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March 27, Strictly Confidential (FR) 1987 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 27, 1987 CLASS I - FOMC MONETARY POLICY ALTERNATIVES Recent Developments (1) Growth of the monetary aggregates has slowed sharply in the last two months. Preliminary data indicate that over the January-March period M2 and M3 increased at 1 and 2-1/4 percent annual rates, respectively, well below their 6 to 7 percent short-run paths. As a result, both aggregates in March are around the lower bounds of their annual growth ranges for 1987. The velocities of the broader aggregates are estimated to have fallen only a shade in the first quarter, based on the greenbook GNP forecast, following decreases of about 4 percent in 1986. annual rate over the latest two months. M1 expanded at only a 2-1/2 percent However, owing to the bulge at year-end, M1 growth on a quarterly average basis came to 13-1/4 percent in the first quarter, implying a further substantial drop in velocity--perhaps 7 percent at an annual rate compared with its 9-1/2 percent decline last year. (2) Slow growth in the aggregates over the last two months has been broadly based. Some of the deceleration appears to be related to a reversal of the bulge in deposits and bank lending associated with the surge in transactions before year-end; also, some of the moderation in deposit growth relative to last year likely reflects the completion of portfolio adjustments to the decline in rates through last summer. However, reasons for the extent of the recent weakness against a backdrop of moderate increases in spending and income are not entirely clear. Weakness in demand deposits, which have been essentially flat since mid-January, may be related in part to a falloff in the pace of mortgage prepayments. Other checkable deposits -2- KEY MONETARY AGGREGATES (Seasonally adjusted annual rates of growth) January to MarchP QIV'86 to MarchP January February MarchP M1 11.7 -. 7 5.7 2.5 10.9 M2 9.5 -. 3 2.6 1.1 5.3 M3 9.1 1.3 3.0 2.2 5.6 Domestic nonfinancial debt 13.4 8.6 n.a. n.a. 12.22 Bank credit 18.4 2.0 n.a. n.a. 11.72 Nonborrowed reserves1 25.5 -1.5 -2.1 -1.8 14.4 Total reserves 21.6 -3.3 -2.7 -3.0 13.4 Monetary base 15.9 7.1 6.6 6.9 11.0 355 273 232 3 - 1068 1209 9003 Money and credit aggregates Reserve measures Memo: (Millions of dollars) Adjustment and seasonal borrowing Excess reserves p--preliminary. n.a.--not available. 1. Includes "other extended credit" from the Federal Reserve. 2. QIV'86 through February. 3. Through maintenance period ended March 25. NOTE: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. Data incorporate adjustments for discontinuities associated with implementation of the Monetary Control Act and other regulatory changes to reserve requirements. -3- have been expanding at a sharply reduced pace as well since January, without a compensating pickup in other retail deposits. With short-term rates some- what above their levels of last fall and stock prices soaring while rates on some retail deposits continue to edge down, savers may be finding alternative investment outlets more attractive. Shifts into such instruments are sug- gested by recent increases in noncompetitive tenders for Treasury bills, which had been declining since last March, and some pickup in flows to bond and stock mutual funds in January and February. In light of the less favorable treatment of consumer interest expenses under tax reform, some households also may be drawing down M2 assets to repay consumer credit or to substitute for borrowing to finance large outlays, including contributions to IRAs before the tax date. (3) With bank credit growth weak in February and March following the run-up over year-end, issuance by banks of CDs and other managed liabilities in M3 also has moderated in recent months. Declines in overnight RPs and Eurodollars contributed to the weakness in M2, but were offset in their effects on M3 by increases in their term counterparts. At thrifts, CDs continued to drop fairly rapidly, likely reflecting slow asset growth as well as continued reliance on Federal Home Loan Bank advances. (4) Debt expansion by domestic nonfinancial sectors has slowed noticeably since January, bringing the growth of this aggregate from its fourth-quarter base to a little above the upper end of its long-run range. Business borrowing has fallen off as equity retirements have remained below their year-end pace and sales of new equity picked up in lagged response to rising share prices. Encouraged by relatively low long-term rates, busi- ness borrowing has been concentrated in bond markets, and short-term credit -4- contracted in February and likely in March as well. Overall household borrowing seems to have moderated somewhat in early 1987, but remains relatively robust; strength in mortgages relative to consumer credit appears to reflect underlying spending patterns as well as a substitution from consumer credit to mortgage borrowing under home equity lines. The growth in Treasury debt has been cut back substantially early this year, including a large paydown of Treasury bills; the Treasury has met a substantial portion of its needs by drawing on its sizable year-end cash balance. (5) Total and nonborrowed reserves fell slightly over February and March, as required reserves leveled off following the year-end bulge in transactions deposits and excess reserves edged lower in line with their usual seasonal pattern. In the three complete reserve maintenance periods since the February FOMC meeting adjustment plus seasonal borrowing has averaged $280 million, close to the $300 million level assumed in the reserve paths. The federal funds rate associated with borrowing around this level edged off from nearly 6-1/4 percent at the last Committee meeting to around 6 percent or a bit higher following clarification at the Humphrey-Hawkins testimony that the System had not altered its basic stance toward reserve provision. (6) Other interest rates were little changed on balance since the February FOMC meeting in exceptionally quiet trading. In addition to reduced concerns about a monetary tightening, incoming data were seen as presenting a mixed picture for the economy, although concerns about the dollar have tended to limit the scope for any decline in rates. On balance, private short-term rates are generally unchanged, while Treasury bill rates have declined about 15 to 20 basis points. This differential behavior may have reflected some -5- heightened concerns about credit quality related in part to Brazil's suspension of debt servicing as well as the paydown of bills by the Treasury. In contrast-to the quiet debt markets, equity prices rose 8 percent over the period, bringing their gains since year-end to around 25 percent. (7) The dollar traded in a narrow range through most of the inter- meeting period, with its stability reinforced by the perception that at their meeting in Paris on February 21-22 major industrial countries agreed to support the prevailing structure of exchange rates. However, in recent days the dollar has come under substantial selling pressure against the yen, apparently triggered by renewed trade frictions between the United States and Japan and by official statements that raised some questions about the U.S. ccmmitment to the Paris agreement. As the dollar dropped below the 150 yen/ dollar level, the United States by purchasing nearly $1-1/2 billion against yen, of which roughly half was done for Federal Reserve account; . Nonetheless, the dollar has fallen about 4-1/4 percent against the yen since the last FOMC meeting. Throughout the intermeeting period sterling has been strengthening appreciably against the dollar and other currencies on brighter fiscal news and improved electoral prospects for the Thatcher government. -6- Policy alternatives (8) The table below gives three alternative specifications for growth in the monetary aggregates from March to June, along with associated federal funds rate ranges. (More detailed data, including growth rates im- plied by each alternative from the fourth quarter to June, can be found in the table and charts on the following pages.) Expansion in the monetary aggregates under all three alternatives is expected to pick up from the sluggish pace of February and March; even so, growth is projected to be relatively moderate, and by June the broader aggregates would still be well below the midpoints of their ranges under alternatives A and B and at or a bit below the lower bounds under alternative C. Alt. A Alt. B Alt. C M2 7 6 M3 6-1/2 6 5-1/2 Ml 10-1/2 9 7-1/2 3 to 7 4 to 8 5 to 9 Growth from March to June Associated federal funds rate range (9) 5 Alternative B assumes maintenance of the current degree of pressure on reserve positions, with reserve paths allowing for $300 million of borrowing at the discount window. Federal funds would be expected to trade around 6 percent or a touch above. The Treasury bill rate is expected to remain around current levels or perhaps move lower in response to a further reduction in supply; although the Treasury is likely to sell cash management bills in coming days, they would mature shortly after the April tax date, and net redemptions of bills at regular weekly auctions are expected 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 1987-January February March 2822.0 2821.3 2827.3 2822.0 2821.3 2827.3 2822.0 2821.3 2827.3 3515.8 3519.5 3528.4 3515.8 3519.5 3528.4 3515.8 3519.5 3528.4 737.6 737.2 740.7 737.6 737.2 740.7 737.6 737.2 740.7 April May June 2841.9 2858.0 2876.6 2841.0 2855.0 2869.6 2840.1 2852.0 2862.6 3546.6 3565.2 3585.2 3545.7 3562.8 3580.8 3544.9 3560.6 3576.4 747.3 753.5 760.3 746.9 752.4 757.6 746.5 751.3 754.8 Monthly Growth Rates 1987-January February March 9.5 -0.3 2.6 9.5 -0.3 2.6 9.5 -0.3 2.6 9.1 1.3 3.0 9.1 1.3 3.0 9.1 1.3 3.0 11.7 -0.7 5.7 11.7 -0.7 5.7 11.7 -0.7 5.7 April May June 6.2 6.8 7.8 5.8 5.9 6.1 5.4 5.0 4.5 6.2 6.3 6.7 5.9 5.8 6.1 5.6 5.3 5.3 10.7 10.0 10.8 10.0 8.8 8.3 9.4 7.7 5.6 9.4 10.6 9.2 6.5 4.5 9.4 10.6 9.2 6.5 4.0 8.7 9.6 8.0 6.7 5.1 8.7 9.6 8.0 6.7 4.8 8.7 9.6 8.0 6.7 4.5 15.5 16.5 17.0 13.3 8.2 15.5 16.5 17.0 13.3 7.5 15.5 16.5 17.0 13.3 6.7 1.1 7.0 1.1 6.0 1.1 5.0 2.2 6.4 2.2 5.9 2.2 5.4 2.5 10.6 2.5 9.1 2.5 7.6 8.9 5.8 5.3 6.0 8.9 5.5 5.3 5.6 8.9 5.3 5.3 5.2 8.8 5.9 5.6 6.0 8.8 5.8 5.6 5.8 8.8 5.6 5.6 5.6 15.3 10.9 10.9 10.9 15.3 10.5 10.9 10.3 15.3 10.1 10.9 9.6 Quarterly Ave. Growth Rates 9.4 1986-Q2 Q3 10.6 9.2 Q4 6.5 1987-Q1 5.0 Q2 Jan. 87 to Mar. 87 Mar. 87 to June 87 Q4 Q4 Q4 Q4 85 86 86 86 to to to to Q4 86 Q2 87 Mar. 87 June 87 1987 Ranges: 5.5 to 8.5 5.5 to 8.5 CHART 1 ACTUAL AND TARGETED M2 Bi ll Ions of dol Irs - -- 3050 ACTUAL LEVEL -ESTIMATED LEVEL SSHORT RUN ALTERNATIVES 8.5 -- 3000 c' 2950 ° * &5z o-* -- 2900 , • • •° • oB ° B B -- 2850 2800 -42750 I 1 N 1986 D J I I I F M I A 1 M 1 I J J 1987 I A I SO I 2700 I N D CHART 2 ACTUAL AND TARGETED M3 81 II lons or dol fars - 3850 3800 - ---- ACTUAL LEVEL ESTIMATED LEVEL SHORT RUN ALTERNATIVES s.S -4 3750 3700 &5Z - 3650 -4 3600 3550 3500 3450 - 3400 IlI O N 1986 I D I J I F I M I A I M I J J 1987 I A I S I 0 I N 3350 D CHART 3 M1 81 I lone or dol Iar 840 .'*-830 -^ - 820 - ACTUAL LEVEL * -ESTIMATED LEVEL ..' SHORT RUN ALTERNATIVES' ... -- 810 GROWTH FROM FOURTH QUARTER - 800 790 ..- "101 • - 780 - 750 f..-" - 750 * a, ,* ** *A .. ' ' - ' .* NaS JJ D. "" .' ...- .S """ S690 - 740 730 - 720 - 710 - 700 - 690 .:;...-" 0 1 0 i 1 N 1986 D J F i M ! A M J J 1987 - l I A S 0 N 700 680 D Chart 4 DEBT Bil IIons or dol are 8600 - -- 8500 -8400 ACTUAL LEVEL S- 8300 S 8200 S- 8100 8000 7900 7800 7700 7600 7500 7400 7300 I I I 1 I I I I I I I 1l 1 . S 0 N M A M J J A SN D J F 1987 1986 . - -- i i I I I I I Ii 7200 I D -8- to continue for a time. Little net movement in long-term rates is antici- pated under this alternative, consistent with staff expectations of moderate economic expansion and limited inflationary pressures. The dollar might remain under some downward pressure, but the decline in exchange rates through the spring is expected to be moderate assuming continuing efforts to stabilize rates under the Paris agreement. Sustained weakness in the dollar could tend to push up interest rates in U.S. markets owing to concerns about monetary policy responses and the strength of overall demand for dollar assets. (10) Under alternative B, growth in M2 would be expected to strengthen to a 6 percent annual rate over the March-to-June period, lifting this aggregate to the lower end of its long-run range. With market interest rates little changed for some time now, and not anticipated to move far from current levels under this alternative, M2 might grow about in line with income over coming months. Shifts into non-M2 savings vehicles may diminish, especially should stock prices show less strength, and any use of M2 balances to pay down existing consumer loans in the wake of tax reform might abate if those with a significant tax incentive have moved relatively promptly. The deadline for 1986 IRA contributions is in mid-April, but with the tax law changes it growth. is difficult to predict the effects on M2 On a quarterly average basis, M2 would rise at only a 4-1/2 percent annual rate in the second quarter, given the pattern of growth over the first quarter, and the staff's GNP forecast would imply a small rise in M2 velocity, the first increase in more than a year. (11) M3 growth under alternative B also would be expected to strengthen to a 6 percent rate over the March-to-June period. Inflows to M2 deposits at banks are expected to be augmented by some pickup in the -9- issuance of managed liabilities included in M3; borrowing from foreign branches should drop back from recently elevated levels, and overall needs for funds are projected to increase reflecting in part a turnaround in business loans now that much of the year-end bulge has been worked off. The pace of CD runoffs at thrifts is expected to moderate as their asset growth rebounds a bit from the recent depressed pace, though any intensification of concerns about the health of these institutions or their insurance fund could work in the other direction. On a quarterly average basis, M3 would grow at only a 4-3/4 percent rate, the slowest pace in more than a decade and a half; M3 velocity, which has trended downward, would post a small increase. (12) Under alternative B, expansion of M1 is anticipated to strengthen to a 9 percent annual rate over March to June. The acceleration in M1 would reflect a resumption of growth in demand deposits, which are anticipated to increase at a rate only a little below the projected growth of spending. OCDs are expected to grow at around the reduced pace of February and March; however, with opportunity costs widening only a little further with the continued downward drift of offering rates, the pace of growth would still considerably exceed that of income. On a quarterly average basis, M1 would rise at a 7-1/2 percent rate in the second quarter, the slowest rate since late 1984, and its velocity would decline at only a 2 percent annual rate. Over the first half of the year M1 would increase at about a 10 percent annual rate. (13) Debt of domestic nonfinancial sectors is expected to con- tinue to run much below the pace of last year, though remaining well in excess of the expansion of income. Debt is projected to increase at a 9 percent rate from March to June, moving the debt aggregate down to within -10- the upper portion of its 8 to 11 percent range. Borrowing by private sectors should be around the reduced pace of the first three months of the year and of roughly the same composition. With interest rates re- maining around current levels and the yield curve relatively flat, business borrowing is expected to remain concentrated in long-term markets. Gross equity issuance might be close to its advanced March pace, while share retirements, though substantial, likely will remain below the average rate of 1986. Similarly, household borrowing is likely to continue to be con- centrated in mortgage markets, reflecting strong single-family housing activity and further substitution of home equity loans for consumer credit. On a seasonally adjusted basis, federal borrowing will rebound from its recent reduced pace, though in part this would serve to boost the Treasury's cash balance over the quarter. (14) Alternative A assumes a reduction in discount window borrow- ing to a near-frictional $150 million or a 50 basis point decrease in the discount rate with borrowing maintained at $300 million. In either case, the federal funds rate would decline to close to 5-1/2 percent. This easing in money market conditions would be expected to bolster the expansion of the aggregates, increasing the odds that M2 and M3 will be in the long-term ranges at midyear, even if economic growth turns out to be somewhat weaker than the staff projects. Without such unanticipated economic weakness, M2 growth would be expected to strengthen to a 7 percent annual rate over the March-to-June period, and M3 to 6-1/2 percent, lifting both noticeably above the lower boundaries of their long-run ranges by June. Flows into retail accounts would strengthen again, boosted by lagging offering rates on these accounts, especially OCDs and passbook savings. appreciably over the coming months. M1 likely would accelerate -11- (15) There appears to be little expectation of an easing action in the period just ahead and thus the three-month bill rate also would decline by about 1/2 of a percentage point, toward 5 percent. Other short- term rates could fall a little more, tending to reverse the recent widening in spreads, to the degree that lower interest rates were viewed as enhancing the financial condition of troubled borrowers and intermediaries. Unless this alternative were undertaken in the context of a generally weaker than expected world economy accompanied by substantial monetary easing abroad, downward pressure on the dollar likely would intensify, perhaps requiring substantial additional official intervention if authorities attempted to maintain exchange rates around recent levels. Absent indicators pointing to a much weaker economy, the pressure on the dollar and perhaps more concern about inflation might limit the extent of any decline in long-term rates. (16) Under alternative C, reserve paths would be drawn with a borrowing level of $500 million, which would push the federal funds rate up to the 6-1/2 percent area. The three-month bill rate would rise about 50 basis points under this alternative and CD rates possibly by more. The increase in interest rates would tend to relieve downward pressure on the dollar, at least for a while. Bond rates would rise, as there appears to be little expectation in the markets of a tightening, although any such increase would be limited by sentiment that such a move was acting to contain inflationary pressures, in part through its effect on the dollar. (17) A rise in interest rates would limit the extent of the pick- up in M2--as opportunity costs of holding M2 balances widened. Given the weakness of this aggregate in the first quarter, which may have reflected shifts in portfolio preferences, alternative C would tend to bring M2 -12farther below the lower end of its long-run range over the second quarter. Slower expansion of assets at banks and thrifts would act to restrain M3 growth to along the lower end of its long-run range. Growth in its M1 component would be expected to remain subdued but still be above that of income. -13- Directive language (18) Draft language for the operational paragraph, with the usual alternatives for indicating the degree of reserve pressure, is shown below. The draft provides for the specification of numerical growth rates for M2 and M3 but, as in earlier directives, not for M1. Should the Commit- tee wish to place particular emphasis on exchange market conditions in the implementation of policy over coming weeks, language along the lines shown in the first bracket might be used (with corresponding deletions to the present language on foreign exchange market developments also shown in brackets). An alternative would be to move up the reference to exchange market developments in the existing sentence on possible intermeeting adjustments. With regard to such adjustments, the draft provides for numerous options with appropriate usage of "would," "might," "somewhat," and "slightly." 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 existing degree of pressure on reserve positions. This action is expected to be consistent with January]through growth in M2 and M3 over the period from MARCH[DEL: [DEL: March] JUNE at annual rates of ____ AND ____ [DEL: about 6 to 7]percent, RESPECTIVELY. slow] substantially Growth in M1 is expected to REMAIN [DEL: BELOW ITS PACE IN 1986 [DEL: from the high rate of earlier months.] [IN LIGHT OF THE RECENT INSTABILITY OF THE DOLLAR IN FOREIGN EXCHANGE MARKETS, PARTICULAR EMPHASIS WILL BE PLACED ON CONDITIONS IN THESE MARKETS IN OPERATIONAL DECISIONS. IN ADDITION, ] somewhat (SLIGHTLY) greater reserve restraint would (MIGHT), or slightly (SOMEWHAT) lesser -14- reserve restraint might (WOULD), be acceptable depending on the behavior of the aggregates, taking into account the strength of the business expansion, [developments in foreign exchange markets,] progress against inflation, and conditions in domestic and international credit markets. 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 [DEL: percent. outside a range of ____TO ____4-to-8] Selected Interest Rates March 30, SShort-tem od P0 fedal un Siont | 1 secons d mrt n""k ntIy3 3Smonth 4 5 nk pK prime oney co bms Truy MWOmy -nh 8 6 mutual i fund T U.8. government constant maturity yields Long-Term municipal orort A utility recenl BBond e 3-year 10year 30-yer offered 8 9 10 11 12 13 conventnal home mortgage primary mrket mtlirket fixed- ate fixed-rate ARM 14 15 1 1986--itgh Low 9.55 5.75 7.21 5.09 7.30 3.16 7.35 5.32 7.94 5.47 7.91 5.60 7.21 5.17 9.50 7.50 8.60 6.24 9.38 7.02 9.52 7.16 10.83 9.03 8.72 7.15 10.97 9.31 10.99 9.30 1987--High Low 7.62 5.95 5.73 5.33 5.73 5.36 5.71 5.40 6.23 5.83 6.26 5.88 6.19 5.28 7.50 7.50 6.62 6.37 7.31 7.03 7.60 7.34 8.92 8.79 7.09 6.92 9.26 8.97 9.32 9.07 Monthly 19 .- lar. Apr. May June July Aug. Sep. Oct. Nov. Dec. 1987--Jan. Feb. 7.48 6.99 6.85 6.92 6.56 6.17 5.89 5.85 6.04 6.91 6.43 6.10 6.56 6.06 6.15 6.21 5.83 5.53 5.21 5.18 5.35 5.53 5.43 5.59 6.57 6.08 6.19 6.27 5.86 5.55 5.35 5.26 5.41 5.55 5.44 5.59 6.59 6.06 6.25 6.32 5.90 5.60 5.45 5.41 5.48 5.55 5.46 5.63 7.24 6.60 6.65 6.73 6.37 5.92 5.71 5.69 5.76 6.04 5.87 6.10 7.30 6.75 6.72 6.79 6.42 6.02 5.74 5.74 5.84 6.63 5.95 6.12 7.00 6.60 6.22 6.18 6.02 5.74 5.34 5.22 5.21 5.45 5.50 5.32p 9.10 8.83 8.50 8.50 8.16 7.90 7.50 7.50 7.50 7.50 7.50 7.50 7.30 6.86 7.27 7.41 6.86 6.49 6.62 6.56 6.46 6.43 6.41 6.56 7.78 7.30 7.71 7.80 7.30 7.17 7.45 7.43 7.25 7.11 7.08 7.25 7.96 7.39 7.52 7.57 7.27 7.33 7.62 7.70 7.52 7.37 7.39 7.54 9.41 9.26 9.50 9,65 9.57 9.51 9.56 9.48 9.31 9.08 8.92 8.82 7.74 7.61 7.92 8.30 7.95 7.59 7.53 7.47 7.23 7.23 6.99 7.03 9.86 9.72 10.11 10.45 10.18 9.82 9.98 9.82 9.56 9.34 9.15 9.04 10.08 9.94 10.14 10.68 10.51 10.20 10.01 9.97 9.70 9.31 9.23 9.12 3 10 17 24 31 6.25 5.97 6.30 6.31 9.20 5.41 5.46 5.54 5.55 5.65 5.44 5.47 5.55 5.59 5.65 5.47 5.48 5.55 5.59 5.65 5.83 5.86 5.99 6.24 6.27 5.99 6.02 6.27 7.20 7.56 5.22 5.26 5.25 5.39 5.48 7.50 7.50 7.50 7.50 7.50 6.38 6.36 6.43 6.45 6.54 7.12 7.07 7.13 7.09 7.18 7.37 7.33 7.39 7.36 7.43 9.08 9.03 9.08 9.07 9.14 7.15 7.34 7.31 7.16 7.19 9.37 9.38 9.31 9.31 9.39 9.30 9.35 9.30 9.30 9.37 7 14 21 28 7.62 6.01 6.01 6.13 5.51 5.38 5.33 5.45 5.53 5.43 5.36 5.40 5.52 5.46 5.40 5.44 5.96 5.85 5.83 5.85 6.14 5.89 5.88 5.90 6.19 5.46 5.42 5.34 7.50 7.50 7.50 7.50 6.42 6.38 6.37 6.42 7.10 7.06 7.03 7.11 7.37 7.34 7.35 7.44 8.92 8.88 8.84 .81 7.01 7.04 6.92 6.98 9.26 9.12 8.97 9.03 9.32 9.25 9.10 9.12 Feb. 4 11 18 25 6.22 6.14 6.21 5.95 5.58 5.73 5.67 5.44 5.57 5.73 5.69 5.43 5.57 5.67 5.71 5.56 5.94 6.05 6.23 6.12 6.00 6.11 6.26 6.09 5.31 5.28 5.34 5.36 7.50 7.50 7.50 7.50 6.51 6.60 6.62 6.52 7.20 7.27 7.31 7.22 7.50 7.54 7.60 7.52 8.80 8.88 8.80r 8.79 6.98 7.09 7.05 7.01 9.02 9.09 9.04 9.02 9.11 9.12 9.14 9.10 Ner. 4 11 18 25 6.06 6.12 6.08 6.14 5.49 5.63 5.61 5.56 5.48 5.63 5.59 5.57 .58 5.69 5.67 5.66 6.10 6.13 6.16 6.19 .6.11 6.16 6.21 6.25 5.34 5.35 5.39 5.39 7.50 7.50 7.50 7.50 6.51 6.56 6.54 6.58 7.18 7.22 7.21 7.24 7.48 7.51 7.51 7.55 8.80 .83 8.86 8.91 6.92 7.02 7.08 7.11 9.07 9.01 8.98 8.99 9.08 9.09 9.08 9.07 6.09 6.21 6.15p 5.52 5.57 5,63 5.55 5.60 5.56 5.63 5.70 5.77 6.16 6.22 6.22 6.21 6.31 6.31 7.50 7.50 7.50 6.53 6.61 6.68p 7.22 7.24 7 32 . p 7.53 7.56 7.66p eekly 1986-Dac. 1987-Jan. Daily 1987-Mar. 20 26 27 S -- NOTE: Wekly data for columns 1 through t are tateomentweek averges. Data n column 7 are taken hrom Oonoghue's Mony Fund Report. Columns 12 and 13 re 1-day quotes for Friday and Thursday, reagpclively. following te end of the statement week. Column 13 Isthe Bond Buyer revnue Index. Column 14 s the FNMA purchase yield, plu loan srlcing fee, on 30day mandatory delivery commitments on the Friday following the end of the statement wek. Column 16 is the average contract rate on new commitments for fixed-rate mort. 1987 gages (FRMs) with 80 percent loan-to-value ratios t a sample of savings and loans. Column 16 Is the average Initial contract rate on new commitments for one-year. adluatble-ratr mortgaas (ARMsl at SALs offering both FRMs and ARMs with the same number of discount points. FR 1367 (1285) Strictly Confidential (FR)Class II FOMC Money and Credit Aggregate Measures Seasonally adjusted MAR. Money stock measures and liquid assets nontranactions MPtod M2 componentl M1 S1 2 in M2 3 In M3 only M3 L U.S. government 6 Investments 7 8 __ S 30, 1987 Domestic nonfinancial debts Bank credit total loans and other 2 9 totall 10 FPSCSlT ASIUAL GBOgtBh (W11 TO Qf1) IANUALLI 1984 1985 1986 5.4 12.1 15.3 7.9 8.8 8.9 8.6 7.8 6.9 23.3 3.4 8.3 10.7 7.7 8.8 12.2 8.5 8.1 11.2 9.9 9.4 16.0 15.2 14.6 13.4 12.9 12.7 13.9 13.5 13.1 QUARTULI AVEnAGI 28D gQT. 1986 15.5 9.4 7.4 5.9 8.7 7.1' 4.1 11.6 9.8 10.2 32D gTI. 4TH UTS. iST 9T1. 16.5 17.0 13% 10.6 9.2 6 8.6 6.6 4 5.8 3.4 7 9.6 8.0 6 8.0 8.3 10.5 9.1 14.5 12.3 11.7 12.1 12.3 12.1 15.8 1.44 21.1 16.4 16.4 18.4 7.7 11.5 10.7 9.2 11.0 11.0 5.0 10.6 7.3 7.4 10.3 8.4 9.3 6.9 -3.2 5.9 7.0 5.3 8.0 10.6 7.9 8.5 10.8 9.9 4.5 7.7 9.8 6.3 8.0 8.5 5.7 2.0 5.9 3.0 13.2 13.8 5.6 9.6 17.3 19.3 14.7 8.8 6.4 10.7 10.8 9.9 10.4 14.7 7.8 10.4 12.3 12.1 11.4 13.3 SErt. OCT. 801. 10.7 14.4 18.8 7.9 10.7 6.4 7.0 9.5 2.2 11.9 -6.8 6.3 8.7 7.2 6.4 8.6 7.7 7.8 13.0 2.2 8.9 11.5 9.6 15.2 13.0 10.0 11.4 12.6 9.9 12.3 DIC. 30.5 10.6 3.7 9.1 10.3 9.6 17.4 18.9 14.3 15.4 11.7 -0.7 6 9.5 -0.3 3 8.8 -0.2 1 7.8 7.4 5 9.1 1.3 3 9.3 18.4 2.2 8.0 4.3 14.9 10.0 13.3 8.7 BOUT.LI LTZLS (SBILLIOSS) 1986--oCT. 701.6 2760.7 2059.3 680.5 3441.2 4081.8 2034.0 1755.5 5698.2 7453.7 NOT. DEC. 1987--JAS. FBB. 712.4 730.5 737.6 737.2 2775.4 2799.6 28412.0 2821.3 2063.0 2069.3 d084.4 208 .1 684.1 669.3 693.8 698.1 3459.5 3489.2 3515.8 3519.5 4108.2 4141.1 4173.1 2049.0 2078.7 1777.7 1805.7 1817.8 1824.3 5752.4 5821.0 5893.4 5942.6 7530.0 7626.6 7711.1 7766.9 1986 1986 1987 PB HONTILI 1986-8An. APL NA! JUiE JOLL AUG. 1967-JAL. 18B. UAL. P1 OnEKLI LSBV.S 1987-t8. 2 9 16 23 MAR. 2 4110.6 2114.5 (SBILLIONS) 737.0 734.8 736.9 730.8 738.3 9 F 16 1 739.0 740.2 1/ UAOUAL RATES 0OR8UE CERDIT AM 3341110 SUTBAER26, 1984. 2/ DI 8 DATA ASS ON A BOITLI AVIAGE TO BO0011 DISCONIIZOiTIs. P-PRNLIBINIBI PS-PRILIIINARI ESTIIATE ADJUSTED BASIS, FO0 A TRANMSFE O LOANS nBon COITI ENT AL ILLI OIS UAONAI. DBaIVSD Bt A1XRtAII8G DAK TO THE FDIC BD-OFr-OONB L8ELS OF ADJACICT NOBTUS, AgOD &AVE BsEEN 1DSTSD Components of Money Stock and Related Measures Billions of dollars, seasonally adjusted unless otherwise noted MAR. Period Currency Other Overnight MMDA Demand checkable RPs and NSA deposits deposits Eurodollars NSA Savings deposits Small denomination time deposits' Money market mutual funds, NSA general Instilupurpose, lions nd broker/ only dealer' 8 9 30, 1987 Large denomnation time 3 deposits Term RPs NSA Term Eurodollars NSA Savings bonds 10 11 12 13 14 15 16 Shortterm CommerTreasury clal paper securities Bankers acceptances 5 6 7 56.1 67.3 77.1 405.4 509.2 568.1 290.5 301.9 358.4 880.0 880.3 858.4 161.7 176.6 207.2 57.7 64.7 84.3 413.6 433.3 446.2 65.6 63.0 81.0 81.7 77.6 79.4 73.9 78.9 89.7 267.3 295.2 290.6 161.2 201.7 229.0 45.7 43.2 37.7 183.1 186.0 68.4 67.3 517.1 521.0 304.8 306.6 889.8 892.0 181.0 186.2 67.7 70.2 447.6 448.5 70.7 71.7 79.1 82.7 80.5 81.2 305.7 299.1 208.6 208.8 42.5 41.4 277.7 282.2 285.0 189.9 195.5 199.6 68.2 68.9 66.3 526.1 531.6 541.0 311.1 316.8 321.8 893.1 888.0 883.0 191.4 193.2 197.3 74.1 76.1 75.0 451.3 447.6 447.5 71.6 74.1 75.1 81.4 79.7 80.0 81.9 82.7 83.5 298.3 303.8 298.2 206.1 210.7 212.6 40.6 39.8 39.8 177.6 179.0 179.7 288.2 291.2 292.2 204.5 210.4 214.7 71.9 74.7 72.7 546.6 553.6 558.8 327.4 334.6 341.4 880.9 876.7 872.2 199.7 200.5 202.2 77.5 80.8 84.4 448.3 449.4 448.5 74.7 75.4 78.1 78.2 77.2 79.9 84.3 85.3 86.4 292.5 288.7 288.0 214.5 219.7 223.9 39.0 37.3 36.9 OCT. MOV. DBC. 181.2 182.4 183.5 293.4 297.8 308.3 220.4 225.9 232.3 77.4 76.7 77.3 564.4 568.7 571.3 350.4 358.5 366.2 864.7 857.1 853.3 206.9 207.1 207.6 84.5 84.4 84.1 445.7 445.9 447.0 78.2 82.6 82.2 76.6 78.4 83.2 87.7 89.8 91.7 286.9 292.4 292.4 228.4 228.4 230.2 37.7 38.0 37.5 1987-JA1. F88. 186.0 187.2 305. 300.7 240.0 242.7 83.7 79.8 574.2 570.6 376.7 387.3 851.3 847.2 209.0 210.8 84.0 84.7 4419.6 447.8 80.9 83.5 86.4 90.5 92.7 287.2 239.7 37.7 1 2 3 157.8 169.7 182.4 246.6 268.6 299.8 143.9 175.9 226.2 1986-18B. BAI. 172.7 173.8 270.3 274.6 AP0. BA1 JU0I 174.4 175.8 176.7 JOLt AUG. SEPT. 4 AUOALLI (4T78 Ut): 1984 1985 1986 801TNLI MONTHLY 1/ 2/ 3/ INCLUDS RETAIL REPURCHASB AGRIBBENTS. ALL IRA AND KEOGH ACCOUNTS AT CUONERCIAL BANKS AND THRIFT INSTITUTIONS ARE SUBTIACTED FROM SMALL TIME DEPOSITS. bXCLOUDS IRA AND KEOGH ACCOUNTS. NET OF LARGE DENONINATIUJ TINE DEPOSITS HELD ut HONE r HMABKET MUTUAL FUNDS AND THRIFT INSTITUTIONS. STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Net Changes in System Holdings of Securities 1 Millions of dollars, not seasonally adjusted March 30, Tresury bills Period " I Treasury coupons net purchases' -Ih- -5 _______1_____ 1980 1981 1982 1983 1984 1985 1986 -3.052 5.337 5,698 13,068 3,779 14,596 19,099 1986--qTR. I 11 III IV 1986-July Aug. Sept. -2,821 7,585 4,668 9,668 928 3,318 5,422 1987--Jan. Feb. 414 -4,189 Jan. over 10 2,138 1,702 1,794 1,896 1,938 2,185 893 190 total , outright hodings over 10 1 5-5-10 total 2,035 8,491 8,312 16,342 6,964 18,619 20,178 2,462 684 1,461 -5,445 1,450 3,001 10,033 1,476 -2,861 7,535 4,577 10,927 -3,580 -356 4,044 9,925 867 2,850 861 -1,270 -448 5,762 835 4,670 5,422 -3,493 1,852 11,566 304 -4,441 -10,701 -4,723 461 4,123 115 497 461 1,702 -2,061 3,050 -743 12,379 -10,570 1,458 -874 495 190 -252 - -- -252 3 10 17 24 31 461 4,123 115 497 461 7 14 21 28 467 530 467 420 ..... - Net RPs total' 4,564 2,768 2,803 3,653 3,440 4,185 1,476 867 2,940 861 Oct. Nov. Dec. Dec. 912 294 312 484 826 1,349 190 5-10 Net change Federal agencies net purchases' -1-,n I 1987 - - Feb. 4 11 18 25 -704 -3,538 -629 -707 -3,788 -629 -6,611 92 1,802 -5,252 Mar. 4 11 305 200 153 168 305 200 153 168 4,110 5.155 -5,445 -145 206.8 -4.6 18 25 LEVEL--Mar. 25 ($ billions) 100.9 15.7 1. Change from end-of-period to end-of-period. 2. Outright transactions in market and with foreign accounts, and redemptions (-) In bill auctions. 3. Outright transactions In market and with foreign accounts, and short-term notes acquired In exchange for maturing bills. Excludes redemptions, maturity shifts, rollovers of maturing coupon issues, and direct Treasury borrowing from the System. 4. Outright transactions In market and with foreign accounts only. Excludes redemptions and maturity shifts. 3.9 1.3 .3 7.7 5. In addition to the net purchase of securities, also reflects changes In System holdings of bankers' acceptances, direct Treasury borrowing from the System and redemptions (-) of agency and Treasury coupon issues. 6. Includes changes in RPs (+), matched sale-purchase transactions I-), and matched purchase sale transactions (+
@FedFRASER