth Rates 1990 January February March 3.8 9.4 6.0 3.8 9.4 6.0 3.8 9.4 6.0 1.8 5.5 1.5 1.8 5.5 1.5 1.8 5.5 1.5 -0.2 10.0 4.2 -0.2 10.0 4.2 -0.2 10.0 4.2 April May June 6.5 6.9 7.5 6.0 6.0 6.0 5.5 5.1 4.4 4.2 4.4 4.9 4.0 4.0 4.0 3.8 3.6 3.0 5.4 5.9 6.7 4.5 4.5 4.4 Quarterly Ave. Growth Rates 1989 Q2 1.6 Q3 6.9 Q4 7.1 1990 Q1 6.6 Q2 6.9 1.6 6.9 7.1 6.6 6.4 1.6 6.9 7.1 6.6 5.8 3.2 3.9 1.8 3.2 3.9 3.2 3.9 1.8 3.2 3.6 3.2 3.9 1.8 3.2 3.4 -4.4 1.8 5.1 4.7 5.9 -4.4 1.8 5.1 4.7 5.1 -4.4 1.8 5.1 4.7 4.2 Dec. Mar. 6.4 7.0 6.4 6.0 6.4 5.0 2.9 4.5 2.9 4.0 2.9 3.5 4.7 6.0 4.7 4.5 4.7 3.0 4.6 6.6 6.8 6.8 6.9 4.6 6.6 6.6 6.8 6.5 4.6 6.6 6.3 6.8 6.1 3.2 3.2 3.6 3.1 3.7 3.2 3.2 3.4 3.1 3.5 3.2 3.2 3.3 3.1 3.3 0.6 4.7 5.3 5.1 5.5 0.6 4.7 4.9 5.1 4.9 0.6 4.7 4.5 5.1 4.2 Q4 Q4 Q4 Q4 Q4 88 89 89 89 89 89 to Mar. 90 90 to June 90 to to to to to Q4 89 Q1 90 Q2 90 Mar. 90 June 90 1990 Target Ranges: 3.0 to 7.0 2.5 to 6.5 3.6 3.1 " 2.2 ? Chart 1 ACTUAL AND TARGETED M2 Billions of dollars Actual Level * Short-Run Alternatives - - 3450 Projected Level 3400 3350 3300 3250 3200 3150 3100 O N 1989 D J F M A M J J 1990 A S O N D Chart 2 ACTUAL AND TARGETED M3 Billions of dollars 4350 Actual Level * Short-Run Altemat ives - 6.5% 4300 Projected Lev'el - ,-''SSS S- * - 4200 S• ^ - 4250 4100 4250 2.5%- 4150 ^ 0 B -4100 • S ' 4050 4000 -- 3950 3900 O N 1989 D J F M A M J J 1990 A S O N D Chart 3 M1 Billions of dollars 10% Actual Level ------ Growth From Fourth Quarter - Projected Level 5% d, . 825 * A , I p I V .- - ' *Sc -- 800 " O% ---- '*' * -- 775 , ., I O I N 1989 I D I J I F I M I A I M I J J 1990 I I A I S I O -5% S I N D 750 r Billions of dollars 10750 Actual Level SProjected Level 9% 10500 5% , u10250 10000 ^ ^ ^ ^ 9750 I I I I O N 1989 D J F M A M J J 1990 A S I 0 9500 I N D -11funding needs would be met in the first instance by a drawdown in Treasury cash balances--since some RTC working capital usage has already been financed--and only subsequently by augmenting Treasury borrowing. Conse- quently, we are projecting a substantial paydown in Treasury bills over the intermeeting period after the tax date. Moreover, central bank sales of Treasury securities to fund their dollar sales in foreign exchange markets could drop off at any time should intervention activity decline. The staff anticipates relative stability in the exchange value of the dollar under alternative B. Decisions regarding economic and monetary union of East and West Germany, which are to be made by the end of April, could affect the dollar's value against the mark. If those decisions heighten expectations of German inflation, the dollar could continue under upward pressure against the mark; increases in German interest rates owing solely to such expectations would not necessarily affect real and nominal interest rates in the United States. Bond prices in the U.S. will remain most sensitive to prospects for U.S. economic growth and inflation. Incoming data on prices and the economy about in line with staff expectations should not change market expectations that Federal Reserve policy will remain essentially unchanged for a time, and consequently would be associated with only minor movements in bond yields. (10) An immediate policy easing under alternative A that brought the federal funds rate down to 7-3/4 percent would run counter to market sentiment and ripple through the money market, with other short-term rates likely declining a similar amount. Lower short-term funding costs also should engender reductions in lending rates on business and consumer credit. The exchange value of the dollar would tend to adjust downward. -12A dollar depreciation might combine with prospects for somewhat stronger U.S. economic activity to heighten domestic inflationary expectations, limiting the declines in longer-term yields. (11) The rise in the federal funds rate under alternative C to 8-3/4 percent also would surprise market participants, inducing an acrossthe-board increase of comparable size in other short-term rates. Recent upward pressure on the exchange value of the dollar would continue. Bond yields would tend to rise, though with inflation expectations lessened by the monetary policy tightening, the increases could be muted. The addi- tional policy restraint might reinforce current concerns about default risk on some loan categories, and would tend to encourage a further firming in credit standards, implying additional restraint on economic activity. (12) Under alternative B, M2 growth from March to June is projected at a 6 percent annual rate--about 1/2 percentage point below its average growth rate over the first three months of the year. income growth is projected to slow next quarter. Nominal Opportunity costs may narrow only a little from recently elevated levels. Thrifts are discour- aging deposit inflows as part of their effort to trim balance sheets; many of these deposits are going to banks instead, and these deposit shifts would be augmented as the RTC steps up the rate at which it resolves institutions. Banks may be unwilling, however, to expand their assets in line with deposit inflows, given concerns about loan quality and the capital requirements associated with a pickup in asset growth. In such circumstances, offering rates on retail deposits are likely to stay somewhat depressed relative to Treasury bill rates. With opportunity costs -13little changed, velocity probably will be about flat in the second quarter. 3 M1 is expected to continue expanding at a 4-1/2 percent annual rate from March to June, as a slowing of currency growth is offset by a little faster inflow to transactions deposits than over the first quarter.4 (13) M3 growth under alternative B is projected at a 4 percent pace, somewhat higher than the December-to-March rate of advance. The acceleration primarily owes to some pickup in bank credit growth from 6-1/2 percent over the first quarter to around a 7-1/4 percent pace, reflecting a resumption of business lending; as a consequence, the decline in large time deposits at commercial banks should cease. In addition, the runoff of the term Eurodollar component of this aggregate is likely to ebb. Greater RTC activity would tend to hold down M3 growth to the extent that such activity necessitated additional government borrowing; the expenditure of funds previously borrowed by the Treasury would not affect M3 because such funds are already on deposit at commercial banks. Thrifts are assumed to continue trimming their large time deposits at about the 25 percent annual rate of the first quarter, while their runoffs of term RPs abate a bit because the outstanding stock of these liabilities has fallen to a rather low level. 3. Revisions to the staff greenbook forecast for 1990 have countervailing effects on projected growth rates of the monetary aggregates for the year as a whole. Projected M2 and M3 growth remains unchanged at 6-1/2 and 4 percent, respectively, as the impact of stronger GNP growth is about offset by higher nominal interest rates. 4. Owing to the outlook for slower currency growth, the monetary base is projected to record a 4-3/4 percent annual rate of change from March to June, compared with the 10 percent increase from December to March. -14(14) Domestic nonfinancial debt is projected to grow at a 6-1/2 percent annual rate from March to June, down from an estimated 7-1/2 percent pace over the previous three months.5 The slowing is attributable to net federal borrowing, which is projected to slacken substantially, despite some borrowing to finance RTC working capital. The household, business, and state and local sectors are all expected to maintain debt growth at about their first-quarter rates. Some continued restraint on business credit expansion is assumed to derive from a further reduction in net equity retirements. Overall debt growth from the fourth quarter of last year to June is foreseen at the middle of its 5 to 9 percent monitoring range. (15) Under the less restrictive policy posture of alternative A, M2 and M3 growth from March to June would be boosted to 7 and 4-1/2 percent rates, respectively. M2 would be close to the 7 percent upper limit of its annual range, and on a trajectory that would carry it above its upper bound in the third quarter. M3 would remain well below its midpoint in June, reflecting both the downsizing of the thrift industry and a lower responsiveness than M2 to movements in market interest rates. Under the tighter financial market conditions of alternative C, M2 and M3 growth from March to June likely would slow to 5 and 3-1/2 percent rates, respectively. M2 growth from the fourth-quarter base of its annual range 5. Projections of debt growth for 1990 also have been left unchanged; however, the composition of borrowing differs. Federal debt increases significantly faster than projected in the last greenbook, owing to the decision to finance RTC working capital through the Federal Financing Bank. The assumed added borrowing in this calendar year of around $35 billion boosts overall debt growth in 1990 by about 1/4 percentage point. However, anticipated growth of nonfederal debt in 1990 has been reduced, reflecting the recent trend of lower business borrowing for corporate restructuring and slower growth of household debt. -15to June would be 6 percent. The associated growth for M3 by June would be 3-1/2 percent, compared with the 2-1/2 percent lower bound of its annual growth cone. -16- Directive Language (16) Draft language for the operational paragraph, including the usual options and updating, is shown below. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT/maintain/ INCREASE SOMEWHAT the existing degree of pressure on reserve positions. Taking account of progress toward price stabil- ity, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly (SOMEWHAT) greater reserve restraint (WOULD/ MIGHT) or slightly (SOMEWHAT) lesser reserve restraint would (MIGHT) be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 December through]March THROUGH and M3 over the period from[DEL: and 7 AND ____[DEL:3-1/2] percent JUNE at annual rates of about ____ respectively. The Chairman may call for Committee consul- tation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds 6 to rate persistently outside a range of____ TO____[DEL: 10]per- cent. March 26. 1990 SELECTED INTEREST RATES (percent) Lral Term lundi -.---- im_- lunml thWy bM condaiy markL .I.a SCDO | seconday I mare -_a_ I money comm | maert pate 1mh I muual iund .Ian I corpwate I bank t rone US gomnmen constant matuly yields r aI ..-.- I -i l I ) 10 11 . ( convPnitonal home mortgages A ullMy | municipal I secondary I market Bond ) recntly | I1 Jal l Je I - nid |-B lu u 1- -_ _12 1 _ 1. 14 1 ptmar ed 1 rnartre lARM -la -e - 1 Ir High Low 9.95 8.38 9.04 7.54 9.07 7.35 8.96 7.15 10.23 6.24 9.98 8.35 9.19 7.87 11.50 10.50 10,47 9.26 7.95 719 1173 9.92 1122 968 8.34 High 8.32 8.20 7.96 7.54 7.89 7.45 7.82 7.28 8.40 8.11 8.48 8.14 806 7.62 10.50 10.00 10.00 9.55 755 735 1067 1013 1034 9 RO 8.56 8.35 89 89 89 89 89 89 9.85 9.84 9.81 953 9.24 8.99 9.02 8.84 8.55 8.45 8.82 865 8.43 8.15 7.88 7.90 7.75 7.64 7.69 7.63 8.85 8.65 8.41 7.93 7.61 7.74 7 74 7.62 7.49 7.42 882 8.64 8.31 7.84 7.36 7.61 7 65 745 7.25 7.21 10.09 9.94 9.59 9.20 8.76 8.64 8.78 8.60 8.39 8.32 9.88 9.77 9.57 9.34 8.95 8.79 8.87 8.66 8.47 8.61 8.89 9.14 913 896 8.72 8.32 8.25 821 800 7.90 11.50 11.50 11.50 11.07 10.98 10.50 10.50 10.50 10.50 10.50 10.37 10.33 10.09 9.65 9.54 955 9.55 9.39 9.28 936 7.85 7.73 7.51 7.35 7.28 7.36 7.52 7.48 7.39 7.31 11.47 11.32 10.90 10.39 10.11 1038 10.44 10.19 10.06 10.06 1103 1105 1077 1020 988 999 1013 9.95 977 9.74 909 9.40 9.30 9.03 8.74 8.65 8.71 8.62 8.51 8.39 Jan 90 Feb 90 8.23 8.24 7.64 7.74 7.55 7.70 738 7.55 8.16 8.22 8.20 8.22 7.74 7.64 10.11 10.00 9.63 9.84 7.43 752 1030 1049 990 10.20 839 8.46 Dec 6 89 Dec 13 89 Dec 20 89 Dec 27 89 8.52 847 8.52 8.38 7.57 7.86 7.62 7.66 7.35 7.39 7.41 7.51 7.19 7.25 7.15 7.23 8.24 8.32 8.41 8.32 8.51 8.57 8.72 8.60 7.94 7.89 7.91 7.87 10.50 10.50 1050 10.50 7.74 7.78 7.70 7.83 7.83 7.84 7.78 7.87 9.29 9.33 9.40 954 7.35 7.29 7.28 7.33 10.07 9.98 10.01 10.17 9.76 9.75 9,69 9.78 8.39 8.39 8.34 8.39 Jan Jan Jan Jan Jan 90 90 90 90 90 8.32 7.61 7.52 7.28 8.23 848 8.06 1050 8.22 8.20 8.23 8.24 7.54 7.60 7.72 7.72 7.45 7.50 7.60 7.67 7.28 7.31 745 752 8.15 8.11 8.20 8.19 8.19 8.14 8.20 8.21 7.79 7.74 7.70 7.70 10.29 10.00 10.00 10.00 7.90 7.94 8.04 8.24 8.37 7.94 8.01 8.13 8.30 8.47 955 9.57 9.65 9.75 9.83 7.36 7.35 7.49 7.52 7.52 1013 10.18 10.34 10.53 10.50 983 9.80 9,90 1005 10.17 8.35 8.41 8.39 841 8.45 Feb 7 90 Feb 14 90 Feb 21 90 Feb 28 90 8.22 8.21 8.25 8.27 7.80 7.70 7.74 7.72 7.74 7.66 7.72 7.70 7.58 7.50 7.59 7.55 8.22 8.21 8.22 8.24 8.24 8.19 8.22 8.22 765 7.65 7.64 7.64 10.00 1000 10.00 10.00 8.41 8.29 8.43 8.42 8.51 8.38 8.52 8.49 9.75 9.84 9.94 9.91 7.50 7.49 7.55 7.50 10.36 10.50 1060 10.55 10.21 10.10 1031 10.23 8.46 8.48 8.44 8.48 Mar 7 90 Mar 14 90 Mar 21 90 8.28 8.27 8.27 7.84 7.96 7.94 7.79 7.87 7.89 769 7.82 7.78 8.27 8.38 8.40 8.27 8.33 8.35 7.62 7.64 7.66 10.00 10.00 10.00 8.55 8.69 8.66 8.59 8.65 8.59 10.00 9.92 9.82 7.50 7.55 7.54 10.67 10.63 10.55 10.29 10.34 10.26 8.50 8.55 8.56 7.86 7.83 7.83 7.76 7.73 7.71 8.40 8.38 8.35 8.34 8.35 8.34 10.00 10.00 10.00 8.62 8.60 8.59p 8.59 8.53 8.52p 89 -- 90 -- Low Monthly Mar 89 May 89 Jul Aug Sep Oct Nov Dec wedady 3 10 17 24 31 Dally Mar 16 90 Mar 22 90 Mar 23 90 8.22 8.28 827 S p NOTE Wekmy data olrm ms 1 through 11 are statement week aerages Oan column 7 ate laln fom Donoghue s Money Fund Repor Column l C 8.55 8.49 8.48p 12. 13 and 14 aIe 1-day quotes or Friday Thursday or Friday respectlly fol nwlng ti end ry com"nminnmes Column 15 s lhe average contract rate on new comnimlrenls Column 14Is ttFNMA purcuhae yOed pius loan servcing ee on 30-day madatoryde olihe alelwn te Column 13 Ilht Bond Buyer revMteiendek aon new comItments toI1 -ye adjustable -ale morgagestARMsl at majlo Insitlutional lenders t h 0 ercent loan olue ratios at major instliutlinal nd n Column 16 Is the average Inilal contrc rate l for fixd rat modgagas(FRu W olteing bot FRMs and ARMs with the sam number of dIcount points p -- pretnilly data Strictly Confidential (FR) II Class FOMC Money and Credit Aggregate Measures Seasonally adjusted MAR. Moneyslock measures and liquid ast I nontranlKctionl Period M in M2 3 ( ANN. GROHTH RATES (%) : ANNUALLY (Q4 TO 44) 1987 1988 1989 I Domestic nonfinancial debt' Bkank credit total loans L M3 components M U.S. Inve 6 tmen 7 8_ total" other' government* ind in M3 only 26, 1990 10 1 6.3 4.3 0.6 4.3 5,2 4.6 3.6 5.5 5.9 12.0 10.6 -1.5 5.8 6.3 3.2 5.6 7.1 4.4 7.9 7.8 7.1 9.0 8.0 7.4 10.2 9.4 8.1 -0.1 -4.4 1.8 5.1 2.3 1,6 6.9 7.1 3.2 3.7 8.7 7.7 9.6 9.1 -6.9 -17.3 3.9 3.2 3.9 1.8 5.2 5.0 4.2 2.7 6.6 6.7 7.0 7.6 7.7 6.9 4.6 9.5 8.3 7.9 7.9 7.4 8.2 7.7 7.2 7.9 1.4 -1.8 -5.2 -9.1 -3.9 8.4 2.0 3.8 8.0 2.0 8.2 1.8 3.4 1.0 -1.6 6.3 9.8 7.6 6.3 6.9 7.3 7.8 1.9 5.2 3.1 0.9 9.8 10.3 9.5 7.0 6.6 9.0 7.7 8.7 15.2 8.4 6.3 4.1 -4.2 -20.3 -23.0 -19.8 -10.1 -12.0 3.3 6.0 2.6 0.2 5.8 6.7 1.4 0.0 1.3 3.7 3.8 4.4 8.2 6.3 -0.1 5.6 6.3 3.4 1.3 2.1 3.8 4.6 12.5 7.S 4.3 6.6 6.3 7.9 7.1 5.5 11.4 7.1 1.6 9.0 11.7 5.6 4.2 4.3 -0.1 9.1 10.9 9.5 3.7 8.6 6.7 7.9 8.8 7.6 8.3 8.0 6.1 8.0 8.2 5.2 8.7 7.9 7.4 7.7 6.9 6.4 8.2 7.2 8.4 8.8 4.8 3.8 9.4 5.1 9.2 -6.3 -9.7 1.8 5.5 0.3 10.0 2.7 8.6 5.7 10.8 5.3 7.2 5.4 8.0 LEVELS I(BILLIONS) : MONTHLY 1989-OCT. NOV. DEC. 788.1 789.4 794.8 3181.4 3200.8 3221.7 2393.4 2411.4 2426.9 834.7 827.7 819.4 4016.2 4028.5 4041.1 4831.2 4846.4 4864.8 2562.6 2577.7 2581.2 2238.2 2258.5 2265.4 7423.1 7474.0 7506.2 9661.3 9732.5 9771.6 1990-JAN. FEB. p 794.7 801.3 3232.0 3257.2 2437.3 2456.0 815.1 808.5 4047.1 4065.8 4865.9 2585.0 2603.5 2276.1 2296.5 7539.4 7584.8 9815.5 9881.3 798.6 798.9 800.5 804.9 3249.5 3252.5 3256.7 3264.7 2450.9 2453.5 2456.2 2459.8 810.0 810.1 809.6 806.6 4059.5 4062.6 4066.3 4071.3 807.0 802.2 3269.7 3269.3 2462.7 2467.0 803.0 800.1 4072.7 4069.4 QUARTERLY AVERAGE 1989-1st QTR. 1989-2nd QTR. 1989-3rd QTR. 1989-4th QTR. MONTHLY 1989-FEB. MAR. APR. MAY JUNE JULY AUG. SEP. OCT. NOV. DEC. 1990-JAN. FEB. p WEEKLY 1990-FEB. MAR. 5 p 12 p -0.2 .5. 1. 2 5 ... f . 10.9 L 9.9 9.1 8.0 J Debt date are on a monthly average basis, derived by averaging end-of-month levels of adjacent months, and have been adjusted to remove discontinuities. p-preliminary pe-preliminary estimte Strictly Confidential (FR)Class FOMC II Components of Money Stock and Related Measures seasonally adjusted unless otherwise noted Period Demand deposits Currmy Other checkable deposilt MMDAe Savings depolitl Smell denomi. nation time deposits' Money market mutual funds geeral Inslitu. lions purpose only and broker 4 S3 LEVELS (*BILLIONS) i ANNUALLY 14TH QTR.) 1987 1988 1989 Overnight RPs end Eurodollar NSA' 5 6 7 dealer' 8 MAR. Large denominotion time deposit' 9 10 Shortterm Treasury securities Term RPs NSA' erm Eurodollars NSA' Savings bonds 1t 12 13 4 26, 1990 Bankers Commercll paper' accep- 15 Is ances 195.0 210.7 220.8 291.5 287.6 279.5 260.5 280.4 283.1 87.6 83.3 75.6 529.3 480.0 416.2 428.2 407.7 903.6 1021.6 1138.9 220.5 237.5 308.3 87.2 86.7 101.5 482.3 538.0 560.7 107.4 123.2 103.4 92.4 102.7 79.6 99.8 108.9 116.8 262.1 267.0 311.8 258.4 326.2 349.7 44.5 40.7 40.6 214.1 215.3 284.9 283.9 280.2 83.3 82.1 485.6 479.9 421.0 417.9 1054.2 1066.4 247.2 253.4 86.9 86.3 553.3 560.1 126.7 128.9 100.1 105.7 110.7 111.5 268.1 274.2 343.6 348.3 40.6 279.1 APR. MAY JUNE 215.7 281.3 279.6 276.3 277.9 272.8 273.0 78.5 77.8 79.6 473.2 463.1 460.9 412.0 405.4 403.4 1084.1 1103.0 1114.0 257.8 261.2 88.3 92.1 96.3 568.3 573.1 574.9 126.3 127.5 217.2 128.4 100.3 97.2 93.4 112.2 112.8 113.6 280.0 288.1 289.6 358.2 348.8 349.4 41.5 41.2 41.2 JULY AUG. SEP. 217.8 218.6 219.3 279.6 278.5 278.1 274.5 276.0 278.4 81.0 78.3 74.9 463.9 468.2 471.9 403.3 404.0 405.5 1122.4 1130.0 1132.6 277.7 287.8 295.9 99.0 101.4 101.6 574.7 570.5 565.6 123.8 116.9 112.9 91.8 89.6 85.3 114.3 115.0 115.7 290.9 293.3 303.7 349.5 354.3 350.3 41.9 42.6 41.0 OCT. NOV. DEC. 220.0 220.4 221.9 280.0 278.8 279.7 280.8 282.8 285.7 75.3 74.8 76.8 475.3 480.8 483.8 406.1 407.9 409.0 1135.9 1138.5 1142.2 302.7 309.1 313.1 101.1 101.1 102.3 562.7 561.0 558.3 108.3 107.2 94.8 80.0 78.9 79.9 116.2 116.8 117.5 308.9 309.3 317.1 350.0 351.3 347.9 40.0 40.5 41.2 224.6 277.3 280.2 285.3 286.8 80.7 81.6 484.9 489.3 410.3 1142.5 413.7 11141.2 320.8 329.1 103.2 103.7 554.1 549.6 91.4 94.9 74.3 70.7 117.7 317.0 343.3 40.7 MONTHLY 1989-FEB. MAR. 1990-JAN. FEB. p 1. 2. 3. 4. 216.6 226.6 504.9 268.3 41.4 Net of money market mutual fund holdings of these items. Includes retail repurchase agreements. All IRA and Keogh accounts at commercial banks and thrift institutions are subtracted from small time deposits. Excludes IRA and Keogh accounts. Net of large denomination time deposits held by money market mutual funds and thrift institutions. p-preliminary NET 1 SECURITIES OF HOLDINGS SYSTEM IN CHANGES Millions of dollars, not seasonally adjusted March 26, 1990 Treasu bills STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Treasury coupons Federal Net change agencies outright Net redemptions holdings change (-) Net purchases_ Net Period Redep- Spurchases tions (-) Net within chan 1-year Redenp1-5 5-10 over 10 441 293 158 1,858 1,398 284 11,479 18,096 20,099 12,933 7,635 1,466 7,700 3,500 1,000 9,029 2,200 12,730 3,779 14,596 19,099 3,905 5,435 -11,264 826 1, ,349 190 3, ,358 2, 177 327 1,938 2,185 893 9,779 4,686 946 236 358 236 2,441 1,404 258 1988--Q1 Q2 Q3 Q4 319 423 1,795 5,098 2,200 -1,881 423 1,795 5,098 -1, ,092 -800 3,661 1,,084 1,824 1989--Q1 Q2 Q3 04 -3,842 2,496 -6,450 9,263 2,200 2,400 3,200 4,930 -6,042 96 -9,650 4,333 -172 -155 -228 1,361 -163 -24 1989--June July August September October November December 1990--January February -571 -5,516 -934 1,200 2,400 800 -1,414 8,794 1,883 -1,065 -3,277 1,400 3,530 Feb. 7 14 21 28 -3,384 7 14 21 Mar. Memo: LEVEL (bil. $) March 21 Net RP total -1,771 -7,916 -1,734 1984 1985 1986 1987 1988 1989 4 tions (-) 3,440 4,185 1,476 17,366 9,665 1,315 6,964 18,619 20,178 20,994 14,513 -10,391 1,450 3,001 10,033 -11,033 1,557 -1,683 -175 1,017 -975 6,737 562 3,903 -3,011 7,030 1,717 8,776 -3,514 5,220 1,393 -1,541 -6,477 2,075 -9,921 3,934 -5,591 924 -893 3,877 1,000 400 -2,814 5,264 1,883 -2,065 -3,677 -1,771 -7,983 -1,884 54 -3,368 5,419 1,883 -2,065 -3,677 10,002 -5,152 617 3,641 463 -453 3,867 -8,435 4,417 400 -3,784 -3,784 108 108 108 -2,139 2,844 502 3,210 488 488 101.4 -248 2,104 -172 -369 100 27.0 Change from end-of-pariod to end-of-period. Outright transactions in market and with foreign accounts. Outright transactions in market and with foreign accounts, and short-term notes acquired in exchange for maturing bills. Excludes maturity shifts and rollover* of maturing coupon issues, 688 56.6 12.6 26.2 -- 230.3 122.4 4,201 -5,353 3,112 -2.0 4. Reflects net change and redeptions (-) of Treasury and agency securities. 5. Includes change in RPa (+), matched sale-purchase transactions (-), and matched purchase sale tranaactions (+). 6. The levels of agency issues were as follows: I thin I I I I 1-year 2.2 I 1-5 3.1 I 5-10 1.0 ovr 101 total 0.2 I 6.5 5
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