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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 November 10, 1995 MONETARY POLICY ALTERNATIVES Recent Developments (1). Over the intermeeting period, federal funds traded close to the FOMC's intended rate of 5-3/4 percent, apart from some temporary elevation around the end of the third quarter. To date, reserve management has not been complicated significantly by the Treasury's efforts to cope with the looming debt-ceiling constraint. However, in order to prevent the supply of bills available to the market from being unduly constricted by the Treasury's decision to slash the auction on October 23, the Desk did elect to run off $900 million of maturing issues from the System Open Market Account in that week, adding to reserve needs during the intermeeting period. (2) Yields on intermediate- and longer-term Treasuries fell 25 to 30 basis points in the period since the September FOMC meeting, extending the rally that began about a year ago and bringing rates on long bonds to their lowest levels since early 1994. In part, the decline in rates may have reflected further reductions in inflation expectations (chart), spurred by favorable inflation and labor compensation data. In addition, commentary on the basis for ultimate budget compromise between the Congress and the Administration suggested better odds that substantial fiscal restraint over the long run would be forthcoming. In recent days, however, clashes over debt ceiling and interim appropriations measures apparently have begun to concern market participants, heightening volatility in the Treasury market and causing rates to back up slightly. Although economic data were mixed Chart 1 Federal Funds Futures Treasury Interest Rates Percent t******* '*o'.\ FOMC September 26 . November 10 I I Oct 1995 Sep I I Dec Nov I I Jan I J FMAMJ J ASONDJ 1994 Weekly. Daily after Sep. 26. Apr Mar Feb 1996 Treasury Yield Curves FMAMJ JASON 1995 Basis Points Change in Forward Rates Since September 26 Percent ~1 FOMC 9/26/95 0/95 'p.( p p 5 7 I 1 3 10 ,,------I 20 3 110 30 FMAMJ JASON 1995 Years Ahead Maturity in Years Long-term Inflation Expectations Exchange Rates Percent Michigan Survey' *....*"". '.- 1990 S4 v P. ! Nov Philadelphia FRB Survey 1991 * Quarterly average. p Preliminary. 1992 '...... 1993 . 1994 - 1995 4 3 1996 J FMAMJ J ASONDJ 1994 *Index, Jan 1994=100 Weekly. Daily after Sep. 26. over the period, market participants seemed to conclude that privatesector spending in the current expansion was not likely to be so strong as to forestall a future easing in monetary policy. Money market yields and futures quotes indicate that market participants see only slim odds of any near-term monetary policy moves but still look for an easing late this year or early 1996, presumably timed to follow a budget agreement. On balance, money market interest rates were about unchanged over the intermeeting period. Falling longer-term interest rates and continued good news on corporate earnings again lifted stock prices, with major indexes increasing 1/2 to 2 percent to new records over the intermeeting period. (3) The dollar's weighted-average exchange value moved in a fairly narrow range over most of the intermeeting period, but softened somewhat in recent days, in part on concerns about a U.S. default and about the unsettled Mexican situation. 1-1/4 percent lower, on balance. It ended the period about Interest rates in major foreign countries, on average, moved down somewhat, but by less than in the United States. The Canadian dollar was volatile over the period but strengthened against the U.S. dollar in the wake of the defeat of Quebec's separation referendum, permitting a substantial reduction in short-term rates by the Bank of Canada. The dollar traded firmer against the yen for much of the period, seemingly influenced by market concerns over the financial condition of the Japanese banking system. Short-term interest rates in Mexico rose more than 25 percentage 1. Private short-term rates incorporate premiums of 1 to 2 percentage points for funds over the long weekend at year-end. Premiums were higher on borrowing by Japanese banks, whose financial difficulties attracted mounting concerns over the period. The announcement of regulatory and law-enforcement actions against Daiwa Bank later in the period did not appear to add to funding pressures on Japanese banks, and indeed premiums have narrowed a bit in recent days. points as the peso came under sharp downward pressure against the dollar, reflecting some apparent loss of confidence in the government's willingness to maintain anti-inflationary policies in the face U.S. monetary authorities did of continued weakness in the economy. not intervene in foreign exchange markets during the period. (4) The expansion of debt and broad money seems to have moderated somewhat in recent months. With a slowing in both private and federal borrowing, growth in the debt of all domestic nonfinancial sectors fell to a 3 percent annual rate in September, leaving this aggregate around the middle of its 3 to 7 percent monitoring range. Data for October, while still sparse, point to another month of modest borrowing. Bank credit growth came to a near-standstill last month. Business loans were flat, and growth in consumer and real estate loans slowed. Some of this weakness owed to a shifting of borrowing to securities markets (corporations tapped capital markets in size, and securitization of consumer and real estate loans rose), but it appears that credit demands also were sluggish. On the supply side, senior loan officers reported continued easing of terms on business loans, especially for large firms, but had tightened slightly the terms and standards for consumer lending in response to increased delinquencies. In the open markets, spreads on investment-grade paper have stayed narrow, but junk bond spreads have widened somewhat, adding to significant increases already experienced earlier in the year. (5) Owing to reduced funding needs of banks, M3 expanded at only a 3-1/2 percent pace in October, its slowest growth in eight months. This moderation brought the growth rate of this aggregate from the fourth quarter of 1994 to 6-1/2 percent, leaving it only a Con- little above the upper end of its 2 to 6 percent annual range. tinuing the sharp deceleration from its rapid summer pace, M2 was about unchanged last month, and its growth from the fourth quarter was 4-1/2 percent, in the upper half of its 1 to 5 percent range. The expansion of. instruments in M2 held primarily by households (NOW accounts, MMDAs, money funds, and small time deposits) has fallen off sharply over the past two months. Although total flows into bond and stock mutual funds have been substantial, they do not appear to have strengthened significantly of late, and net noncompetitive tenders for Treasury securities have remained anemic.2 Thus, the recent weak- ness in M2 is not easily explained. (6) The contraction in M1 steepened in October to a 10-1/2 percent annual rate. Much of the decline in this measure was again accounted for by the implementation of additional retail sweep arrangements.3 Even after adjusting for the initial effects of such programs, however, M1 dropped at a 2-1/2 percent rate. Demand depos- its fell, and currency growth, at a 4-1/2 percent pace, remained weak compared with its average of the past few years. After moderating last spring, net foreign shipments of U.S. currency have continued to run at a markedly lower rate in recent months. 4 Anecdotal informa- tion points to some developing reluctance in foreign countries to hold the current series $100 bills in advance of the introduction of the 2. Based on preliminary data, M2 plus stock and bond mutual funds is estimated to have expanded at a 5-3/4 percent rate in October, bringing its increase from the fourth quarter to 7-1/2 percent. 3. On a monthly average basis through October, banks are estimated to have implemented about $41 billion of retail sweeps. Such sweeps have reduced required reserve balances by an estimated $3-3/4 billion. 4. The monetary base expanded at a 2 percent rate in October, while total reserves fell at nearly a 12 percent rate. Adjusted for the initial effects of sweep accounts on required reserves, the monetary base expanded at a 4-1/2 percent rate and total reserves grew at a 4 percent pace in October. -5new bill next year, apparently reflecting concern about the future acceptability of the current series. MONEY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) QIV to Aug. Sept. Oct. Oct. -3.9 2.3 -10.6 -2.4 -1.7 4.4 Money and credit aggregates Adjusted for OCD sweeps -1.6 3.1 1.2 M2 8.3 4.7 -0.3 M3 7.6 4.4 3.5 Domestic nonfinancial debt Federal Nonfederal 3.8 1.9 4.4 3.1 0.7 4.0 Bank credit 5.2 7.1 0.9 8.2 Nonborrowed reserves -1.1 -3.0 -11.2 -4.8 Total reserves Adjusted for OCD sweeps -2.9 6.0 -3.1 10.0 -11.8 4.0 -4.8 0.9 Monetary base Adjusted for OCD sweeps 3.3 4.7 1.1 2.5 2.1 4.4 4.1 6.5 5.4 4.7 5.7 Reserve measures Memo: (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves 1. 4.9 988 278 245 950 1059 QIV to September for debt aggregates. NOTE: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. Reserve data incorporate adjustments for discontinuities associated with changes in reserve requirements. Policy Alternatives (7) Recent GDP and labor market data have been stronger than anticipated by the staff at the time of the September FOMC meeting, and output is now projected to grow about 1 percentage point faster over the second half of 1995 than expected in September. In effect, the levels of interest rates over the past year seem to have been less restrictive than thought before, and greater strength in aggregate demand is seen as persisting in 1996 and 1997: with a sustained 5-3/4 percent federal funds rate. output is projected to expand at close to the growth rate of potential GDP. Thus, the unemployment rate holds in the 5-1/2 to 5-3/4 percent range through the forecast period, appreciably below the path in the previous Greenbook. However, the staff also has interpreted recent data on prices and compensation as suggesting that the economy can operate at unemployment rates around those levels without an acceleration of inflation. As a consequence, core inflation is seen as holding fairly steady at around 3 percent, even at the relatively low unemployment rates projected. The staff forecast thus has the economy operating in 1996 with higher output and lower unemployment than the Committee members' midyear expectations, though with inflation in the central tendency range for the CPI. (8) On the federal budgetary front, the eventual outcome remains uncertain, and a sustained lapse in annual appropriations or a default on Treasury debt cannot be ruled out as a by-product of the negotiating process. As to appropriations, it may be difficult for the President and the Congress to agree on a continuing resolution to authorize spending past November 13. At this writing, a real pos- sibility exists that nonessential operations of the government will have to shut down beginning November 14 and that any eventual continuing resolution would involve more fiscal restraint in the near term than incorporated in the greenbook forecast.5 However, because many government operations would be deemed essential and allowed to continue, and because others are funded by multi-year appropriations, the quantitative effect on activity would be small, even if a spending lapse were to persist. As to default, market prices so far have been affected only a little by such a possibility, presumably because investors anticipate some political compromise or a resort to unusual financing devices by the Treasury to enable it to make timely payments. The possible implications for markets and for monetary policy of a default are discussed in paragraphs (17) to (19) below. The Greenbook forecast assumes no significant macro- (9) economic effects from any temporary disruptions incurred in the process of determining the longer-run stance of fiscal policy. As noted above, the current funds rate is judged to be consistent with core consumer inflation staying at about 3 percent. Despite the lack of a downward tilt to the inflation projection, the Committee still might favor the unchanged stance of policy in alternative B if it viewed the benefits of further disinflation as insufficient to justify a more restrictive policy stance that pushed the economy below its potential. The case for alternative B would be even stronger if the Committee viewed the staff inflation forecast as too pessimistic-either because spending would be weaker or because the price-output relationship would be more favorable than the staff assessment. 5. A government shutdown would disrupt the normal flow of economic data. Retail sales for October would be released on November 14, but consumer prices would not be available on the next day. Moreover, uncertainties about the economic outlook might seem particularly large, both because of the fiscal situation and because of conflicting signals about spending and production. Such circumstances could reinforce the desire to stand pat, awaiting clarification of the outlook. (10) Earlier expectations of the possibility of easing at the November FOMC meeting have largely been erased and, thus, the choice of alternative B should have little impact on market interest rates. The dollar would trade on foreign exchange markets around its current level. Although market attention over the intermeeting period is likely to remain focused on the budget deliberations, evidence of persistent strength in private final demands along the lines of the staff forecast might cause markets to begin to question their expectations about the path of interest rates going forward, and intermediate- and long-term rates could edge higher. (11) The choice of easing under alternative A might be favored if it were thought that some information about spending--for example, soft industrial commodity prices and a sluggish manufacturing sector or slowing growth of broad money and credit--was suggesting a weakening in aggregate demand not yet evident in more general statistics. These indicators might be signalling that real interest rates already have been on the high side, and these rates could be rising further, especially at the short end of the maturity spectrum, in light of the recent decline in inflation and, most likely, inflation expectations. In effect, the downward slope to the near-term yield curve and narrow spread of the entire curve could be signalling that real short-term rates are above those consistent with moderate growth, especially in the face of impending fiscal restraint. -10- (12) The cut in the federal funds rate of 50 basis points under alternative A would come sooner and be larger than now expected in the market. Consequently, it would show through to other money market interest rates, and banks would trim 1/2 percentage point off the prime rate. The dollar would be expected to weaken on foreign exchange markets as interest rates on dollar-denominated assets fell in relation to those on other major currencies. The sustainability of any decline in bond rates would depend on whether market participants similarly saw the easing to be called for or rather viewed it to be premature and unsustainable, as might become the case if indicators in the period just ahead were broadly in line with the staff forecast. (13) The choice of alternative C might be favored to the extent that the Committee wished to have greater assurance that inflation would continue to edge down. A more restrictive policy to accomplish this objective might be seen as all the more needed in light of recent strength in broad measures of output and labor input. Furthermore, intermediate- and long-term interest rates have declined substantially in recent months, potentially providing considerable further impetus to spending. (14) A move to tighten policy by 50 basis points as under alternative C would especially surprise market participants, who continue to hold the view, supported by statements from some Committee members, that the next policy move will be to ease. Money market rates would rise by at least the 50 basis point increase in the federal funds rate. The dollar would tend to strengthen on foreign exchange markets, and intermediate- and long-term interest rates would retrace some of their recent declines as a higher path for real shortterm rates came to be built into market expectations. -11(15) The table below presents expected growth of money and debt under the unchanged reserve conditions of alternative B. In credit markets, supply conditions are expected to remain generally favorable. However, the likely cutback in business lending by Japa- nese banks and possible tendency for consumer lenders to become more selective suggest that credit may become less freely available for some borrowers. Nonetheless, borrowing by nonfederal sectors is expected to firm a little from the subdued pace of recent months. For businesses, strong cash flow and some slowing in the pace of inventory accumulation will act to hold down financing needs, although this effect will be offset by the scheduled completion of some large mergers and associated share retirements in coming months. In the house- hold sector, debt growth will be sustained in the near term in financing further healthy advances in durable goods outlays and fairly robust housing activity. Total nonfederal debt is projected to expand at below a 5 percent annual rate over late 1995 and early 1996. Fed- eral borrowing will be light in the months immediately ahead, even absent a spending lapse or debt-ceiling crisis, before strengthening late in the winter. Taken together, total nonfinancial sector debt is projected to grow 5-1/4 percent in 1995, around the middle of its monitoring range, and to maintain that pace early in 1996. Annualized growth from Oct. 1995 to March 1996 M2 M3 M1 Debt Federal Nonfederal 4-1/2 5-1/2 -1-1/2 5-1/4 7 4-1/2 -12- (16) The broad monetary aggregates, especially M2, are expected to strengthen after October. Moderate nominal income growth and fairly narrow opportunity costs will tend to buoy expansion in household demand for M2, helping to return growth in this aggregate to the 4-1/2 percent area over the October-to-March period under alternative B. The rebound in M2 growth, combined with still-brisk issuance of large time deposits to fund bank credit, would result in about 5-1/2 percent M3 growth under alternative B. As a consequence, M3 velocity would continue to decline over the fourth quarter of this year and the first quarter of next year, albeit at a slower pace. The velocity of M2, in contrast, should edge up over these two quarters, reversing part of its unexpectedly large third-quarter decline. Mean- while, M1 is projected to remain on a downward trajectory, owing to the further spread of retail sweeps. For the year 1995, the staff projects M2 to rise 4-1/4 percent, in the upper portion of its 1-to-5 percent range, and M3 to advance 6-1/2 percent, a little above its 2to-6 percent range. In March of 1996, both aggregates would be near the upper ends of their tentative ranges for next year. Contingencies Regarding a Treasury Default (17) While a Treasury default on November 15 seems extremely unlikely, given the financing flexibility apparently available to the Secretary of the Treasury, the threat of default may linger for some time. Considerable uncertainty surrounds the financial market conse- quences of the inability of the U.S. Treasury to meet its obligations. Payments on principal, interest, and a variety of other obligations would be delayed for an unknown length of time, creating liquidity strains for many banks and their customers. Strains could be com- pounded by frictions in pricing, trading, and financing of matured -13securities and overdue interest coupons. If trading conventions were established to minimize those frictions, and if the Treasury could clarify that interest would continue to accrue after maturity, liquidity in the market for these instruments could be maintained to some extent,.likely mitigating price changes. Nonetheless, with no experience to guide judgments about these effects, sizable price movements are conceivable--and, in any case, markets are likely to be quite skittish. Treasury securities are the benchmark for pricing many financial instruments and widely used as collateral, and, consequently, the potential exists for spillover effects to other markets. (18) Some of the uncertainties and skittishness could be ameliorated by System and Treasury actions. In the payments area, allowing matured securities to be transferred on the book-entry system should foster secondary market trading, as would an announcement about the procedures to be followed for delayed interest payments. More- over, an announcement of the Desk's willingness to take defaulted obligations as collateral in repurchase agreements should serve to encourage that practice more generally. As to potential liquidity problems, accepting defaulted Treasury obligations as good collateral for discount window borrowing should aid those depositories, and indirectly their customers, experiencing delays in receipt of payments. If liquidity problems seem to have the potential of becoming severe or widespread, it may be necessary to consider steps to encourage greater use of the discount window. Unpredictable demands for adjustment credit, along with uncertainty about the total demand for excess reserves in volatile markets, would complicate the implementation of policy over this period, requiring considerable flexibility in daily open market operations. If, despite these steps, -14serious market disruptions threatened the health of the economy, the FOMC might want to address the question of whether the System Open Market Account should be used to purchase defaulted Treasury obligations from the public, taking account of the Federal Reserve Act's limitation that securities only be purchased in the open market. Such a step, presumably, would be considered in the context of the overall stance of policy in the circumstances. (19) If market disruptions were limited, the effects on economic activity of a Treasury default should be fairly small, with little implication for the underlying stance of monetary policy. If it looked as if significant reductions in the deficit would be forthcoming, a run-up in Treasury yields might not be large and might not be matched by increases in private rates. The Treasury would continue to purchase goods and services and to take in tax receipts in accordance with existing authority. A strong market reaction could present policymakers with difficult choices. A generalized loss of confidence and flight from dollar assets would tend to raise interest rates and discourage spending, but it could also cause the dollar to drop sharply. Alternative Levels and Growth Rates for Key Monetary Aggregates M2 Alt. A Levels in Billions Aug-95 Sep-95 Oct-95 Nov-95 Dec-95 Jan-96 Feb-96 Mar-96 M3 Alt. B Alt. C Alt. A Alt. B M1 Alt. C Alt. A Alt. B Alt. C 3743.1 3757.9 3757.0 3770.8 3785.2 3801.0 3818.4 3835.6 3743.1 3757.9 3757.0 3770.1 3782.7 3795.9 3810.8 3826.0 3743.1 3757.9 3757.0 3769.5 3780.2 3790.9 3803.2 3816.5 4519.1 4535.5 4548.6 4568.3 4588.5 4611.1 4634.1 4656.5 4519.1 4535.5 4548.6 4568.0 4587.0 4608.0 4629.5 4650.8 4519.1 4535.5 4548.6 4567.6 4585.5 4605.0 4624.9 4645.0 1143.4 1139.7 1129.6 1128.4 1127.2 1126.6 1126.6 1127.2 1143.4 1139.7 1129.6 1128.1 1126.2 1124.4 1123.1 1122.3 8.3 4.7 -0.3 4.4 4.6 5.0 5.5 5.4 8.3 4.7 -0.3 4.2 4.0 4.2 4.7 4.8 8.3 4.7 -0.3 4.0 3.4 3.4 3.9 4.2 7.6 4.4 3.5 5.2 5.3 5.9 6.0 5.8 7.6 4.4 3.5 5.1 5.0 5.5 5.6 5.5 7.6 4.4 3.5 5.0 4.7 5.1 5.2 5.2 -1.6 -3.9 -10.6 -1.3 -1.2 -0.7 0.0 0.7 -1.6 -3.9 -10.6 -1.6 -2.0 -1.9 -1.4 -0.9 -1.6 -3.9 -10.6 -1.9 -2.8 -3.1 -2.8 -2.5 Quarterly Averages 95 Q1 95 Q2 95 Q3 95 Q4 96 Q1 1.7 4.4 7.7 3.4 5.0 1.7 4.4 7.7 3.3 4.4 1.7 4.4 7.7 3.1 3.7 4.4 7.1 8.8 4.7 5.7 4.4 7.1 8.8 4.7 5.4 4.4 7.1 8.8 4.6 5.1 0.0 -0.9 -1.0 -5.0 -0.6 0.0 -0.9 -1.0 -5.1 -1.7 0.0 -0.9 -1.0 -5.3 -2.7 Growth Rate From Oct-95 To Mar-96 5.0 4.4 3.8 5.7 5.4 5.1 -0.5 -1.6 -2.6 95 Q4 Mar-96 5.1 4.5 3.8 5.8 5.4 5.1 -0.3 -1.5 -2.7 93 Q4 94 Q4 94 Q4 95 Q4 1.1 4.4 1.1 4.3 1.0 to 5.0 1.1 4.3 1.4 6.4 1.4 6.4 2.0 to 6.0 1.4 6.4 2.4 -1.7 2.4 -1.7 2.4 -1.8 Monthly Growth Rates Aug-95 Sep-95 Oct-95 Nov-95 Dec-95 Jan-96 Feb-96 Mar-96 1995 Target Ranges: 1143.4 1139.7 1129.6 1127.8 1125.2 1122.3 1119.7 1117.3 -16- Directive Language (20) Presented below is draft wording for the operational paragraph that includes the usual options for Committee consideration. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE maintain/INCREASE (SOMEWHAT/ SLIGHTLY)/ (SOMEWHAT/SLIGHTLY) the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for sustainable economic growth, and giving careful consideration price stability and to economic, financial, and monetary developments, slightly (SOMEWHAT) greater reserve restraint slightly (WOULD/MIGHT) or (SOMEWHAT) lesser reserve restraint would acceptable in the intermeeting period. (MIGHT) be The contemplated reserve conditions are expected to be consistent with MODERATE growth in M2 and M3 over COMING[DEL: the balance of the year near the pace of recent]months. November 10,1995 SELECTED INTEREST RATES (percent) Short-Term federal funds Treasury bills secondary market Long-Term CDs secondary market comm. paper money market mutual bank prime U.S. government constant -maturity yields corporate conventional home mortgages A-utility municipal secondary primary recently Bond market market 3-month -month 1-year 3-month 1-month fund loan 3-year 10-year 30-year offered Buyer 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 -- Low 5.85 2.97 5.70 2.94 6.26 3.12 6.73 3.35 6.31 3.11 6.11 3.11 5.12 2.68 8.50 6.00 7.79 4.44 8.00 5.70 8.13 6.25 9.05 7.16 7.37 5.49 9.57 7.02 9.25 6.97 6.79 4.12 95 -- High -- Low 6.21 5.40 5.81 5.24 6.31 5.24 6.75 5.15 6.39 5.69 6.10 5.73 5.61 5.16 9.00 8.50 7.80 5.60 7.85 5.95 7.89 6.28 8.81 7.27 6.94 5.93 9.57 7.73 9.22 7.37 6.87 5.64 Monthly Nov 94 Dec 94 5.29 5.45 5.29 5.60 5.72 6.21 6.13 6.67 5.79 6.29 5.40 6.08 4.62 5.00 8.15 8.50 7.44 7.71 7.96 7.81 8.08 7.87 8.95 8.78 7.27 7.07 9.43 9.51 9.17 9.20 6.10 6.66 5.53 5.92 5.98 6.05 6.01 6.00 5.85 5.74 5.80 5.76 5.71 5.77 5.73 5.65 5.67 5.47 5.42 5.40 5.28 5.28 6.21 6.03 5.89 5.77 5.67 5.42 5.37 5.41 5.30 5.32 6.59 6.28 6.03 5.88 5.65 5.33 5.28 5.43 5.31 5.28 6.24 6.16 6.15 6.11 6.02 5.90 5.77 5.77 5.73 5.79 5.86 6.05 6.07 6.06 6.05 6.05 5.87 5.85 5.82 5.81 5.17 5.36 5.51 5.54 5.51 5.46 5.39 5.27 5.24 5.20 8.50 9.00 9.00 9.00 9.00 9.00 8.80 8.75 8.75 8.75 7.66 7.25 6.89 6.68 6.27 5.80 5.89 6.10 5.89 5.77 7.78 7.47 7.20 7.06 6.63 6.17 6.28 6.49 6.20 6.04 7.85 7.61 7.45 7.36 6.95 6.57 6.72 6.86 6.55 6.37 8.75 8.55 8.40 8.31 7.89 7.60 7.72 7.84 7.55 7.36 6.84 6.45 6.32 6.22 6.16 6.07 6.21 6.37 6.18 6.05 9.41 9.13 8.90 8.71 8.32 7.96 8.03 8.24 8.01 7.88 9.15 8.83 8.46 8.32 7.96 7.57 7.61 7.86 7.64 7.48 6.82 6.68 6.45 6.35 6.14 5.87 5.83 5.93 5.81 5.74 5.75 5.44 5.43 5.40 5.77 5.83 5.32 8.75 6.08 6.47 6.89 7.88 6.27 8.16 7.79 5.86 Aug 2 95 Aug 9 95 Aug 16 95 Aug 23 95 Aug 23 95 Aug 30 95 5.83 5.73 5.74 5.70 5.70 5.71 5.42 5.40 5.43 5.44 5.44 5.33 5.38 5.40 5.45 5.46 5.46 5.35 5.36 5.36 5.47 5.53 5.53 5.38 5.75 5.75 5.78 5.78 5.78 5.76 5.85 5.85 5.86 5.85 5.85 5.84 5.31 5.29 5.27 5.27 5.27 5.25 8.75 8.75 8.75 8.75 8.75 8.75 6.05 6.05 6.17 6.22 6.22 6.02 6.46 6.49 6.56 6.57 6.57 6.38 6.88 6.91 6.93 6.90 6.90 6.74 7.88 7.96 7.89 7.70 7.70 7.60 6.35 6.40 6.44 6.40 6.40 6.26 8.24 8.25 8.29 8.17 8.17 8.09 7.82 7.80 7.94 7.88 7.88 7.76 5.89 5.91 5.95 5.96 5.96 5.86 Sep Sep Sep Sep 6 13 20 27 95 95 95 95 5.77 5.73 5.78 5.80 5.30 5.33 5.25 5.24 5.30 5.32 5.24 5.32 5.30 5.33 5.24 5.34 5.76 5.73 5.69 5.73 5.83 5.82 5.81 5.81 5.25 5.24 5.25 5.21 8.75 8.75 8.75 8.75 5.88 5.90 5.81 5.96 6.21 6.21 6.12 6.26 6.60 6.57 6.48 6.58 7.58 7.48 7.58 7.49 6.16 6.09 6.18 6.27 7.92 7.90 8.10 8.05 7.63 7.60 7.57 7.62 5.86 5.80 5.77 5.77 Oct Oct Oct Oct 4 11 18 25 95 95 95 95 6.00 5.72 5.71 5.76 5.29 5.30 5.29 5.25 5.35 5.34 5.32 5.32 5.34 5.29 5.27 5.29 5.80 5.79 5.78 5.79 5.87 5.82 5.80 5.81 5.29 5.20 5.21 5.20 8.75 8.75 8.75 8.75 5.90 5.81 5.74 5.76 6.17 6.07 5.99 6.02 6.49 6.43 6.33 6.34 7.41 7.27 7.32 7.40 6.14 6.08 5.97 6.02 7.92 7.81 7.86 7.93 7.57 7.50 7.38 7.45 5.76 5.75 5.72 5.73 1 95 5.76 5.28 5.29 5.23 5.78 5.80 5.22 8.75 5.70 6.03 6.34 7.33 5.93 7.73 7.44 5.67 3 95 7 95 8 95 5.66 5.65 5.93 5.31 5.37 5.36 5.26 5.30 5.26 5.14 5.19 5.13 5.75 5.74 5.74 5.80 5.81 5.82 8.75 8.75 8.75 5.58 5.65 5.58 5.94 5.99 5.92 6.28 6.31 6.25 !hill-- High Jan Feb Mar 95 95 95 Apr 95 May95 Jun 95 Jul 95 Aug 95 Sep 95 Oct 95 Weekly Jul 26 95 Nov Daily Nov Nov Nov _ _ _ _ _ _ _ _ _ _ _ _ _ _ __-- L-- -__ _-__ _ _ --_ _ _ _-__--- _ _ _-_--_-----_- _-------- - ----- - --------------- ixed-rate fixed-rate ARM ----- NOTE: Weekly data for columns 1 through 11 are statement week averages. Data in column 7 are taken from Donoghue's Money Fund Report. Columns 12,13 and 14 are 1-day quotes for Friday, Thursday or Friday, respectively, following the end of the statement week. Column 13 is the Bond Buyer revenue index. Column 14 is the FNMA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for fixed-rate mortgages (FRMs) with 80 percent loan-to-value ratios at major institutional lenders. Column 16 is the average initial contract rate on new commitments for 1-year, adjustablerate mortgages (ARMs) at major institutional lenders offering both FRMs and ARMs with the same number of discount points. Strictly Confidential (FR)Class II Money and Credit Aggregate Measures NOVEMBER14.1995 Sssonay djustsd Seasonallyadjusted Mon ey stock measures and liquid as ets nontransactlons components Period Annual arowth ratesg(%4 Annually (Q4 to Q4) M1 M2 1 _ 2 In M2 In M3 only 3 4 FOMC Class Bank credit tot loans M3 total loans and L 6-. 5 pom stic nonfinancial debt' U.S. 2 investments' governmen t 7 8 other total' ~ 10 , 1992 1993 14.3 10.5 2.0 1.7 -2.3 -1.9 -6.3 -2.5 0.5 1.0 1.5 1.4 1994 3.7 5.0 10.7 8.4 2.8 4.0 4.8 5.2 2.4 1.1 0.5 3.5 1.4 2.4 6.8 5.7 4.9 5.1 Quart erly(average) 1994-Q4 1995-01 1995-02 1995-Q3 -1.2 0.1 -0.9 -1.0 -0.3 1.7 4.4 7.7 0.2 2.5 6.9 11.7 12.3 1.5 .5 20.7 13.8 1.7 4.4 7.1 8.8 2.2 6.4 7.6 4.1 7.6 13.3 6.2 5.9 5.3 5.3 5.0 5.7 7.2 5.2 5.5 6.7 Monthly 1994-OCT. NOV. DEC. -2.9 -0.6 0.4 -1.3 0.6 1.7 -0.5 1.1 2.2 18.7 6.7 12.5 1.8 1.5 3.4 3.0 2.5 4.8 3.7 1.7 6.8 5.4 8.5 1.2 4.0 5.4 4.9 4.4 6.3 3.9 1.0 -1.8 0.6 1.9 -7.0 0.9 1.0 -1.6 -3.9 -11 4.0 -1.4 2.5 4.4 5.5 11.9 6.2 8.3 4.7 0 5.3 -1.2 3.4 5.6 11.2 16.8 8.5 12.7 8.5 4 19.2 24.1 26.1 16.0 20.8 17.6 18.6 4.7 2.5 22 6.4 2.7 6.4 6.3 8.0 12.8 8.4 7.6 4.4 4 5.8 9.0 9.7 6.1 6.3 8.3 11.5 7.6 11.6 4.5 8.8 24.0 9.4 5.4 5.8 5.2 7.1 0 2.5 10.6 7.4 0.7 5.9 8.4 4.1 1.9 6.1 6.2 5.0 8.8 9.1 3.8 3.0 4.2 5.1 7.4 5.6 6.6 8.3 5.0 3.3 3.5 1143.0 1143.9 3662.1 3698.3 2519.1 2554.4 750.2 761.2 4412.3 4459.4 5433.9 5471.6 3483.1 3498.7 3577.0 3602.0 9742.2 9772.9 13319.2 13374.8 JULY AUG. 1144.9 1143.4 3717.5 3743.1 2572.6 2599.8 773.0 776.0 4490.5 4519.1 5524.2 5559.0 3515.7 3530.8 3614.4 3620.0 9797.0 9830.9 13411.4 13450.9 SEP. 1139.7 3757.9 2618.2 777.6 4535.5 4 11 18 25 1142.0 1142.3 1139.7 1140.5 3753.6 3754.2 3759.3 3760.4 2611.6 2611.9 2619.6 2619.8 777.7 776.8 776.2 775.5 4531.3 4531.0 4535.5 4535.8 2 9 16 23 p 30 p 1132.2 1128.4 1130.8 1129.1 1128.9 3759.4 3753.6 3758.1 3755.6 3758.3 2627.2 2625.2 2627.3 2626.5 2629.4 783.8 790.0 792.2 795.0 791. 1 4543.1 4543.6 4550.3 4550.6 4549.4 1995-JAN. PEB. MAR. APR. MAY JUNE JULY AUG. SEP. OCT. pe Levels Sbillions)z Monthly 1995-MAY JUNE Weekly 1995-SEP. OCT. 3551.8 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 pe preliminary preliminary estimate al16.uy Period Currency avings NSA' 1 Levels 2 3 4 Small denomiation Money market mutual funds general putuons Large denominon deposits' broker/ dealere deposits 7 5 1 ~1-H)- NOVaEBER14,1995 Seasonallyadjusted unless otherwise noted Other chckable lb idl Class II FOMC Components of Money Stock and Related Measures Overnight RPs and Euro- ulllhu a Term RP 9 Termn EuroNSA Savings 11 12 hort-term ommer 1 ak Bankers s ce 1 4 lSbhillons) Annual (04) 1992 1993 1994 290.1 319.8 352.5 336.5 381.2 383.1 380.0 412.6 404.0 83.0 95.1 114.8 1177.5 1211.7 1157.7 882.2 790.4 810.5 359.2 357.8 383.9 205.8 196.9 180.7 358.4 334.2 357.5 81.8 96.7 103.5 46.7 46.5 53.2 154.5 170.8 179.9 329.2 328.9 363.6 365.5 381.8 400.9 20.6 15.5 13.5 Monthly 1994-SEP. 347.2 386.5 408.9 112.0 1183.7 789.6 377.4 176.3 348.2 101.7 52.1 179.1 360.5 390.2 14.8 350.0 353.0 354.5 384.5 382.5 382.2 405.4 403.8 402.9 114.0 113.4 117.1 1171.0 1157.8 1144.2 799.7 810.8 820.9 379.5 383.3 389.0 180.8 180.5 180.8 353.6 357.4 361.4 101.9 103.1 105.6 52.7 54.5 52.4 179.5 179.9 180.3 358.6 361.9 370.2 399.9 401.4 401.3 13.1 13.5 14.0 FEB. MAR. 357.7 358.8 362.5 383.6 384.1 383.3 399.3 395.9 393.3 123.9 118.3 118.2 1129.8 1111.9 1094.9 836.5 856.5 879.5 392.1 391.5 390.9 186.3 180.4 189.0 361.9 371.2 378.6 109.4 113.4 113.4 53.1 56.3 58.3 180.5 180.4 180.5 371.4 389.9 402.0 402.8 414.7 421.7 13.4 13.4 14.1 APR. MAY JUNE 365.7 368.1 367.4 381.2 380.6 386.8 393.6 385.0 380.7 115.7 116.5 117.3 1082.4 1081.4 1091.1 898.5 912.7 919.7 396.0 405.4 426.2 192.9 194.8 205.6 380.2 385.5 389.3 116.5 121.7 119.8 59.9 61.1 62.4 180.9 181.6 182.3 396.9 383.9 391.0 430.8 443.8 427.5 13.9 12.3 11.3 JULY AUG. SEP. 367.1 368.3 369.1 389.5 390.0 389.7 379.4 376.2 114.3 118.4 121.4 1091.4 1098.1 1105.2 924.3 927.2 929.5 442.0 455.9 462.6 212.4 210.8 213.5 396.3 398.4 401.1 115.3 117.6 115.4 63.3 62.6 61.4 183.0 183.7 410.9 408.8 428.0 435.3 11.7 OCT. NOV. DEC. 1995-JAN. .3 372.0 I.3 L........-IL I.3- I 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 12.2 STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC NET CHANGES INSYSTEM HOLDINGS OF SECURITES1 Millions of dollars, not seasonally adjusted November 10, 1995 Treasury bills . . Period Net Redemptions Ne change (-) ___________purchases 1992 Treasurycoupons Net purchases 3 13,086 17,717 17,484 11,486 17,717 17,484 1994 --Q1 ---Q2 ---03 ---0Q4 2,164 6,639 1,610 7,071 2,164 6,639 1,610 7,071 1995 --Q1 ---02 ---03 4,470 842 1994 November December 6,109 444 1993 1994 1995 January February March April May June ---- 1 ear 1-5 5-10 over 10 Redempons Ne Federal agencies redemptions (-) Change () 13,118 2,333 3,457 3,606 767 2,337 19,365 18,431 15,493 632 774 1,002 -13,215 10,350 9,168 2,818 4,168 3,818 30,219 1,223 1,238 35,374 31,975 5,974 -7.412 1,413 2,817 2,530 2,408 1,103 1,117 938 660 618 896 840 1,252 616 440 302 979 2,665 4,754 4,157 3,916 411 307 114 169 4,418 11,086 5,654 10,818 -11,663 4,179 -8,530 8.602 621 370 -621 4,156 200 229 312 501 -850 8,314 541 -4,083 10,395 -15,979 --- 200 -- 4,245 70 37 6,239 4,652 4,718 3,066 91 55 83 20 30 262 333 122 46 568 -712 -55 -83 4,136 -30 4,208 -333 311 563 -118 -8,171 -686 4,774 -2,758 2,474 10,678 -13,602 -2,984 608 -427 6,109 444 -- 2549 100 - 200 2,208 125 -- 660 1,252 2,549 4,156 4,470 July 433 409 1,350 Weekly August 2 9 16 23 30 September 6 13 20 27 October 4 11 18 25 November 1 8 Memo: Net RPs total 4 1,096 -621 August September October Net change outright holdings 200 -100 ... °-- 4,411 -161 1,827 -2,512 1,445 1,556 5,466 2,526 -7,724 -2,054 2,916 -1,282 3,436 -4,808 2,783 35 87 733 °-°-°-- 46 109 220. 83 --. o.- 1,350 241 LEVEL (bil. $) 6 November 85.1 8 30.0 35.6 371.6 384.7 r 1. Change from erd-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. .~ 4. Reflects net change in redemptions (-) of 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: November 8 within 1 year 1.4 1-5 0.9 5-10 0.4 over 10 0.0 total 2.7 -10.3
@FedFRASER