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Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optimal character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Strictly Confidential (FR) Class I FOMC 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 May 13, 1994 MONETARY POLICY ALTERNATIVES Recent Developments 1 (1) In keeping with a strategy of moving away from an accommodative stance in reserve provision at this stage in the economic expansion without severely unsettling financial markets, the intended federal funds rate was raised 25 basis points, to 3-1/2 percent, immediately following the March 22 FOMC meeting. On April 18. with incoming data having confirmed considerable momentum and diminishing slack in the economy, and financial markets seemingly more able to absorb further tightening, the intended funds rate was raised another 25 basis points, to 3-3/4 percent. Throughout the intermeet- ing period, the funds rate generally has traded near its intended level. 2 (2) As indicated in the upper left panel of Chart 1, just prior to the March FOMC meeting federal funds futures had embodied a rising path for the funds rate, including expectations of a 25 basis point tightening at that meeting and some probability of another move in April. As shown in the lower panel of the exhibit, the markets rallied after the March meeting, but only briefly. On March 24, banks increased the prime rate 25 basis points, to 6-1/4 percent, and over the next week and a half, market rates backed up, particularly after the release on April 1 of the strong March employment report: 1. Financial market quotations in this section are taken as of noon, Friday, May 13. 2. The allowance for adjustment plus seasonal borrowing was raised to $175 million in four $25 million steps, two to implement the policy moves and two to reflect usual seasonal increases. On average, borrowing ran about $12 million above its allowance over the intermeeting period. Chart 1 Federal Funds Futures* Implied Bond Volatility Percent Percent Darly close 12.5 JI May 13 12.0 5.0 h11.5 April 19 April 15 4.5 - . 11.0 March 21 0- 10.5 -V 10.0 / 9.5 / 0 1 2 3 4 3/22 5 4/1 4/18 4/28 5/6 Months ahead *Observations are for the current, 1-, 2-, and 5-month contracts Yield Curve Movements Percent Daily close I S I --. '--' - '- -- - - -* - - % ' 5-yr T-note ' 2-yr T-note "-- 6-mo T-bill I- - p-*~ ~J5- 30-yr T-bond 10-yr T-note iZ ~4 -~ -. - __^- S ~~*4 - - -I----- 0 4 4/28 GDP Q1 5/6 -F-----3/22 4/1 FOMC March Employment 4/18 Policy Move April Employment Intended Fed Funds - (3) Shorter-term market rates rose further when the System tightened in mid-April--although less than the quarter-point increase in the funds rate. 3 The mid-April action caught market partizi- pants somewhat unawares and was interpreted as putting policy tightening on a steeper trajectory with a higher endpoint, as can be seen in the upward revision to federal funds futures. Short-term rates continued to edge up in the latter part of the month. Nonetheless, there was little net movement in intermediate- and long-term rates over most of April. as data indicated subdued trends in costs and prices. However, in late April, rates across the maturity spectrum began rising again with the release of data suggesting to the market considerable additional vigor in economic activity. Weakness in the dollar over this period appeared to contribute to the upward movement in interest rates, because it implied additional price pressures in an economy operating at high levels of output and provided a rationale for more aggressive policy action. (4) On balance, since the day before the March meeting. while the funds rate has been raised 50 basis points, other short-term interest rates have risen 60 to 85 basis points, intermediate rates 85 to 100 basis points, and long-term rates 60 to 75 basis points. The weakness in the dollar suggests that a portion of the increase in interest rates likely represents a market view that some of the developing price pressures will ultimately show through into higher actual inflation than previously anticipated. However, real rates probably also have risen, judging in part by declines in major stock price indexes of 5-1/2 to 10 percent over the intermeeting period. Some of the increase in real rates likely resulted from the effect of 3. After the April 18 action, banks raised the prime rate another 50 basis points to 6-3/4 percent. heightened uncertainty on term premiums. of the The upper right panel exhibit shows that expected volatility inferred from near-term on bond prices rose sharply toward the end of March. options The rise in expected volatility probably owed to the persistence of higher actual price volatility and to uncertainties about the course of monetary policy and inflation in the face of strong aggregate demand. (5) Increased uncertainty premiums in U.S. interest rates. not fully matched by similar increases abroad, would reduce the demand for dollar assets, and thus could explain part of the downward pressure on the foreign exchange value of the dollar, despite increases in nominal interest differentials in favor of dollar assets. The dollar's weighted average exchange value declined a little more than 1 percent, on balance, over the intermeeting period. Monetary authorities in several key foreign countries eased their policies. Three-month interest rates declined 75 basis points in Germany, and the Bundesbank reduced its discount and Lombard rates 1/4 percentage point on April 14 and 1/2 percentage point on May 11. bond rates rose 25 basis points in Germany. Nonetheless. Three-month and ten-year rates declined 15 and 40 basis points, respectively, in Japan. The political disarray in Japan seemingly had the perverse effect of strengthening the yen against the dollar, on the grounds that the new minority government would have greater difficulties in implementing trade reforms; the yen would therefore have to appreciate to help reduce Japan's huge current account surplus. For most of the inter- meeting period, the market believed that the U.S. government would welcome a further decline in the dollar against the yen and perhaps a weaker dollar generally. In part to dispel such impressions, the Desk intervened on two occasions to purchase dollars against yen and marks. Both operations were accompanied by statements from the Secretary of the Treasury: The first emphasized countering disorderly markets; the second highlighted concerns of U.S. authorities with the dollar's weakness, which was viewed as inconsistent with economic fundamentals. and rejected an undervalued dollar as a U.S. policy objective. The second intervention was coordinated with a substantial number of foreign central banks. In total, U.S. authorities purchased $1,950 million against yen and marks, equally divided between System and Treasury accounts. The broad monetary aggregates accelerated somewhat more (6) than expected at the time of the March FOMC meeting. M2 rose at a 4 percent rate and M3 at a 2-1/2 percent rate over March and April. compared with projected growth rates of 3-1/4 and 1-3/4 percent, reThese increases left M2 somewhat below the midpoint of spectively. its 1-to-5 percent range for 1994 and M3 somewhat above the lower end of its 0-to-4 percent range. Data through early May suggest a slowing in the growth of both aggregates. The strengthening of the broad aggregates, which runs (7) counter to what might normally be anticipated with rising interest rates, appears mainly attributable to a reassessment on the part of households of the attractiveness of investing in capital market instruments. Bond mutual funds suffered substantial net redemptions over March and April, and there was a corresponding surge in retail money funds: in addition, a slowing in runoffs of small time deposits may represent reduced shifting to stock and bond funds. The broad money aggregates were also boosted in March and April by hefty increases in overnight and term repurchase agreements, which helped banks fund sizable net acquisitions of government securities. The rise in short-term opportunity costs does seem to have had its usual effect of restraining demand for a number of components of M2, especially liquid retail deposits. M1 expanded at only a 1-1/2 percent rate over March and April. held down by a drop in mortgage refinanes ings as well as the wider opportunity costs.4 In addition, savings deposits (including MMDAs) registered a small decline in April. (8) Bank credit expanded rapidly in March and April, re- flecting strong growth in consumer and business loans, as well as the increase in securities holdings. An early May survey revealed con- tinued increases in the willingness of banks to lend to households and a further easing of credit standards for businesses. The strength in bank credit in part represents a rise in the share of banks in household and business debt creation. As capital market prices have dropped, firms have cut back on bond and stock issuance: mounting external financing needs have been concentrated more on commercial banks. (9) While the backup in rates has altered the pattern of financing and discouraged refinancing of outstanding obligations, it appears to have little affected nonfinancial debt growth. Debt of the nonfederal sectors has increased at a 4-1/2 percent rate in recent months, about in line with the more rapid pace of the second half of 1993. Overall business borrowing has remained subdued. Consumer credit is growing briskly, but household mortgage indebtedness appears 4. Following the behavior of transactions deposits, total reserves fell at a 5-1/2 percent clip over March and April. With currency decelerating to a 10-1/4 percent growth pace. the monetary base slowed to a 7-3/4 percent average growth rate over the two months. -6- to be expanding only moderately. State and local governments have slowed their net debt issuance of late, owing to improved fiscal positions and considerable previous advance refunding. While federal debt growth surged in March, it now appears to be slowing, even after allowing for the usual tax-season swings, as fiscal restraint and strong economic performance reduce deficits. Total domestic nonfinan- cial debt is estimated to have grown at a 5 percent pace from the fourth quarter through March. leaving this aggregate somewhat above the lower bound of its 4-to-8 percent monitoring range for 1994. MONEY. CREDIT. AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth Feb. Mar. Apr. A Ml 5.4 4.0 -1.2 4.3 M2 -1.4 4.9 2.8 2.1 M3 -7.7 2.5 2.7 0.4 4.4 4.9 4.3 5.8 9.1 4.6 ---- 5.4 7.2 4.- 5.5 10.4 10.4 8.C Nonborrowed reserves 3.3 -3.1 -8.9 0.2 Total reserves 3.2 -3.4 -7.5 0.1 13.4 9.3 6.1 9.5 70 55 124 1140 967 1139 Money and credit aggrenates Domestic nonfinancial debt Total Federal Nonfederal Bank credit Reserve measures 2 Monetary base Memo: (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves 1. 2. 3. Figures on domestic nonfinancial sector debt are from 93:Q4 to March. 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. Includes "other extended credit" from the Federal Reserve. Policy Alternatives (10) Three monetary policy alternatives are presented below for Committee consideration. Under alternative B. federal funds would continue to trade around 3-3/4 percent, in association with the allowance for adjustment plus seasonal borrowing remaining initially at $175 million.5 Under alternative C, the federal funds rate would move up 1/4 percentage point (one-half the usual adjustment shown in previous bluebooks for "alternative C") to 4 percent, effectuated by increasing the initial borrowing allowance to $200 million. Under alternative D, the federal funds rate would be raised to 4-1/4 percent, either by increasing the initial borrowing allowance to $225 million or by raising the discount rate to 3-1/2 percent, while keeping the initial allowance for discount window borrowing at $175 million. (11) In the staff's economic forecast, the federal funds rate is assumed to be raised gradually to 4-1/2 percent by the fall of this year and maintained at that level through the end of next year. Long-term interest rates are seen as holding close to their most recent levels in the face of the assumed policy tightenings, but subsequently to drift lower, as market participants come to realize that economic trends imply lower inflation and a lesser degree of needed policy restraint than now built into market rates. In effect, this funds rate path is broadly consistent with the attainment of "policy neutrality," in that real GDP, after moving into the vicinity of its estimated potential in the current quarter, grows about in line with its potential over the next six quarters. The unemployment rate 5. Later in the intermeeting period, upward technical adjustments to the borrowing allowance may be required to account for the normal upswing in seasonal credit. remains near its estimated natural rate of about 6-1/2 percent, and core CPI inflation runs just below a 3 percent rate through the end next year. Variations in the timing and size of the steps taken to raise the funds rate to 4-1/2 percent by this autumn probably would not have a persistent influence on economic activity but could affect inflation expectations for a time and the near-term paths of financial market prices. (12) Compared with the staff's assessment, financial market participants now appear to be anticipating appreciably more Federal Reserve tightening by the fall, judging by the rate of 5-1/4 percent on federal funds futures for October. Many in the market expect the Committee to increase the funds rate 50 basis points at this meeting, though others anticipate only a 25 basis point increase, and the federal funds futures quote is in between. Very short-term rates might thus increase slightly under alternative D. The behavior of rates on instruments of a few months' maturity or longer would depend importantly on whether the market interpreted the larger increase of alternative D as indicating a steeper trajectory of future policy actions, and perhaps the need for greater cumulative tightening. If expectations were to ratchet up in this manner, as appeared to have been the case in some of the tightenings earlier this year, there could be sizable hikes along the maturity spectrum. However, several factors suggest that the market may react more favorably this time. For one, such a move--larger than recent ones--might assuage concerns that the Federal Reserve was "falling behind the curve." A rise in the foreign exchange value of the dollar, which would be expected under this alternative, would also help to reduce inflation concerns. Moreover, an action of this magnitude coupled with a discount rate -10- increase, depending perhaps on the wording of the associated announcement, might be seen as suggesting that the Federal Reserve thought it had reached the neighborhood of "neutrality." If the action is seen this way, policy would be expected to be kept on hold for a while, or at least to tighten more slowly and be more dependent on incoming data. With one source of uncertainty diminished, at least for a time, investors who had been avoiding longer-term instruments pending the Federal Reserve's action might be tempted to extend maturities. Bond yields could still back up somewhat in the aftermath of an announcement of the Federal Reserve's choice of alternative D, but these other influences should limit any increase and work to reduce yields over time. provided incoming data on the economy indicate a moderate path for activity, in line with the staff forecast. (13) The case for increasing the intended federal funds rate only 25 basis points as under alternative C would seem to hinge on the judgment that financial market participants have exaggerated the likely strength of future spending relative to the economy's potential and hence of prospective inflation pressures. In this view, taking the fundamentals reasonably into account, the markets have gotten "ahead of the curve" and the risk of disappointing them should not be allowed to divert the Federal Reserve from a gradual course of 25-basis-point adjustments in the stance of policy toward neutrality. With the loca- tion of a neutral funds rate itself a moving target--and lower to the extent that real long-term interest rates are higher--such an approach would allow more time to assess the needed federal funds rate increases as new information on the economy and prices becomes available. Short-term rates likely would edge off immediately after a modest policy tightening. The initial reaction in capital and foreign -11- exchange markets could be adverse if the small size of the move were seen as signalling a reluctance to move aggressively to head off an inflationary buildup. However, the odds on such a reaction may have been reduced by the recent favorable price data. In this context, market participants might be more inclined to interpret the smaller move as sufficient to counter coming inflation pressures and to project a lower trajectory of short-term rates, which would pass through to lower longer-term rates. (14) The case for standing pat, alternative B, is a more extreme version of the rationale for alternative C: In this case, the market assessment, and even that of the staff, of the strength of aggregate demand would be judged to be seriously off the mark, perhaps because the rise in long-term rates, along with the decline in household wealth, will have a more significant restraining influence on aggregate demand. Choice of alternative B would come as a consider- able surprise--and disappointment--to financial markets; very shortterm interest rates would be likely to fall appreciably, but this alternative risks a significant sell-off in the bond market before weakness in aggregate demand becomes apparent. (15) Material differences in nominal spending and overall borrowing under the three policy alternatives outlined above are unlikely to emerge in the next several months. Under all three alterna- tives, the debt of domestic nonfinancial sectors should expand at around a 5 percent rate from March through September, matching its pace this year through March. A pickup in growth of nonfederal debt is expected to fill in the gap left by a softening of federal government borrowing. Higher long-term rates and lower price-earnings -12- ratios present a less favorable environment for balance sheet restructuring, but borrowers will continue to find banks and other intermediaries to be willing lenders. Business borrowing should remain well above last year's meager pace, as corporate capital spending rises appreciably further relative to internally generated funds. Households too are likely to continue taking on consumer debt more quickly than they did on average last year, although with recent increases in mortgage rates restraining housing activity, mortgage debt expansion is not anticipated to outpace last year's performance. (16) Projected growth rates of the monetary aggregates from April to September under alternatives B and D are shown on the table below. (More detailed data are presented in the table and charts on the following pages.) While we foresee M1 growth picking up some, at Alt. B Alt. D 1-1/2 1 3-3/4 1-1/4 3/4 3 Growth from April to September M2 M3 M1 around 3 to 4 percent, it remains damped relative to spending. The recent increases in opportunity costs on liquid retail deposits arising from the previous tightenings in the stance of monetary policy, and under alternative D from an additional firming move as well, will serve to hold back growth of M1 and some of the other components of M2 and M3. With any further backup in long-term interest rates not ex- pected to be sustained under either policy alternative, another surge in outflows from bond mutual funds does not appear to be in the cards. As a consequence, the effects of higher opportunity costs show through Alernative Levels and Growth Rates for Key Monetary M2 Alt. Levels in Billions Mar-94 Apr-94 May-94 Jun-94 Jul-94 Aug-94 Sep-94 B Aggregates M3 Alt. D Alt. B M1 ) Alt. Alt. B Alt. D 3579.4 3587.8 3593.4 3597.3 3602.1 3607.2 3612.3 3579.4 3587.8 3592.2 3594.6 3598.2 3602.4 3606.'1 4210.6 4220.0 4217.5 4221.4 4226.3 4231.2 4236.5 4210.6 4220.0 4216.8 4210.5 4224.4 4227. 4231.P 1142.4 1141.3 1143.8 1146.6 1150.1 1154.1 115Q.0 1142.4 1141.1 1143.2 1145.1 1148.1 1151.5 1155.0 Mar-94 Apr-94 May-94 Jun-94 Jul-94 Aug-94 4.9 2.8 1.9 1.3 1.6 1.7 4.0 2.8 1.5 0.R 1.2 1.4 2.5 2.7 -0.7 1.1 1.4 1.4 A.5 2.7 0. 0f. 1.1 1.1 4.0 -1.2 2.6 3.0 3.6 4.2 4.0 -1.2 2.0 2.2 2. ' 3.6 Sep-94 1.7 1.5 1.5 1. 5.1 4.6 1.8 2.5 1.6 1.8 2.3 1.2 0.1 0.6 1.1 0.1 0.5 0.R 6.0 2.0 3.7 6.0 1.8 3.0 To Mar-94 Jun-94 Sep-94 Apr-94 Sep-94 1.8 2.0 1.7 2.1 1.6 1.8 1.7 1.4 2.1 1.3 -1.3 1.0 1.4 -0.3 0.9 -1.3 0.8 1.2 -0.3 0.7 5.0 1.5 4.3 3.4 3.7 5.0 1.0 3.7 3.4 3.1 93 Q4 93 Q4 93 Q4 Apr-94 Jun-94 Sep-94 2.2 2.0 1.9 2.2 1.9 1.8 0.4 0.3 0.7 0.4 0.3 0.5 4.3 3.9 4.0 4.3 3.7 3.' 93 Q4 94 03 1.5 1.1 0.4 0. .!.9 2.7 Monthly Growth Rates Quarterly Averages 94 Q1 94 Q2 94 Q3 Growth Rate From Dec-93 Mar-94 Jun-94 Dec-93 Apr-94 1994 Target Ranges: 1 .) to 5.0 0.0 to 4.0 i Chart 2 ACTUAL AND TARGETED M2 Billions of Dollars 3800 - Actual Level * Short-Run Alternatives 5% - 3750 3700 -13650 * * n D 3600 3550 3500 - I I O I N D 1993 I I J I FM I I I A M I J J 1994 I I A I SON I I D I J 1995 3450 3400 Chart 3 ACTUAL AND TARGETED M3 Billions of Dollars 4450 - Actual Level * Short-Run Alternatives 45 - 4400 4350 4300 4250 * * B D 4200 4150 4100 D ON 1993 J F MA M J J 199'4 A SO N D J 1995 4050 Chan4 M1 Billions of Dollars I 1350 Actual Level * Short-Run Alternatives 15% - 1300 1250 - 1200 5% SB S D 1150 0% I O I N D 1993 I I J I F I M I A I M I J J 1994 I A I S I O I N I D J 1995 110oo Chart 5 DEBT Billions of Dollars 13400 8% Level -Actual * Projected Level 13200 13000 4% 12800 - 12600 12400 -1 12200 -1 12000 I I O I N I D I J I F I M I A I M I J J 1994 I A I S I O I N I D I J 1995 11800 -14- to the growth of the broader aggregates, contributing to an appreciable slowing from the stepped-up pace of March and April. Under both alternatives, growth from the fourth quarter of last year to September will be at almost a 2 percent rate for M2 and at less than a 3/4 percent rate for M3. -15Directive Language (17) Draft language for the operational paragraph, including the usual options and updating, is shown below. In light of the re- commendations for a discount rate increase from all twelve Federal Reserve Banks, wording is given in brackets in the first sentence should the Committee wish to make reference in the directive to a possible change in the discount rate. This suggested wording is similar to that used by the Committee in comparable situations in the past. Of course, the minutes would explain the Committee's approach to implementation and its rationale. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to increase slightly (SOMEWHAT)/maintain/DECREASE SLIGHTLY (SOMEWHAT) the existing degree of pressure on reserve positions. [TAKING ACCOUNT OF A POSSIBLE INCREASE IN THE DISCOUNT RATE]. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly (SOMEWHAT) greater reserve restraint MIGHT/WOULD or slightly (SOMEWHAT) lesser reserve restraint might/WOULD be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate MODEST growth in M2 and M3 over COMING MONTHS [DEL: the first half of 1994]. May 16, 1994 SELECTED INTEREST RATES (percent) Short Term federal funds 1_ Treasury bills secondary market 3-monh 6-month I 1 year 3 4 2I Long Term CDs secondary comm markel paper 3 month I month 5 6 money market mutual lund 7 bank prime loan 8 US government constant maturity yields 3-year 10 year 30-year 10 11 9 corporate conventional home mortgages A utility municipal secondary primary recently Bond marke market fixed-rale lixed-rate ARM olleed Buyer 16 12 13 14 1 -- High 3.24 2.87 3.12 2.82 3.27 2.94 348 3.07 3.36 3.06 344 307 2.92 2.59 6.00 6.00 5.06 4.07 6 73 5.24 7.46 5.83 828 6.79 6.44 5.41 8.17 Low 6.72 8.14 6.74 536 414 94 -- High 3.76 2.97 4.18 2.94 4.68 3.12 5.14 3.35 4.61 3.11 429 3.11 3.24 2.68 6.75 6.00 6.50 4.44 7.34 5.70 7.52 6.25 8.51 7.16 6.60 5.49 8.98 7.02 8.77 6.97 5.54 4.12 2.96 3.07 3.04 3.02 2.95 3.02 3.10 3.06 3.07 3.20 3.16 3.14 3.06 3.12 3.26 3.23 3.23 3.39 3.33 3.30 3.22 3.25 3.42 3.45 3.10 3.21 316 3.14 3.12 3.24 3.35 3.26 3.11 3.19 3.15 3.14 3.14 3.14 3.15 3.35 2.62 2.62 2.64 2.64 2.65 2.65 2.66 2.70 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 4.40 4.53 4.43 4.36 4.17 4.18 4.50 4.54 6.04 5.96 5.81 5.68 5.36 5.33 5.72 5.77 6.92 6.81 6.63 6.32 6.00 5.94 6.21 6.25 7.75 7.59 7.43 7.16 6.94 6.91 7.25 7.28 5.92 5.87 5.80 5.67 5.50 5.48 5.71 5.59 7.48 7.41 7.19 7.05 6.89 6.85 7.32 7.27 7.47 7.42 7.21 7.11 6.92 6.83 7.16 7.17 465 464 456 448 4.36 425 424 423 93 -- Low Monthly May 93 Jun 93 93 93 93 93 93 93 3.00 3.04 3.06 3.03 3.09 2.99 3.02 2.96 Jan Feb Mar Apr Weekly Jan 94 94 94 94 3.05 3.25 3.34 3.56 2.98 3.25 3.50 3.68 3.15 3.43 3.78 4.09 3.39 3.69 4.11 4.57 3.15 3.43 3.77 4.01 3.14 3.39 3.63 3.81 271 2.73 2.86 3.03 6.00 6.00 6.06 6.45 4.48 4.83 5.40 5.99 5.75 5.97 6.48 6.97 6.29 6.49 6.91 7.27 7.24 7.45 7.82 8.20 5.54 5.65 6.16 6.48 7.12 7.35 7.96 8.55 7.06 7.15 7.68 8.32 421 420 455 496 26 94 2.97 2.94 3.12 3.35 3.11 3.12 2.68 6.00 4.44 5.75 6.31 7.16 5.50 7.02 6.97 416 Feb Feb Feb Feb 2 9 16 23 94 94 94 94 3.17 3.20 3.25 3.25 2.98 3.22 3.26 3.31 3.16 3.37 3.41 3.51 3.39 3.66 3.69 3.76 3.14 3.36 345 3.50 3.11 3.31 3.45 3.44 2.68 2.71 2.75 2.77 6.00 6.00 6.00 6.00 4.47 4.75 4.81 4.94 5.73 5.93 5.89 6.07 6.26 6.39 6.44 6.61 7.35 7.40 7.54 7.62 5.49 5.58 5.64 5.88 7.15 7.30 7.37 7.56 6.97 7.21 7.11 7.32 412 425 418 425 Mar Mar Mar Mar Mar 2 9 16 23 30 94 94 94 94 94 3.28 3.25 3.19 3.31 3.49 3.41 3.52 3.53 3.49 3.49 3.63 3.74 3.80 3.81 3.81 3.88 4.06 4.10 4.13 4.18 3.66 3.77 3.76 3.80 3.79 3.52 3.61 3.61 3.64 367 2.79 2.81 2.83 286 2.93 6.00 6.00 6.00 6.00 6.25 5.12 528 5.36 5.40 5.57 6.23 6.36 6.46 6.46 6.66 6.75 6.84 6.90 6.87 7.02 7.73 7.80 781 791 8.04 6.07 6.13 6.06 6.16 6.39 7.87 7.94 7.93 8.08 8.64 7.51 7.63 776 7.80 8.04 448 451 460 460 465 Apr Apr Apr Apr 6 13 20 27 94 94 94 94 3.69 3.37 3.59 3.59 3.60 3.55 3.67 3.78 3.94 3.96 4.11 4.21 4.45 4.45 4.59 4.64 3.95 3.88 4.00 4.10 3.77 3.72 3.82 3.88 2.97 3.00 3.13 6.25 6.25 6.39 6.75 5.88 5.88 6.06 6.01 6.96 6.90 7.05 6.89 7.27 7.23 7.34 7.17 8.22 8.25 8 18 8.27 6.55 6.50 6.45 6.42 8.43 8.52 8.48 8.69 8.47 826 8 49 8.32 4.96 496 506 515 4 94 11 94 3.76 3.70 3.95 4.18 4.37 4.68 4.86 5.14 4.22 4.61 3.95 4.29 3.15 3.24 6.75 6.75 621 6.50 7.09 7.34 733 752 851 846 643 6.60 8.89 898 853 877 525 554 6 94 12 94 13 94 3.78 3.78 3.80p 418 4.13 4.12 463 4.71 4.67 512 5.18 5.12 455 467 4.67 423 437 4.36 6.75 6.75 6.75 650 653 6.43 7.35 7.36 7.29 7 53 757 7 50 Jul Aug Sep Oct Nov Dec May May Daily May May May 1 _______________________________________________________ 3.04 .5 NOTE: Weekly data fo columns I through 11 are statement week averages Data n column 7 are taken from Donoghue's Money Fund Report Columns 12.13 and 14 ire I d.y quotes for riday, Thursday or Friday respet Ively Iollowing ith end of the statement week. Column 13 is the Bond Buyer revenue index Column 14 is the FNMA purchase yield, plus loan servicing lee, on .)( dfay rnandalory delivery commnlmenls Column 15 is the averi.il r nemnts or lixed-rate morgages (FRMs) with80percent loan to-value ratios at mapr institutional lenders Column 16 is the average initial corlact rate on new (ommilments for I year .arlusa;le contract releonnw coammi rate mortgages (ARMs) at major institutional lenders ollenng both FAMs and ARMs with the same number of discount points p preliminary data Strictly Confidential (FR) II FOMC Class II FOMC Class Money and Credit Aggregate Measures MAY 16, 1994 Seasonally adjusted nontransactrons components Period M1 M2 1 2 In M2 In M3 only 3 4 Domestic nonfinancial deb Bank credit Money stock measures and liquid assets M3 L 5 8 loans total loans and investments' U government' 7 a s other' totaP 9 10 Annual growth rates(): Annually (04 to Q4) 1991 1992 1993 7.9 14.3 10.5 2.9 1.9 1.3 1.2 -2.4 -2.4 -6.0 -6.3 -3.6 1.2 0.5 0.5 0.4 1.4 0.9 3.5 3.7 4.9 11.3 10.7 8.4 2.6 3.1 3.6 4.6 5.0 4.9 10.7 12.0 9.4 6.0 2.2 2.4 1.9 1.8 -1.4 -1.7 -1.4 -0.1 1.6 -6.7 3.7 -9.2 2.1 1.0 2.2 0.1 3.1 0.9 1.5 2.5 6.2 6.8 3.1 6.8 10.4 9.2 5.5 7.0 2.4 4.5 4.8 4.7 4.5 5.7 5.0 5.3 8.0 23.6 10.0 11.4 9.4 10.7 9.0 9.7 6.4 1.1 8.2 2.3 1.7 0.7 2.7 0.5 3.8 2.3 -1.8 1.6 -1.0 -2.6 -3.1 -0.9 -3.3 1.0 0.4 7.6 3.3 -12.1 -10.6 -4.6 1.5 7.2 2.2 9.1 2.1 7.4 0.1 -0.3 -0.1 2.5 1.5 3.5 3.4 4.1 7.8 0.1 -0.9 2.1 -1.6 1.8 2.5 4.3 3.0 9.5 8.9 9.0 1.7 3.1 0.9 6.2 5.2 10.7 10.2 12.2 7.4 9.1 7.0 -1.8 9.2 13.3 2.6 2.6 4.5 5.2 4.2 4.6 5.2 4.5 4.8 4.8 4.6 6.5 5.8 5.5 5.2 3.3 5.7 7.1 5.4 5.4 4.0 -1.2 2.0 -1.4 4.9 2.8 0.4 -4.6 5.4 4.7 -3.3 -41.3 -11.3 1.7 1.2 -7.7 2.5 2.7 4.8 -2.2 1.7 7.5 5.5 10.4 10.4 2.8 4.9 9.1 4.9 4.3 4.7 4.4 4.4 5.8 1128.4 3563.1 2434.7 661.7 4224.8 5122.3 3104.6 3327.9 8981.8 12309.6 3569.0 3564.7 3579.4 3587.8 2435.5 2426.1 2437.0 2446.5 659.9 637.2 631.2 632.1 4228.9 4201.9 4210.6 4220.0 5142.7 5133.3 5140.4 3124.0 3138.3 3165.6 3193.1 3335.6 3349.3 3374.7 9018.8 9050.9 9086.0 12354.4 12400.2 12460.6 p 1133.5 1138.6 1142.4 1141.3 4 11 18 25 p 1148.0 1143.7 1137.6 1136.4 3582.6 3595.3 3588.7 3582.9 2434.6 2451.6 2451.1 2446.5 631.9 628.5 639.6 632.7 4214.5 4223.7 4228.2 4215.6 2 p 1138.7 3581.5 2442.8 626.4 4208.0 Quarterly Average 1993-2nd 1993-3rd 1993-4th 1994-lt QTR. QTR. QTR. QTR. Monthly 1993-APR. MAY JUNB JULY AUG. BP. OCT. NOV. DEC. 1994-JAN. FEB. MAR. APR. p Levels ($Billions): Monthly 1993-DBC. 1994-JAM. FEB. MAR. APR. Weekly 1994-APR. MAY 1. 2. Adjusted for breaks caused by reclassifications. Debt data 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 estimate Strictly Confidential (FR) Class II FOMC Components of Money Stock and Related Measures MAY 16, 1994 Seasonally adjusted unless otherwise noted Period I Levele ($Billion-)s Annually (4th Qtr.) 1991 1992 1993 Other checkable deposits Demand deposits Currency r Overnight RPs and Eurodollar NSA' I r 1 I 1 Savings deposits' 1 ~ 265.6 329.7 319.5 2386.3 337.1 382.1 328.8 380.1 411.9 77.5 81.2 89.2 1027.8 1177.9 1212.1 Monthly 1993-APR. MAYt JUNM 301.8 304.4 307.2 349.0 358.8 362.2 388.2 396.4 399.2 77.2 75.2 78.5 JULY AUG. SEP. 309.7 312.4 315.4 366.4 370.9 375.4 402.8 404.2 406.6 OCT. NOV. DEC. 317.6 319.5 321.4 378.4 383.2 384.8 325.2 329.2 332.4 334.8 1994-JAM. Feb. MAR. APR. p Small denomination time 3 deposits I ~~ 1 Money market mutual funds general purpose Insttutions and only broker/4 dealr 1 ~~~~ ~~ m Large denomination time deposits$ 1 I r Term Eurodollars NSA' Term RP's NSA' 4 n - I4II u n Short-term Commercial Treasury paper' securities Savings bonds u -- ii - 1082.8 883.0 788.1 369.7 354.0 346.7 174.4 206.5 195.4 433.1 365.3 340.0 74.7 80.9 94.5 137.0 154.4 170.9 321.1 327.7 322.3 334.0 366.3 385.2 1185.5 1195.1 1200.4 839.4 832.4 823.9 345.9 348.5 347.5 196.3 198.0 194.7 348.8 348.2 345.3 88.9 89.8 92.8 163.6 164.7 165.9 341.8 343.4 344.2 367.1 371.8 370.9 81.1 82.1 85.4 1202.1 1205.9 1208.4 814.4 806.2 799.4 346.6 345.5 345.0 192.6 190.1 190.8 341.8 341.6 340.4 96.4 96.0 95.6 167.1 168.2 169.2 341.9 341.7 326.3 370.4 379.5 378.4 409.5 411.8 414.3 08.1 89.1 90.3 1208.8 1211.9 1215.5 793.5 788.0 782.8 344.4 347.0 348.8 194.3 194.8 197.0 341.6 339.4 338.9 94.2 94.0 95.3 170.1 170.8 171.7 321.5 321.0 324.3 384.7 384.1 386.8 388.3 390.3 390.0 412.0 411.2 411.9 93.3 90.8 95.9 1220.3 1220.9 1221.9 777.2 772.4 769.5 347.8 343.7 348.6 192.7 176.9 177.4 341.1 335.1 332.4 91.2 89.3 91.9 172.7 173-4 174.1 334.6 339.7 340.0 391.6 403.0 400.1 388.9 409.4 93.3 1220.2 767.9 361.9 177.0 330.7 94.5 1. 2. 3. 4. 5. Net of money market mutual fund holdings of these items Includes money market deposit accounts. 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, depository institutions, U.S. government, and foreign banks and official institutions. p preliminary Bankers aoceptanCes May 13, 1994 Treasury bills Period Redemptions (-) Net change within 1 19,038 11.486 17,249 3,043 1,096 1.223 1993 ---01 ---Q2 ---03 --- 04 7,749 1,268 8.700 7.749 1,268 8.232 279 244 511 189 1994 ---Q1 2.164 2,164 147 1993 May June July August September October November December 349 7.280 349 7,280 902 366 1.396 5.911 1,394 902 366 927 5,911 1,394 1,264 900 1,101 1,264 900 1,101 1994 January February March April Weekly January February March April May Memo: Net purchases Treasurycoupons 20.038 13,086 17,717 1991 1992 1993 19 26 2 9 16 23 2 9 16 23 30 6 13 20 27 4 11 LEVEL (bil. $) May 11 STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC NET CHANGES IN SYSTEM HOLDINGS OF SECURITES 1 Millions of dollars, not seasonally adjusted Net purchases 3 15 510 over 10 () Change 1.280 2,818 4,168 375 2,333 3,457 705 1,110 817 826 -- 2,719 716 1.147 1.297 1.008 1,413 1,103 618 616 6,583 13.118 10,350 1.441 2,490 3,700 --- Federal Net change agencies outright reRede 11,282 27.726 30,219 35,374 19,365 -- 19,198 4,742 166 2.665 411 4,418 -11,663 308 7,258 -166 2,577 4,656 857 5,996 5.954 4.112 12.027 -14.435 4,528 1.262 -6.723 7,232 3.947 -817 1,163 4.073 5,520 -7.757 3,946 40 8,208 -616 -85 4.336 -6,244 4,990 6.326 - - A< 500 797 200 1,800 4,326 1,008 100 4,642 200 100 411 1,100 2,400 189 100 2,619 -616 147 209 1.413 2.817 1.103 1,117 618 896 3.281 4,599 616 -1,614 -13.215 5,974 2.851 12,648 7,067 12.807 3,141 - Net RPsgs 5 Net RPs toal -616 -461 4.455 11.046 --- 246 1,197 100 55 42 351 370 235 669 246 1,197 100 55 42 351 370 235 669 147 1,413 209 2.817 --- 440 -55 246 1,052 100 55 3.324 341 320 160 5.264 -51 3281 4.599 --.. --- -25 199.1 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 exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues. 85.2 25.0 33.6 ---13,244 1.927 4,096 1.114 -3,656 4,446 -4.258 1.314 8,695 6.025 2.333 3,059 --- 3.490 2.299 342.9 4. Reflects net change in redemptions (-) ol Tre asury and agency securities. 5 Includes change in RPs (+). matched sale-puirchase transactions (-), and matched purchase sale transactions (). 6. The levels of agency issues were as follows: May 11 within 1 year 16 15 1.8 5 10 o over 10 00 10,624 -8,644 total 40
@FedFRASER