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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)
March 25, 1988
CLASS I - FOMC
MONETARY POLICY ALTERNATIVES
Recent developments
(1)
Since the February FOMC meeting, reserve paths have been
constructed assuming adjustment plus seasonal borrowing of $200 million, in
accordance with the Committee's decision to maintain the slightly reduced
degree of reserve pressure sought in the days preceding the meeting.
This
level of borrowing was expected to be associated with federal funds trading
around 6-1/2 percent, once the market had perceived the degree of Federal
Reserve easing.
Over the three complete maintenance periods since the FOMC
meeting, adjustment plus seasonal borrowing has averaged $238 million, and
the federal funds rate has averaged 6.59 percent.
The difficulties of some
Texas banks and the associated surge of extended credit have had little
apparent impact on reserve markets.
The Desk readily offset the increased
supply of reserves, and bank reserve management does not seem to have been
affected.
Excess reserves have fallen on balance over the intermeeting
period in typical seasonal fashion, and willingness to tap discount credit
does not appear to have diminished further.
(2)
Most other interest rates have risen somewhat over the
intermeeting period, especially in bond markets where yields increased
around 3/8 of a percentage point.
Data and reports on the economy
suggested more strength than had been anticipated, prompting a shift in
market sentiment about prospects for future inflation and Federal Reserve
policy.
Despite the Texas bank situation, spreads between private and
KEY MONETARY AGGREGATES
(Seasonally adjusted annual rates of growth)
QIV '87
to
Mar.pe
Mar.pe
Nov.
to
Mar.pe
1.1
6-1/2
4-1/2
4
9.7
8.7
9-1/4
7-1/2
7-1/2
M3
8.2
10.2
7-1/2
6-3/4
7
Domestic nonfinancial
debt
8.0
10.6
n.a.
n.a.
9-1/23
Bank credit
5.9
8.4
n.a.
n.a.
5
9.7
13.4
2-1/2
3-1/4
3-3/4
Total reserves
18.4
2.6
3-1/2
3-1/4
3-1/4
Monetary base
16.6
4.7
5
7-1/2
7-3/4
710
191
242
1295
1135
948
Jan.
Feb.
M1
12.8
M2
Money and credit aggregates
Reserve measures
1
Nonborrowed reserves
Memo:
2
(Millions of dollars)
Adjustment plus seasonal
borrowing
Excess reserves
pe - preliminary estimate.
1. The March figures assume adjustment plus seasonal borrowing of $200
million and excess reserves of $850 million over the reserve period ending
April 9.
2. Includes "other extended credit" from the Federal Reserve.
3. Fourth quarter to February.
NOTES: Monthly reserve measures, including excess reserves and borrowing,
are calculated by prorating averages for two-week reserve maintenance
periods that overlap months. Reserve data incorporate adjustments for
discontinuities associated with changes in reserve requirements.
Treasury rates have continued to fluctuate in a narrow range, well below
the relatively high levels reached after the stock market collapse, though
prices of bank stocks fell following reports of those problems.
Broad
stock price indexes posted sizable gains through most of the period,
reaching their highest levels since last October.
They have retreated in
the last week, perhaps prompted by renewed concerns about the prospects for
interest rates and the dollar; however, substantial stock price declines in
the last two days were accompanied by decreases in Treasury bill and bond
rates, in a pattern similar to last October.
(3)
The dollar's weighted average exchange value against 10
major currencies declined by about 1-1/2 percent since the last Committee
meeting.
Although January trade figures were generally better than
expected, incoming economic data were interpreted as suggesting stronger
domestic demand, calling into question the prospects for reducing external
imbalances.
Sterling was particularly strong, pushing through Britain's
de facto target ceiling rate of 3.00 marks per pound, later prompting a
1/2 percentage point reduction in the Bank of England's official lending
rates.
Elsewhere, interest rate movements were fairly narrow.
dollar weakened at the end of the intermeeting period
As the
the Desk
bought dollars against yen, with Desk purchases amounting to
$148 million.
(4)
The broader monetary aggregates expanded rapidly again in
February and March.
Over the two months combined, M2 and M3 increased at 9
and 8-3/4 percent rates, respectively, leaving M2 a little above and M3 at
the upper bound of the Committee's 6 to 7 percent November-to-March growth
ranges.
On a quarterly average basis, both broad aggregates increased at a
6-3/4 percent rate in the first quarter, implying a small decline in
velocity (based on the Greenbook GNP projection)--the first since the last
quarter of 1986.
The strength in M2 and drop in its velocity reflected the
decrease in the opportunity costs of holding deposits in this aggregate
that has resulted from the fall in market interest rates on balance since
October.
Within M2, liquid retail components as a whole increased in the
first quarter following several months of declines, as rates on these
instruments fell more slowly than those on time deposits or market instruments; even so, flows into small time deposits remained quite rapid, owing
to their still large rate advantage.
Flows into money funds, both at the
M2 and M3 levels, continued strong in February, but in March shares of
institution-only money funds leveled out as their rates fell into closer
alignment with market rates.
February.
Issuance of large time deposits was brisk in
Bank credit growth picked up last month, while reliance on
funding from foreign offices was reduced; the supply of funds in Eurodollar markets may have contracted as foreign official institutions shifted
dollar investments to U.S. government securities.
In March, however,
issuance of large time deposits decelerated sharply, perhaps associated
with the weakness in credit at large banks that is suggested by data for
the first part of the month.
(5)
M1 slowed sharply in February, but growth is estimated to
have rebounded in March.
On balance over the two months, NOW accounts have
increased at a relatively robust pace, but demand deposits have declined
further.
Owing to the weakness in demand deposits, the velocity of M1
continued to increase in the first quarter, though at a slower pace than
over the second half of 1987.
With transactions accounts relatively
sluggish on balance and excess reserves declining, total reserves advanced
at only a 3 percent rate over February and March.
Relatively flat reserve
growth along with slowing expansion in currency led to a deceleration in
the monetary base over February and March, holding the rise from November
to March to 7-1/2 percent.
(6)
Expansion of nonfinancial debt picked up to a double-digit
pace in February and early indications are that growth has continued strong
in March.
Overall business borrowing has been sizable, in part reflecting
heightened merger and acquisition activity, and has been focused increasingly on longer-term markets in response to the decline in bond rates since
last fall.
Tax-exempt bond issuance also increased in the last two months,
spurred by a resumption of refinancings.
Bank data suggest that consumer
installment borrowing remained substantial in February and early March.
Treasury borrowing has strengthened in February and March, but sales to
foreign official institutions and state and local governments have enabled
it to hold down offerings to the general public.
Policy alternatives
(7)
Three short-run policy options are presented below.
Alter-
native B would retain the $200 million assumption for adjustment plus
seasonal borrowing now used in constructing paths for nonborrowed reserves,
with federal funds rates remaining generally in the 6-1/2 percent area,
once any quarter-end pressures were past.
Under alternative C, the
borrowing objective would be raised to $400 million and the funds rate
would move up to the vicinity of 7 percent.
Under alternative A, federal
funds would be expected to trade around the current 6 percent discount
rate; this could be accomplished by reducing the discount rate by 1/2 point
while keeping the $200 million borrowing objective, or by decreasing this
objective.
The staff estimates that borrowing on the order of $100 million
might represent the level associated with this alternative.
However, this
estimate is subject to considerable uncertainty as we have very limited
experience with operating at borrowing around frictional levels.
More-
over, at very low levels of borrowing, the funds rate might become quite
sensitive to relatively minor changes in borrowing behavior.
Such changes
could include the normal pattern of seasonal credit as well as other
influences.
(8)
The relationship between the funds rate-discount rate
spread and borrowing specified in alternatives B and C (and A with a
discount rate cut) corresponds to average experience over the period since
December.
Although depository institutions may be somewhat less reluctant
1. The only period in recent years in which the federal funds rate
fluctuated around or below the discount rate for some time was from late
1982 to the spring of 1983. The borrowing objective averaged $225 million through this period.
to be seen at the window than they were immediately after the stock market
crash, some concern seems to remain, and achieving a given spread appears
to require targeting about $100 million less borrowing than suggested by
the relationship from early 1986 through mid-October 1987.
The specifi-
cations of the policy alternatives also assume that the Texas bank situation and indications of other difficulties of depository institutions will
not alter overall borrowing behavior in the period ahead.
And they
abstract from any effects at low total borrowing levels of rising seasonal
borrowing expected over coming months.
The Committee may wish the Manager
to remain alert to any need for revisions to intended borrowing should the
relationship to money market conditions be affected by these potential
influences on discount window use.
The anticipated growth in the monetary aggregates from
(9)
March to June implied by these policy alternatives is shown in the table
below, together with the associated federal funds rate ranges.
(More
detailed data are shown on the table and charts on the next few pages.)
Alt. A
Alt. B
Alt. C
8
7
6
7
6-1/2
4-1/2
6
6
3
4 to 8
4 to 8
5 to 9
Growth from March
to June
M2
M3
M1
Associated federal
funds rate range
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
1988 January
February
March
2925.5
2946.8
2969.6
2925.5
2946.8
2969.6
2925.5
2946.8
2969.6
3687.3
3718.7
3741.6
3687.3
3718.7
3741.6
3687.3
3718.7
3741.6
758.9
759.6
763.7
758.9
759.6
763.7
758.9
759.6
763.7
April
May
June
2989.7
3010.1
3029.7
2988.7
3007.1
3022.3
2987.7
3004.1
3014.9
3761.8
3783.8
3806.5
3761.2
3781.9
3801.8
3760.6
3780.0
3797.1
767.9
770.8
775.4
767.5
769.6
772.5
767.1
768.4
769.6
9.7
8.7
9.3
9.7
8.7
9.3
9.7
8.7
9.3
8.2
10.2
7.4
8.2
10.2
7.4
8.2
10.2
7.4
12.8
1.1
6.5
12.8
1.1
6.5
12.8
1.1
6.5
8.1
8.2
7.8
7.7
7.4
6.1
7.3
6.6
4.3
6.5
7.0
7.2
6.3
6.6
6.3
6.1
6.2
5.4
6.6
4.5
7.2
6.0
3.3
4.5
5.3
2.0
1.9
Quarterly Ave. Growth Rates
2.7
1987 Q2
Q3
2.8
Q4
4.0
6.8
1988 Q1
8.5
Q2
2.7
2.8
4.0
6.8
8.0
2.7
2.8
4.0
6.8
7.5
4.6
4.5
5.5
6.7
7.3
4.6
4.5
5.5
6.7
7.1
4.6
4.5
5.5
6.7
6.8
6.6
0.8
4.0
3.9
5.6
6.6
0.8
4.0
3.9
4.8
6.6
0.8
4.0
3.9
4.0
Nov. 87 to Mar. 88
Feb. 88 to June 88
Mar. 88 to June 88
7.4
8.4
8.1
7.4
7.7
7.1
7.4
6.9
6.1
6.8
7.1
6.9
6.8
6.7
6.4
6.8
6.3
5.9
4.4
6.2
6.1
4.4
5.1
4.6
4.4
4.0
3.1
4.0
6.8
7.7
7.4
7.8
4.0
6.8
7.4
7.4
7.3
4.0
6.8
7.2
7.4
6.9
5.4
6.7
7.1
7.1
7.1
5.4
6.7
7.0
7.1
6.9
5.4
6.7
6.8
7.1
6.7
6.3
3.9
4.8
4.1
5.0
6.3
3.9
4.4
4.1
4.4
6.3
3.9
4.0
4.1
3.7
Monthly Growth Rates
1988 January
February
March
April
May
June
Q4
Q4
Q4
Q4
Q4
86
87
87
87
87
to
to
to
to
to
Q4 87
Q1 88
Q2 88
Mar. 88
June 88
Chart 1
ACTUAL AND TARGETED M2
Billions of dollars
3200
Actual Level
Estimated Level
--* Short Run Alternatives
-
3150
-1
3100
--
3050
-- 3000
2950
2900
--
I
O
I
N
1987
I
D
I
J
I
F
I
M
I
A
I
M
I
J
1988
I
J
I
A
I
S
I
O
I
N
2850
2800
D
Chart 2
ACTUAL AND TARGETED M3
Billions of dollars
4050
-Actual Level
- -Estimated Level
* Short Run Alteratives
4000
3950
3900
r
r
r
r
r
r'C
3850
,0
/*o
.ooso
sf
3800
c
/
"
S
#
oo
3750
3700
3650
3600
O
N
1987
D
J
F
M
A
M
J
1988
J
A
S
O
N
D
3550
Chart 3
M1
Billions of dollars
900
Actual Level
-- Estimated Level
-----Growth From Fourth Quarter
Short Run Altematives
-
880
t
f /0
0f
/
-1 860
15%
I
I
V
I
I
I
I
I
--
I
840
I
I
I
10%
I
V
V
-4 820
c
I
I
I
-- 800
I
I
V
I
I
VI
5%
I
Ir
I
II
II
-r
I
'
I I
-
-
-- 780
*
----
--
I
/
I~ I
.-
I /
Sc
-"
I
,*V
.--
- -'
-- 760
0%
740
I
O
I
N
1987
I
D
I
J
I
F
I
M
I
A
I
M
I
J
1988
I
J
I
A
I
I
S
O
N
720
D
Chart 4
DEBT
Billions of dollars
9400
-
Actual Level
-1
9300
9200
11%
-
9100
-
9000
8900
7%
8800
8700
-8600
-8500
8400
-
8300
8200
--
I
O
I
N
1987
I
D
I
J
I
F
I
M
I
A
I
M
I
J
1988
I
J
I
I
A
S
I
O
I
N
8100
8000
D
(10)
With recent conditions in the reserves market maintained
under alternative B, interest rates would tend to remain around current
levels, at least for a time.
But given the staff economic forecast, which
implies a flow of data that would not allay market concerns about
potentially inflationary pressures on resources, the market might well
remain edgy.
In addition, if signs of further expansion in domestic demand
were combined with trade data suggesting sluggish adjustment of U.S.
external imbalances, the dollar could come under further downward pressure
which, in this context, would be likely to contribute to some increases in
U.S. interest rates.
(11)
Given the financial conditions associated with alternative
B, M2 and M3 are expected to grow at 7 and 6-1/2 percent annual rates,
respectively, from March to June, leaving them well into the upper halves
of their 4 to 8 percent annual ranges.
Although the broader aggregates
would be expected to slow somewhat from the pace of the last three months,
growth would still exceed the projected expansion of nominal income.
2
An
important impetus to growth of M2 will continue to be the reduced opportunity cost of holding retail interest-bearing accounts.
To be sure,
opportunity costs are likely to widen a little once again in coming months
as returns on retail balances edge off further in lagged response to the
2. On a quarterly average basis the growth rates of M2 and M3 would
increase somewhat in the second quarter; this pattern primarily reflects
the damping effects on the first quarter growth of the weakness in money
growth late in 1987. The velocities of M2 and M3 would be expected to
decline in the second quarter by 2-1/2 and 1-1/2 percentage points,
respectively, somewhat more than seems in train in the first quarter.
-10-
previous decline in market rates.
Nevertheless, the expected second-quar-
ter spread between market rates and the average return on retail balances
in M2 still would represent a very substantial reduction from its peak in
the third quarter of last year.
Inflows to these accounts might be sup-
ported by other influences as well:
the personal saving rate is projected
to remain high relative to last year, and additions to IRAs should be
considerably smaller than in recent years in response to tightened taxreform restrictions.
(12)
M3 growth in the spring and early summer will be damped by
weaker inflows to money market mutual funds as their rate advantage over
short-term market instruments narrows further.
Depositories are expected
to maintain the recent pace of issuance of managed liabilities to fund
credit expansion in the face of a moderation in core deposit growth.
Bank
credit growth is projected to be supported by some strengthening in
business loans, reflecting a projected widening financing gap and continued
rapid share retirements.
However, consumer lending at banks is likely to
weaken a little, as the rise in consumer spending moderates.
borrowing should remain at around the first-quarter pace.
Mortgage
For thrifts,
asset growth at around the moderate pace of recent months would continue to
be bolstered by demand for ARMS, which are retained in their own portfolios
to a greater extent than are fixed-rate mortgages.
Overall, however, the
debt of domestic nonfinancial sectors is projected to slow to around an
8 percent rate over the second quarter, leaving this aggregate just above
the midpoint of its 7 to 11 percent annual range.
The deceleration results
entirely from a marked slowdown in federal borrowing, as the Treasury trims
-11-
its auctions to moderate the surge in its cash balance associated with
higher-than-usual spring tax payments.
(13)
M1 growth in April might be boosted by a buildup in trans-
action balances associated with tax payments, which are projected to exceed
the typical volume reflected in the transactions account seasonals, though
not matching last year's exceptional surge.
abated by early May.
3
Any such effect will have
On a March-to-June basis, M1 is expected to increase
at a rate of about 4-1/2 percent under alternative B.
Demand deposits are
anticipated to strengthen only a little on balance over the next three
months, after the somewhat inexplicable weakness through the first quarter.
NOW account growth, while moderating from recent rapid rates, would remain
above the pace of the second half of 1987.
M1 velocity would continue to
increase, but at a slower rate than in the first quarter.
(14)
The more restrictive monetary posture of alternative C, at
least at this time, would come as some surprise to financial markets.
With
the funds rate averaging around 7 percent, the 3-month Treasury bill rate
could move into an area around 6-1/4 percent.
Rate spreads between bank
and thrift paper and Treasury bills could widen, if concerns about their
asset quality and earnings prospects intensify, which might be more likely,
given the already troubled status of many depository institutions.
A good
portion of the increases in short-term rates might show through in longerterm rates.
But, an upward movement in U.S. interest rates, especially if
viewed as reflecting Federal Reserve resolve to avoid inflation and faster
external adjustment by containing domestic demand, would help to support
3. A special adjustment was made to prevent last year's tax payments
from distorting demand deposit seasonal factors.
-12-
the dollar in the near term, and over time the net increase in bond yields
could be limited.
(15)
The broader monetary aggregates under alternative C would
post a more marked slowing over the course of the quarter than under the
other alternatives, as the effects of the rebound in market interest rates
increasingly took hold.
Both aggregates would end the quarter a bit
closer to, though still above, the midpoints of their longer-run ranges.
The attractiveness of transactions and other liquid accounts would be
lessened further, as their rates lag in typical fashion behind market
yields.
M1 probably would be growing very sluggishly by June, leaving its
growth from the fourth quarter to June a bit below its current 4 percent
rate through March.
(16)
Under alternative A, the easing of reserve market condi-
tions would ripple through other financial markets.
The 3-month Treasury
bill would drop to below 5-1/2 percent, but declines in longer-term rates
might be small.
Absent a weaker economic picture than contemplated under
the staff forecast, market participants may not expect such a policy easing
to be sustained for long.
The dollar could come under substantial downward
pressures, particularly if concerns about inflation and external adjustment
increased.
(17)
With the lower short-term market interest rates of alter-
native A, M2 growth would not be expected to moderate much over the next
three months.
Expansion of this aggregate, at an 8 percent rate from March
to June, would leave M2 only a little below the upper end of its annual
target cone.
Opportunity costs of holding retail deposits within M2 would
-13-
continue the declines begun last fall.
Inflows into small time deposits
might abate as their rates completed their downward adjustment, but growth
of NOWs, savings deposits and MMDAs could pick up noticeably.
With some
boost to required compensating demand balances of businesses also coming
from lower market rates, M1 might well grow at a 6 percent annual rate from
March to June.
M3 would be strengthened somewhat less than the other
aggregates over the three months, as lower market interest rates shift some
credit demands to nonbank sources in light of lagging bank lending rates,
but this aggregate would still record a 7 percent increase from March to
June.
-14-
Directive language
(18)
Draft language for the operational paragraph, including
the usual options and updating, is shown below.
The second sentence
calling for continued flexibility in operations is shown in brackets.
The
decision on whether to retain this or a similar sentence might depend on
an assessment of the state of financial markets as well as the Committee's
discussion of operating procedures.
OPERATIONAL PARAGRAPH
In the implementation of policy for the immediate
future, the Committee seeks to DECREASE SOMEWHAT (Alt. A)/
maintain (Alt. B)/INCREASE SOMEWHAT (Alt. C) the{DEL:
slightly
reduced]degree of pressure on reserve positions {DEL:
sought-in
recent-days]. [The Committee agrees that the current more
normal approach to open market operations remains
appropriate; still sensitive conditions in financial
markets and uncertainties in the economic outlook may
continue to call for some flexibility in operations.]
Taking account of conditions in financial markets, somewhat
(SLIGHTLY) lesser reserve restraint WOULD
(MIGHT), or
somewhat (SLIGHTLY) greater reserve restraint would (MIGHT)
be acceptable depending on the strength of the business
expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior
-15-
of the monetary aggregates.
The contemplated reserve
conditions are expected to be consistent with growth in
November-through]March
[DEL:
both] M2 and M3 over the period from[DEL:
THROUGH JUNE at annual rates of about ____ PERCENT AND ____ [DEL: 6
to-7] percent, RESPECTIVELY.
The Chairman may call for
Committee consultation if it appears to the Manager for
Domestic Operations that reserve conditions during the
period before the next meeting are likely to be associated
with a federal funds rate persistently outside a range of
4-to-8 percent].
____ TO ____[DEL:
March 28, 1988
SELECTED INTEREST RATES
Spercent
MIt~-foU.
-U.S.
Gov't. constant----maturity yields--
-
-Treasury bills---secondary
markt--federal
funds
87--High
3
month
6
month
12
month
cds
sec ekt
3-month
comi.
paper
1-month
money
market
mutual
fund
bank
prime
loan
3-year
Lfln-Tlr-
-----
10-year
30-year
corp. A
utility
rec off
muni.
Bond
Buyer
conventional ho
rtgages---
sec mkt
primary
fixedrate
fixedrate
market
ARM
7.6Z
5.95
6.84
5.24
7.36
5.36
7.64
5.40
8.49
5.83
8.12
5.88
6.70
5.28
9.25
7.50
9.29
6.37
9.96
7.05
9.97
7.54
11.50
8.79
9.59
6.92
11.9
.97
1.58
9.03
8.45
7.47
7.02
6.38
5.88
5.61
6.35
5.81
6.67
6.15
7.05
6.58
6.88
6.50
6.79
6.04
8.75
8.50
8.06
7.33
8.91
8.16
9.07
8.40
10.30
9.63
8.31
7.76
10.68
9.98
10.53
9.84
7.88
7.49
6.15
6.37
6.85
6.73
6.58
6.73
7.22
7.29
6.69
6.77
6.83
6.58
5.59
5.64
5.66
5.67
5.69
6.04
6.40
6.13
5.69
5.77
5.81
5.66
5.60
5.90
6.05
5.99
5.76
6.15
6.64
6.69
6.19
$.36
6.25
5.93
5.68
6.09
6.52
6.35
6.24
6.54
7.11
7.05
6.50
6.69
6,52
6.21
6.17
6.52
6.99
6.94
6.70
6.75
7.37
8.02
7.24
7.66
6.92
6.60
6.22
6.39
6.83
6.86
6.57
6.62
7.26
7.38
6.77
7.76
6.76
6.55
5.32
5.49
7.50
7.75
8.14
8.25
8.25
8.25
8.70
9.07
8.78
8.75
8.75
8.51
6.58
7.32
8.02
7.82
7.74
8.03
8.67
8.75
7.99
8.13
7.87
7.38
7.25
8.02
8.61
8.40
8.45
8.76
9.42
9.52
8.86
6.99
8.67
8.21
7.55
8.25
8.78
8.57
8.64
9.59
9.61
6.95
9.12
8.83
8.43
8.84
9.51
10.05
10.05
10.17
10.37
10.84
11.07
10.39
10.42
10.05
9.75
7.03
7.87
8.35
8.13
8.09
8.11
8.61
9.06
8.39
8.43
8.11
7.63
9.01
10.05
10.58
10.38
10.20
10.39
11.01
11.42
10.73
1Q.82
10.43
10.02
9.04
9.83
10.60
10.54
10.28
10.33
10.89
11.26
10.65
10.65
10.43
9.89
7.54
7.58
7.88
7.93
7.81
7.76
7.95
8.25
8.00
7.96
7.85
7.61
9 87
16 87
23 87
30 87
6.89
6.84
6.58
6.75
6.81
5.47
5.66
5.90
5.68
6.17
6.31
6.45
6.44
6.32
6.58
6.64
6.76
6.72
6.68
7.60
7.64
7.92
7.67
6.42
6.46
6.53
7.50
7.03
7.62
8.12
7.97
7.67
8.75
8.75
8.75
8.75
8.75
8.10
6.09
8.25
8.11
8.09
9.03
9.02
9.17
8.92
8.85
9.15
9.18
9.33
9.02
8.94
10.42
10.70
10.41
10.21
10.25
8.40
8.57
8.47
8.40
8.29
10.73
10.98
10.83
10.73
10.66
10.60
10.66
10.69
10.64
10.61
7.95
7.91
7.99
7.98
7.95
JAN 6 88
JAN 13 88
JAN 20 88
JAN 27 88
7.02
6.81
6.89
6.66
6.64
6.67
6.56
6.38
7.05
7.02
6.92
6.83
6.88
6.83
6.77
6.70
6.79
6.57
6.48
6.38
8.75
8.02
8.81
8.94
10.30
8.75
8.06
8.91
9.07
9.99
8.75
7.68
8.68
8.85
9.92
5.87
i.29
6.35
6.28
6.17
8.75
7.73
8.48
8.65
9.76
8.28
8.31
8.00
7.84
10.68
10.43
10.28
10.08
10.50
10.53
10.34
10.16
7.87
7.88
7.82
7.74
3 88
10 88
17 88
24 88
6.77
6.38
6.65
6.64
5.68
5.63
5.72
5.66
6.07
5.93
5.99
5.88
6.25
6.15
6.26
6.21
6.66
6.58
6.58
6.62
6.62
6.50
6.55
6.55
6.33
6.22
6.14
6.16
8.68
8.50
8.50
8.50
7.47
7.35
7.40
7.37
8.25
8.16
8.27
8.23
8.41
8.40
8.49
8.46
9.63
9.81
9.82
9.75
7.84
7.76
7.90
7.83
10.00
10.05
10.06
9.98
9.94
9.84
9.92
9.87
7.64
7.61
7.59
7.59
HAR 2 88
MAR 9 88
MAR 16 88
6.60
6.51
6.61
6.51
5.61
5.70
5.68
5.72
5.81
5.90
5.82
6.19
6.26
6.25
6.58
6.61
6.62
6.54
6.53
6.56
6.10
6.04
6.05
6,88
6.28
6.62
6.56
6.03
8.50
8.50
8.60
8.50
7.33
7.42
7.44
7.52
8.17
8.27
8.32
8.42
8.41
8.52
8.58
8.70
9.78
9.83
9.98
10.01
7.80
8.02
8.09
8.27
10.08
10.11
10.06
10.22
9.85
9.96
9.92
9.99
7.53
7.53
7.49
7.52
6.45
6.66
5.66
5.79
5.70
5.83
6.24
6.59
6.04
5.99
6.40
6.34
6.67
6.64
6.54
6.58
6.61
8.50
8.50
8.50
7.46
7.66
7.61p
8.41
8.51
8.47p
8.69
8.77
8.72p
Laow
8--High
Loa
Monthly
MAR 87
APR 87
MAY 87
JUN 87
JUL 87
AUG 87
SEP 87
OCT 87
NOV 87
DEC 87
JAN 88
FEB 88
5.79
6.01
6.02
6.00
6.22
6.57
6.45
6.57
6.57
6.22
8.97
Hoek'.y
Meekly
DEC 2 87
DEC
DEC
DEC
DEC
FEB
FEb
FEB
FEb
MAR 23 88
Daily
MAR 18 88
MAR 24 88
MAR 25 88
6.60p
6.61
6.69
5.e
NOTE: Meekly data for columns 1 through 11 are sttement week averages. Data in column 7 are taken from Donoghue's Honey Fund Report. Columns 12, 13 and 14
are 1 day quotes for Friday, Thursday or Friday, respectively, following the end of the statement wak. Column 13 is the Bond Buyer revenue index. Column 14
is th. FNHA purchase yield, plus loan servicing fee on 30-day mandatory delivery comitments. Colum 15 is the average contract rate on new commitments for
contract rate on nm
fixed-rate mortgagesi FRHsI with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial
commitments for 1-year, adjustable-rate mortgages(ARs) at S&Ls offering both FRHs and ARHs with the ame number of discount points.
Strictly Confidential (FR)Class IIFOMC
Money and Credit Aggregate Measures
Seasonaly adjusted
Period
M1
1
PEICRIT
AI8UALLI
1985
1986
1907
M2
Money stock measures and liquid assets
nontransactions
components
2
In M2
In M3 only
3
4
MAR.
Bank credit
total
loans
and
L
M3
28,
1988
Domestic nonfinancial debt2
US.
total
other
government
Investments1
0
7
5
9
10
IANUAL GROWTH:
(Uil TO 011)
12.0
15.6
6.3
8.9
9.4
4.0
7.9
7.4
J.J
3.4
8.2
10.8
7.7
9.2
5.4
8.5
8.3
5.2
10.2
9.7
1.9
15.2
1i.7
8.9
12.7
12.8
0.1
13.3
13.3
9.8
QUARTERLI AVIIAGE
1ST QUT. 1981
21D UT.
.1987
JRD UT.
1987
6TH UT8. 1987
13.2
6.6
0.8
1.O
6.5
2.7
2.8
4.2
1.J
J.S
4.0
6.7
12.7
10.9
11.1
6.5
4.6
6.2
4.1
4.5
4.2
5.5
6.0
10.
8.2
6.2
5.8
12.2
8.7
5.9
7.5
10.*
9.0
9.0
10.6
10.8
8.9
8.2
9.8
molaltl
1987--f b.
HAIL
AP8.
nAi
JUsI
JUL
AUG.
SEPT.
OCT.
NOT.
DEC.
-0.2
1.8
17.2
2.9
-7.1
2.
.7
1.6
14.0
-5.6
-2.9
0.6
2.1
5.5
0.7
1.1
.7
0.9
1.2
1.5
0.0
3.9
J.6
6.1
12.0
1.0
6.3
4.8
6.0
1.0
1.8
4.8
5.9
J.
3.4
3.6
2.6
2.6
5.7
5.0
5.9
2.
2.3
5.7
5.0
7.*
5.0
1.4
3.5
-0.5
e.8
11.9
5.7
6.5
22.4
24.8
7
9.6
6.0
12.6
20.2
-O.J
9.7
8.6
7.0
2.6
-1.0
9.4
11.2
7.6
8.2
7.6
1.8
8.8
6.5
3.9
12.6
8.0
5.4
6.1
10.4
10.9
9.6
8.1
7.8
10.J
11.5
11.3
8.9
6.4
7.3
9.7
10.2
9.1
6.6
8.1
9.4
9.7
11.6
8.7
12.8
1.1
9.7
8.7
8.5
:1.4
2.4
15.9
8.2
10.2
11.5
5.9
8.4
5.2
11.3
8.9
10.4
8.0
10.6
747.5
756.2
752.7
750.9
758.9
759.6
2880.9
2895.4
2897.7
2902.1
2925.5
2946.8
2133.
2138.9
2144.9
2151.3
2166.6
2181.2
760.1
747.9
760.5
760.3
761.8
771.9
3620.9
3643.1
3658.2
3662.
3687.3
3718.
4282.0
4311.7
4324.9
4330.6
4372.2
2214.7
2227.6
2232.
2230.6
2242.0
2 257.7
191J.
1919.3
1939.5
1952.4
1960.8
1979.2
6201.4
6260.6
6319.6
6366.7
6413.8
6469.4
15
22
29
764.1
761.1
759.9
762.1
754.9
2941.$
2940.4
2946.6
2953.2
2947.5
2177.2
2179.2
2186.8
2191.1
2192.5
765.9
769.2
714.5
770.8
774.1
3707.2
3709.6
3721.1
3724.0
3721.6
7 P
14 P
755.8
760.5
2954.J
2965.5
2198.5
2205.1
771.1
774.8
3725.5
3740.3
1988--JAM.
IEB.
OUTNULI LEVELS
1987--SEPT.
OUT.
NOV.
DEC.
1988--JA .
rFEL
HBa.
1/
2/
2.
4.4
8.1
6.7
0
025
5.9
7.0
8.3
3.7
1.6
(SBtLLIOrS)
8EELI LEVELS (SBILLIOIS)
1986-rEB.
1
8
4.0
8114.5
8179.9
8259.0
8319.1
8374.6
8848.6
rDIC
AIIUAL IATES FOR BANK CBEDIT ARE ADJUSTED FOR A TRANSrBR Or LOANS FRON CONTIEINTAL ILLIIOIS NATIONAL BANK TO TIH
BjIGINIING SBPTIInBE 26, 1984.
LEVELS OF ADJACENT MONTHS, AND HAVE BEEN ADJUSTED
DEBT DATA ARK ON A 8ONTHL AVERAGE BA'1S, DERIVED BY AVERAGING END-OP-FOINT
TO BEnotE DISCONTINUITIKS.
P-PBELIIIARI
PB-PRELIHINAMI ESTIMATE
Components of Money Stock and Related Measures
Billions of dollars, seasonally adjusted unless otherwise noted
-.
bmall
denoml-
Ovenight
Other
Demand checkable RPs and
deposits deposits Eurodollan
Currency
Period
MAR.
~-
I
MMDAe
NSA
I Savings
deposits
NSA
-
I
-
ANWUALL 1T(8T
-
-
I
-
-
---
-
I
I
nation
lime
deposits
-
-
868.1
817.0
211.5
212.5
85.1
85.4
463.1
445.6
865.9
852.1
212.1
209.9
210.6
83.5
82.1
81.7
468.9
454.0
458.6
210.6
213.1
216.3
83.6
84.0
81.3
460.2
883.3
901.7
913.1
218.8
220.9
924.7
942.5
299.9
362.2
115.
877.1
858.9
1987-F88.
MAR.
183.6
1864.
295.9
295.0
215.1
248.0
80.1
76.9
572.0
571.8
389.7
J96.3
105.6
187.0
187.8
299.3
298.9
293.3
253.1
253.9
254.3
76.9
76.2
76.9
566.8
558.6
555.1
404. 1
409.5
189.0
190.2
191.4
292.3
292.1
290.5
255.6
257.2
268.6
75.7
79.7
83.4
549.4
565.0
415.5
117.8
193.1
195.0
196.5
295.9
291.3
288.0
260.3
259.5
259.3
85.9
79.6
77.9
533.9
527.7
525.2
417.0
198.4
199.6
289.9
287.8
263.4
265.1
82.0
76.6
524.0
522.6
414.3
1988-J11N.
FEB.
1/
2/
3/
I
MMM
899.
509.9
569.2
528.9
OBC.
- 10
-
433.9
67.2
78.0
81.1
OCT.
28, 1988
Short.
term
CommerIeasury clal paper
securilles
Savings
bonds
depo' 1
6.1
8«.7
87.2
176.8
228.6
259.7
AUG.
SEPT.
Term
Eurodollr
NSA
1
116.8
207.6
220.6
263.5
294.6
291.7
JULY
Large
denomlnation
time
11
I
I
12
1
I
13
1
t
14
Banker
acceptances
is
15
QT):
166.9
179.3
194.9
MAT
JUne
I
I
1985
1986
1987
APR.
Money market
mutual funds. NSA
Instilugeneral
lions
purpose,
end brokert
only
dealer 2
50.5
413.1
418.6
1115.0
«14. J
616.2
859.1
865.9
872.1
77.6
81.7
92.7
78.9
89.7
99.6
292.3
28.10
268.1
201.6
228.5
255.2
13.2
37.8
05.1
88.8
88.7
93. 3
94.2
280.1
267.8
239.0
239.9
38.9
95.1
95.9
96.6
257.6
261.6
101.1
03.9
87.0
89.7
246.3
253.7
252.0
00.9
42.1
43.1
85.7
90.6
946.
97,5
98.1
98.4
254.7
251.8
251.8
256.6
r3.4
465.3
107.0
107.5
109.2
472.3
180.5
106.2
108.7
222.2
82.5
89.5
89.6
226.2
232.2
98.7
408.5
461.5
479.2
462.
484.7
162.7
62.7
82.2
106.8
87.2
87.2
102.5
105. 4
93.3
91.3
105.6
108.9
85.3
84.6
259.7
257.9
261.8
39.6
63.5
*-.3
98.8
99.3
100.2
271.1
251.2
252.5
258.9
*4.S
269.9
263.4
101.4
270.9
269.0
43.5
45.0
*5.7
IICLUDIS BSTAIL RIPORCHAS8 AIGBKBERTS. ALL IRA AiD KEOGB ACCOUNTS AT COMHERCIL BINKS AND THRIFT INSTITUTIONS A11 SUBTRACTED
FROM SMALL TIHE DEPOSITS.
BECL&DBS IRA AID KBOGNH ACCOUNTS.
IET OF LARGE DEIOMIIATION T1RE DEPOSITS HELD Bt1
1ON1 MARKET MUTUAL FUNDS AND THRIFT INSTITUTIONS.
P-PR ELNIMARt
STRICTLY CONFIDENTIAL (FR)
CLASS II FOMC
Net Changes In System Holdings of Securities'
March 28,
1988
Millions of dollars, not seasonally adjusted
Treasury bills
Period
1982
1983
1984
1985
1986
1987
Net
purchases
8,698
15,468
11,479
18,096
20,099
12,933
1986--Q3
Q4
4,668
9,668
1987--Q1
Q2
Q3
04
-1,914
5,823
4,690
4,334
Ntchange
3,C 100
2,4 100
7,7 700
3,5 00
1,0 100
9,0 129
5,698
13,068
3,779
14,596
19,099
3,905
312
484
826
1,349
190
3,358
1,797
1,896
1,938
2,185
893
9,779
388
890
236
358
236
2,441
307
383
441
293
158
1,858
4,668
9,668
190
893
236
158
-2,714
5,823
-3,539
4,334
1,767
143
1,449
-252
5,036
2,356
2,639
1,226
619
596
871
795
3,388
150
143
300
670
479
2,551
619
-8100
8,2 i29
--
4,528
795
3,388
150
3,657
1988--Jan.
Feb.
-49
-192
600
1,600
Feb.
Mar.
Memo:
6
13
20
27
600
3
10
17
24
-330
-157
-100
10
2
9
16
23
336
Net purchases3
Redemptions (-)
1987--Sept.
Oct.
Nov.
Dec.
1988--Jan.
Treasury coupons
1,000
600
within
1_
-year50
-
-649
-1,792
Federal
Redemptions (-)
Net change
agencies
redemptions
Net change
outright
holdings
total
or
2,803
3,566
3,440
4,185
1,476
17,366
70
8,312
16,342
6,964
18,619
20,178
20,994
1,461
-5,445
1,450
3,001
10,033
-11,033
-1,476
4,577
10,927
4,044
9,925
-252
-8,948
-3,610
5,059
-3,076
14,735
12
9,323
-14,254
2,121
-1,433
2,533
4,676
1,039
4,038
4,246
26
7,493
-3,331
-1,629
-780
-2,788
-4,807
1,247
-3,805
--
50
2,589
--
800
300
650
70
596
-4,109
-975
-175
-
-2,320
-2,527
-
2,451
-731
-600
-350
-450
-330
-1,157
-700
10
-701
-1,782
-700
10
-350
-625
-175
-290
-4,565
-6,495
10,863
-2,643
309
336
336
-
42
LEVEL (bil.$)
Mar. 23
42
-3
42
110.1
23.0
Net RPs5
47.6
1. Change from end-of-period to end-of-period.
2. Outright transactions in market and with foreign accounts.
3. Outright transactions in market and with foreign accounts, and short-term notes acquired in
exhange for maturing bills. Excludes maturity shifts and rollovers of maturing coupon issues.
14.2
25.5
-1,963
2,055
-100
227.7
110.2
4. Reflects net change and redemptions (-) of Treasury and agency securities.
5. Includes changes in RPs (+), matched sale-purchase transactions (-), and matched purchase
sale transactions (+).
w i th in
6. The levels of agency issues were as follows:
1
5-10
over10
total
2
3
1-year2
.
2.6
3.4
1.2
.2
7.4
@FedFRASER