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October 17, Strictly Confidential (FR) 1980 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) October 17, 1980 CLASS I - FOMC MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) The growth of M-1A and M-1B continued rapid in September, and was substantially above the pace targeted by the Committee for the August to December period (as shown in the table below). In terms of their September levels, M-1A was just above the midpoint and M-1B above the upper end of their respective longer-run ranges. Despite the rapid expansion of M-1B, a much slower growth for nontransactions accounts limited the September rise in M-2 growth to an 8¼ percent annual rate, just below the target pace for the last four months of the year. Nonetheless, the level of M-2 in September remained above the upper end of its longer-run range, reflecting the sharp growth in this aggregate over the late spring and summer. With loan growth strong, both banks and thrifts stepped up their issuance of managed liabilities, and M-3 grew more rapidly than M-2 in September for the first time since the spring. Target Growth for August to December (4 months) Growth from QIV '79 to Sept. '80 Target Range for 1980 4.0 5.1 3½ to 6 15.2 6.5 6.9 4 to 6½ 14.5 8.2 8.5 9.7 6 to 9 13.6 9.7 -- 9.2 6½ to 9½ 17.4 15.3 -- 6.5 6 to 9 Monetary Aggregates Aug. Sept. M-1A 19.3 12.3 M-1B 21.6 M-2 M-3 Memo: Bank Credit (2) In September, as in August, Desk operations to attain the nonborrowed reserve target--which was adjusted downward in light of the strength in total reserves--were accompanied by a substantial increase Growth in Reserve Aggregates in 1980 (SAAR) June over March July Aug. Sept. 28.6 0.7 7.9 -0.8 Total Reserves 0.2 2.7 16.1 22.9 Monetary Base 5.3 8.5 15.2 10.4 72 1/ 307 1/ 142 253 417 241 1221 90 Nonborrowed reserves plus special borrowings Memo: ($ million) Average level of member bank borrowings: Adjustment borrowings Special borrowings 2/ 1/ Average levels for June. 2/ Special borrowings include emergency credit as well as a large borrowing by one bank in the week ended September 24 that resulted from a breakdown of computer facilities. in member bank borrowings. 1 / Although nonborrowed reserves (defined to include special borrowing) declined slightly on average last month, total reserves increased at the most rapid rate in ten years as banks borrowed to obtain the reserves required by the surge of deposits. The increased demand for reserves was associated with further upward pressure on the federal funds rate, which was intensified by the increase in the discount rate from 10 to 11 percent announced on September 25. Federal funds, which were generally trading in the 10½ to 11 percent area at the time of the September Committee meeting, most recently have been trading in the 12½ to 13 percent zone. 1/ See Appendix I for the pattern of reserve targets over the intermeeting period. (3) Other short-term interest rates also moved up sharply in late September, but these increases were pared in early October as the growth of the monetary aggregates slowed and at least some measures of inflation moderated. On balance, short-term rates are presently about ½ to 1½ percentage points higher than their mid-September levels, with the largest increases in private short-term rates. At current levels, short- term interest rates have retraced roughly half of the decline from their spring peaks. (4) Bond yields also fluctuated widely during recent weeks, but on balance have shown little net change since the last Committee meeting. At current levels they have retraced almost two-thirds to three-quarters of their declines during the spring. The high level of bond yields has continued to deter new corporate offerings and to encourage a shift into shorter maturity borrowing by businesses. The Treasury sold a $1.5 billion 15-year bond in early October, all for new money, and raised another $2.4 billion in coupon offerings with additions to its regular 2- and 4-year notes auctioned in late September. (5) Following several months of weakness, business loans at banks expanded rapidly in August and again in September. Even with another contraction in outstanding nonfinancial commercial paper last month, owing in part to more competitive pricing of short-term loans by banks, total short- and intermediate-term business borrowing was much larger in August and September than in earlier months. This apparently reflects both the strengthening in economic activity and some rate-induced shift in borrowing out of capital markets. maintained its August pace. Other lending at commercial banks about At thrift institutions it is reported that the demand for mortgage commitments has fallen off in recent weeks as mortgage rates increased sharply. -4(6) The foreign exchange value of the dollar has risen by about 1 percent on a weighted average basis since the last Committee meeting, reflecting a relative increase in short-term U.S. interest rates over this period, and the further indication of a strengthening of the U.S. trade balance. The dollar's strength against the DM and other Continental currencies was partially offset by a decline against the yen and a small decline against sterling, currencies that have been quite strong generally. . The United States sold about $1 billion, mainly to acquire DM used to repay swap drawings and to add to balances. (7) The table on the next page shows seasonally adjusted annual rates of change, in percent, for selected monetary and financial flows over various time periods. Past Three Months QIII '80 over 19781 / 1979 / Sept. '80 Past Month Sept. '80 over over QIV '79 June '80 Aug. '80 Nonborrowed reserves 6.7 0.7 7.9 4.8 3.7 Total reserves 6.6 2.9 4.1 14.0 22.9 Monetary base 9.2 7.7 7.7 11.4 10.4 7.4 5.0 3.9 13.3 12.3 M-1B (M-IA plus other checkable deposits) 8.2 7.6 5.7 16.2 15.2 M-2 (M-B1 plus small time and savings deposits, money market mutual fund shares and overnight RP's and Eurodollars) 8.4 8.9 9.6 13.8 8.2 11.3 9.8 8.9 12.4 9.7 13.5 12.3 5.4 13.6 15.3 4.3 0.6 1.3 1.2 1.8 1.0 1.1 -2.5 1.7 0.3 -3.0 2.5 4.5 -3.0 4.4 0.3 0.9 1.2 -0.8 -1.3 Concepts of Money M-1A (Currency plus demand deposits) 2/ M-3 (M-2 plus large time deposits and term RP's) Bank Credit Loans and investment of all commercial banks 3/ Managed Liabilities of Banks (Monthly average change in billions) Large time deposits Eurodollars Other borrowings 4/ Memo Nonbank commercial paper 1/ QIV to QIV. 2/ Other than interbank and U.S. Government. 3/ Includes loans sold to affiliates and branches. 4/ Primarily federal funds purchases and securities sold under agreements to repurchase. NOTE: All items are based on averages of daily figures except for data on total loans and investment of commercial banks, commercial paper, and thrift institutions--which are derived from either end-of-month or Wednesday statement date figures. Growth rates for reserve measures in this and subsequent tables are adjusted to remove the effect of discontinuities from breaks in the series when reserve requirements are changed. Prospective developments (8) Shown below for Committee consideration are alternative sets of monetary aggregate targets for the fourth quarter. Alternative A retains the Committee's September target of a 4 percent annual growth rate for M-1A over the last four months of the year. Given September growth, this implies M-1A expansion from September to December at an annual rate of 1¼ percent, as shown in the upper panel of the table. Alternative B is designed to achieve the 4¾ percent midpoint of the Committee's QIV '79 to QIV '80 range for M-1A, which implies growth over the last three months of 1980 of this aggregate at an annual rate more than 2 percentage points faster than under alternative A. The lower panel of the table shows growth for the two alternatives on a quarterly average basis. Associated federal funds rate ranges for the intermeeting period are also shown. (Detailed and longer-run data for the monetary aggregates--including implied growth for the one year QIV '79 to QIV '80 period--are contained in the tables on the following two pages.) Alt. A Alt. B M-1A 1¼ 3½ M-1B 4 6 M-2 7 7¾ M-1A 6¼ 7¼ M-1B 9 M-2 8¼ Growth from September to December: Growth from QIII to QIV Intermeeting range for federal funds 8½ to 15 10 8½ 8 to 14 Alternative Levels and Growth Rates for Key Monetary Aggregates M-1A M-1B Alt. A 1980--September October November December Alt. B Alt. A Alt. B 383.6 385.0 384.9 384.8 383.6 385.0 385.9 386.9 406.7 409.1 409.8 410.7 406.7 409.1 410.8 412.8 4.4 -0.3 -0.3 4.4 2.8 3.1 7.1 2.1 2.6 7.1 5.0 5.8 1.3 3.4 3.9 6,0 41 -4 41 -4 6 -2k 6 -2k 11 6k 11 7j 13k 9 13k 10 0.4 0.4 1.8 1.8 I1 12 Growth Rates Monthly 1980 October November December September '80 December '80 Quarterly Average 1980--QI QII QIII QIV 1979 QIV to 1980 QII 1980 QII to 1980 QIV 8% 9 1979 QIV to 1980 QIV 4k 4% 64 7 Alternative Levels and Growth Rates for Key Monetary Aggregates (cont'd) M-2 M-3 Alt. A Alt. B Alt. A Alt. B 1640.3 1650.6 1660.2 1669.5 1640.3 1650.6 1661.3 1671.8 1901.5 1916.1 1930.8 1943.6 1901.5 1916.1 1931.6 1945.4 1980--October November December 7.5 7.0 6.7 7.5 7.8 7.6 9.2 9.2 8.0 9.2 9.7 8.6 September '80 December '80 7.1 7.7 8.9 9.2 7% 1980--September October November December Growth Rates Monthly Quarterly Average 1980--QI 74 74 71 QII 5k 54 5% 5 QIII 15k 15k 12k 12k QIV 84 8k 9 10 1979 QIV to 1980 QII 1980 QII to 1980 QIV 6.4 12 6.4 123 6.8 11 6.8 114 1979 QIV to 1980 QIV 9k 9k 9t 94 NOTE: The following annual rates of growth in bank credit for the year and for the quarters are expected under alternative A: year 1980, 6t; QI, 9k; QII, -k; QIII, 61; QIV, 101. Only minor variations in growth rates would be expected under alternative B. (9) The relationships of the September-to-December targets to the Committee's longer-run ranges are depicted in the charts on the following pages. Under alternative A, M-1A growth would be somewhat below the mid- point of its longer-run range, but the staff believes that in the fourth quarter M-1B would be at, and M-2 slightly above, their respective longerrun upper bounds. Under alternative B, both M-1B and M-2 would exceed their longer-run upper bounds, though differences from the one-year growth rates implied by alternative A are slight because of the short time period remaining in the year. Under both alternatives, M-3 is expected to be a shade below the upper end of its longer-run range. (10) Under either of the alternatives, the monthly growth rates in M-1A over the last three months of the year would represent a substantial slowing from the third quarter pace. There are reasons to believe that considerably slower growth could be achieved without strong upward interest rate pressures. Even with the staff's projection of rapid growth in nominal GNP for the current quarter, much of the money needed to conduct the expanded transactions of this quarter may already be in the hands of the public due to rapid growth of money late in the third quarter. In addition, the 4½ to 5½ percentage point increase in short-term interest rates that has occurred since June is likely to be restraining the quantity of money demanded relative to income in the fourth quarter. (11) The growth of M-1A for September to December under alternative A is so low, however, that it may be expected to be associated with further, relatively moderate,upward interest rate pressures in the Chart 1 CONPIDENTALt (cF xCiumr-OM Actual and Targeted M-1A and M-1B: M-1A Balons of doda 400 -Longer-Run Range --. *Short-Run Atematves. 395 8% ... - 390 ** ..A 385 .....-3% - 380 375 370 365 r)) I o 0 0 N I J. I I F F I I M M I 1 I I I J 198 3 M, M- A. A 1979- I LJ J I I A A S 1 I 3 O I I N 0 380 D 1980. M-1S Blon of d stars -**. Longer-Run Range Short-Run Alternatves- '415 -A 410 /.* 405 - .. 4% 400 ,396 390 385 380 I 0 I I N 1979' 0 I L I I F M I A I M I 1 J J 1980 I A I S I 0 375 I N 0 CONFIDENTIAL (FR) Class - FOMC II Chart 2 Actual and Targeted M-2 and M-3 M-2 Longer-Run Range -- -1660 Short-Run-Alternatives - ** 1640 1620 -1600 1580 1560 1540 S1520 K I 1500 1480 . 0 N 0 J F M A M J 1979 J A S 0 N 1980 -3 - 0 N 0 D J 9%.% F M A 1979 * Note: A, and 8 altematives are indstlngumhableion this scale M J J 1980 A S O Billions of dollar .*'t 1940 N -10fourth quarter.1/ To achieve the specifications for the aggregates of alternative A, total reserves would probably have to remain about unchanged from September to December and, given the near-term pattern of growth, expand at only about a 1 percent rate from September to November.2/ Assuming adjustment borrowing of about $1½ billion, nonborrowed reserves would be expected to decline at about a 3 percent annual rate from September to November. Such borrowing is likely to be reflected in a federal funds rate in the 13 to 14 percent area, given the present 11 percent discount rate. (12) The higher federal funds rate and increased member bank borrowing likely to be associated with alternative A would probably be accompanied by an upward adjustment in both short- and long-term market interest rates. Upward rate pressures would be intensified by the need to finance a substantial Treasury deficit in prospect for the fourth quarter. However, the pressures on rates could abate as the quarter progresses. A rising level of long-term yields is likely to inhibit further the pace of new corporate and municipal bond offerings. And if signs of a weakening in economic activity emerge, as would be consistent with the staff's GNP projections, expectations of future rate declines would become more prevalent and influence the actual market rate structure. (13) Under alternative B there is less chance that interest rates will rise in the near term. 1/ 2/ To achieve the aggregates specified Appendix II displays the quarterly interest rate and monetary aggregates pattern underlying alternative A and the staff's GNP projection for 1981, contained in the current Greenbook. Effective with the statement week beginning November 13--the last week of the forthcoming intermeeting period--the phase-down of required reserves will begin for member banks, as will the phase-in for nonmember depository institutions. The targeted reserve growth rates in the text are calculated so as to eliminate the discontinuity from the change in reserve requirements. -11for this alternative, total reserves would have to expand at a 2¼ percent annual rate from September to November. of $1¼ billion, about Assuming adjustment borrowing the same as the September average, nonborrowed reserves would expand at only about a 1¾ percent rate. The federal funds rate is likely to remain within its recent 12½ to 13 percent zone. Under such circumstances, other market rates would likely fluctuate around current levels. (14) Even with no further rise in most market rates, the rate on new home mortgage commitments, now about 13¾ percent, would be expected to edge up further in the weeks ahead as such rates continue to adjust with a lag to the higher level of interest rates generally. Owing in part to the adjustment in MMC and SSC ceiling rates last spring, disintermediation pressures at depository institutions are likely to be less than at similar interest rates last winter. Even so, the expected level of mortgage rates is likely to damp housing demand and mortgage borrowing. While borrowers may have grown more accustomed to the higher nominal mortgage rates, monthly housing payments represent a substantial barrier to many potential home buyers. (15) Under both alternatives A and B the non-transaction component of M-2 is expected to continue increasing at a moderate rate. A turn- around in MMMF growth is expected as their portfolio yields catch up with short-term market rates. However, flows into small denomination time and savings deposits may be somewhat weaker as an acceleration of time deposits might not fully offset the slower growth, and possible outflows, of savings accounts that is expected at the sustained higher level of market rates in the fourth quarter. With slower demand and small denomination time and savings deposit growth, both banks and thrifts are expected to -12continue to place reliance on managed liabilities--especially large CD's-to finance their portfolio growth. Bank credit growth is expected to remain relatively large over the balance of the year, though slowing from the unusually rapid pace of the past two months. The projected increase in bank credit will place this aggregate in the fourth quarter at a level in the lower half of its longer-run range. -13Directive language (16) Given below are suggested operational paragraphs for the directive consistent with the form of the directive adopted at recent meetings. The language calls for expansion of reserve aggregates at a pace consistent with the desired rate of monetary growth over the last three months of the year, provided that the weekly average federal funds rate remains within a specified range. The specifications adopted at the September meeting are shown in strike-through form. In the short run, the Committee seeks expansion of reserve aggregates consistent with growth of M-1A, M-1B, and M-2 over the [DEL: August]SEPTEMBER to December period at annual rates of about[DEL: 4] 6½] ____ percent, [DEL: 8½]____ percent respectively, provided percent, and [DEL: that in the period before the next regular meeting the weekly average 8-to-14] ____ TO ____ federal funds rate remains within a range of [DEL: percent. If it appears during the period before the next meeting that the constraint on the federal funds rate is inconsistent with the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman, who will then decide whether the situation calls for supplementary instructions from the Committee. APPENDIX I RESERVE TARGETS AND RELATED MEASURES FOR 5-WEEKS ENDED OCTOBER 22 ($ millions, not seasonally adjusted) Targets for 5-Week Averages NonTotal borrowed Reserves Reserves (1) (2) Projections for 5-week Averages Excess Total Required Adjustment Reserves Reserves Reserves Borrowing (3) (4) (5) (3)-(2) As of September 19 41,199 40,449 41,581 41,356 225 1,132 26 41,199 40,449 41,694 41,491 203 1,245 3 41,199 40,249 41,522 41,323 199 1,273 10 41,299 40,349 41,741 41,472 269 1,392 17 41,299 40,349 41,737 41,463 274 1,388 October I/ 2/ Nonborrowed reserves path adjusted downward by $200 million on October 3, 1980 in light of the continued strength in total reserves. Total and nonborrowed reserves path adjusted upward by $100 million on October 10, 1980 to account for changes in multiplier relationships. APPENDIX II Interest Rates Consistent with the Greenbook GNP Forecast (percent) Federal funds 3-month Treasury bill New Aaa Utility Bond Conventional Mortgage Commitment 1980--Q4 13-1/4 11-3/4 13-1/8 14 1981--Ql 13-3/4 14-1/4 14-1/2 14-1/2 12-1/4 12-3/4 13 13 13-1/4 13-1/4 13-3/8 13-3/8 14-1/8 14-1/8 14-1/4 14-1/4 Q2 Q3 Q4 NOTE: These rate projections are based on the assumption that M-A will grow 4-1/2 percent in 1980 (consistent with Bluebook alternative A), and 4-1/4 percent in 1981 abstracting from the impact of nationwide NOW/ATS accounts. Such growth would imply M-1A velocity increases in the two years of 3-1/2 and 5-1/2 percent, respectively. The Board's quarterly econometric model indicates that historical money demand relationships would require almost 3-1/2 percentage points greater growth of M-1A in 1981 to achieve the GNP and interest rates in the staff's judgmental Greenbook projection. Thus, these interest rate projections assume a further so-called downward shift in money demand as judged from the prediction error in the Board's model. STRICTLY CONFIDENTIAL (FR) TABLE 1 SELECTED INTEREST RATES (Percent) und Period Short-term Treasury BillCD Federal easury s Secondary Auction Market 3-mo Market Comm. Paper October 20, 1980 U.S. Govt. Constant Maturity Yields Bank Prime 3-mo CLASS II - FOMC kate Long-term Corp.-Aaa Utility Municipal Home Mortgages Primary Seconday market 3-mo (5) Bond Cony. (6) New Recently 3-yr 6-mo (4) 10-yr () 30-yr () Issue (11) Offered (12) Buyer FNM GNM Auc. (14) (1) (116 Sec. (1) (2 1-yr (3) 1979--High Low 15.61 9.93 12.60 8.85 11.89 8.64 12.65 8.87 14.53 9.84 14.26 9.66 15.75 11.50 11.68 8.76 10.87 8.79 10.42 8.82 11.50 9.40 11.45 9.39 7.38 6.08 12.90 10.38 13.29 10.42 11.77 9.51 1980--High Low 19.39 8.68 15.61 6.49 14.39 7.18 15.70 6.66 18.04 8.17 17.60 7.97 20.00 11.00 14.29 8.61 13.33 9.51 12.73 9.54 14.22 10.53 14.12 10.79 9.44 7.11 16.35 12.18 15.93 12.28 14.17 10.73 1979--Sept. 11.43 10.26 9.89 10.13 11.89 11.63 12.90 9.69 9.33 9.17 9.93 9.87 6.52 11.30 11.09 10.31 Oct. Nov. Dec. 13.77 13.18 13.78 11.70 11.79 12.04 11.23 11.22 10.92 11.34 11.86 11.85 13.66 13.90 13.43 13.23 13.57 13.24 14.39 15.55 15.30 10.95 11.18 10.71 10.30 10.65 10.39 9.85 10.30 10.12 10.97 11.42 11.25 10.91 11.36 11.33 7.08 7.30 7.22 11.63 12.83 12.90 12.52 12.75 12.49 11.25 11.57 11.35 1980--Jan. Feb. Mar. 13.82 14.13 17.19 12.00 12.86 15.20 10.96 12.46 14.03 11.85 12.72 15.10 13.39 14.30 17.57 13.04 13.78 16.81 15.25 15.63 18.31 10.88 12.84 14.05 10.80 12.41 12.75 10.60 12.13 12.34 11.73 13.57 14.00 11.77 13.35 13.90 7.35 8.16 9.17 12.88 13.03 15.28 12.91 14.49 15.64 11.94 13.16 13.79 Apr. May June 17.61 10.98 9.47 13.20 8.58 7.07 11.97 8.66 7.54 13.62 9.15 7.22 16.14 9.79 8.49 15.78 9.49 8.27 19.77 16.57 12.63 12.02 9.44 8.92 11.47 10.18 9.78 11.40 10.36 9.81 12.90 11.53 10.96 12.91 11.64 11.00 8.63 7.59 7.63 16.33 14.26 12.71 14.61 12.88 12.35 12.64 11.30 11.07 July Aug. Sept. 9.03 9.61 10.87 8.06 9.13 10.27 8.00 9.39 10.48 8.10 9.44 10.55 8.65 9.91 11.29 8.41 9.57 10.97 11.48 11.12 12.23 9.27 10.63 11.57 10.25 11.10 11.51 10.24 11.00 11.34 11.60 12.32 12.74 11.41 12.31 12.72 8.13 8.67 8.94 12.19 12.56 13.20 12.66 13.92 14.77 11.53 12.34 12.84 1980--Aug. 6 13 20 27 9.60 8.85 9.35 10.03 8.65 8.60 8.96 9.81 8.62 8.81 9.41 10.16 8.87 8.89 9.77 10.25 9.33 9.33 9.82 10.49 9.01 8.96 9.54 10.15 11.00 11.00 11.00 11.25 9.92 10.07 10.67 11.34 10.74 10.90 11.07 11.38 10.73 10.91 11.01 11.17 12.03 12.36 12.48 12.62 12.10 12.27 12.36 12.68 8.61 8.53 8.68 8.85 12.25 12.55 12.80 12.95 13.58 11.99 12.41 12.46 12.48 Sept.3 10 17 24 10.47 10.22 10.64 10.85 9.97 9.92 10.29 10.25 10.08 9.97 10.50 10.66 10.25 10.23 10.88 10.82 10.93 10.76 11.25 11.24 10.61 10.40 10.86 10.97 11.50 11.71 12.21 12.46 11.28 11.00 11.61 11.85 11.46 11.20 11.48 11.61 11.18 11.06 11.29 11.45 12.34 12.60 12.42 12.48 12.78 13.03 8.78 8.82 8.98 9.18 13.03 13.08 13.25 13.43 14.41 Oct. 1 8 15 22 29 12.38 12.59 12.64 11.05 11.34 11.12 11.19 10.93 10.84 11.72 11.14 11.28 12.35 12.52 12.49 12.12 12.18 12.25 13.00 13.50 13.50 12.16 11.60 11.58 11.92 11.50 11.37 11.76 11.39 11.19 13.08 13.02 13.06 12.87 12.81p 9.22 9.01 13.60 13.73 n.a. 15.30 13.35 12.70 14.60 12.59 12.4-5 12,85 11.14 10.98 10.88 10.86 12.46 12.44 12.08 12.11 13.50 13.50 11.57 11.65 11.39 11.47 11.21 11.27 Daily-Oct. 9 16 - (7) 13.10 12 .6lp 8.81 14.26 14.60 12.57 12.59 12.74 12.93 NOTE: Weekly data for columns 1, 2, 3, and 5 through 10 are statement week averages of daily data, Weekly data in column 4 are average rates set in the auction of 6-month bills that will be issued on the Thursday following the end of the statement week. For column 11, the weekly date is the mid-point of the calendar week over which data are averaged. Columns 12 and 13 are 1-day quotes for Friday and Thursday, respectively, following the end of the statement week. Column 14 is an average of contract interest rates on commitments for conventional first mortgages with 80 percent loan-to-value ratios made by a sample of insured savings and loan associations on the Friday following the end of the statement week. The FNMA auction yield is the average yield in a bi-weekly auction for short-term forward commitments for government underwritten mortgages; beginning July 7, 1980, figures exclude graduated payment mortgages. GNMA yields are average net yields to investors on mortgage-backed securities for immediate delivery, assuming prepayment in 12 years on pools of 30-year FHA/VA mortgages carrying the coupon rate 50 basis points below the current FHA/VA ceiling. STRICTLY CONFIDENTIAL (FR) CLASS II - FOMC October 20, 1980 TABLE 2 NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES 1/ (Millions of dollars, not seasonally adjusted) Treasury Coupons Net Purchases 3/ Treasury lhangest Change 2/ -468 863 4,361 870 6,243 1975 1976 1977 1978 1979 Federal Agencies Net Purchases 4/ 1 - 5 - 10 Over 10 Total 337 472 517 1,184 603 3,284 3,025 2,833 4,188 3,456 1,510 1,048 758 1,526 523 1,070 642 553 1,063 454 6,202 5,187 4,660 7,962 5,035 1,289 1,101 309 81 310 51 2,302 1,351 81 410 320 Wthin 1 - 5 5 - 10 Net Change Outright Over 10 836 2,395 1,234 Wthin lIvea 1979--Qtr. III IV 5,363 4,164 395 118 1980--Qtr. I II III -2,945 3,249 -3,298 292 355 137 1,5164' 541 2,321 606 322 109 155. - 153 / -3,214 -47 -37 III year I 1,613 891 1,433 127 454 137 1980--Apr. May June July Aug. Sept. 1980--Aug. 6 13 20 27 191 288 3 -- 482 Total 5/ 7,267 6,227 10,035 8,724 10,290 8,129_, 4,8392' I 6_ 1,272 3,607 -2,892 -1,774 -2,597 -2,019 -3,801 -2,114 6,307 -2,157 362 2,373 -1,381 3,594 1,515 1,198 -1,012 4,655 -1,271 -3,216 1,187 -128 -1,307 -985 911 -- 789 -- 1,234 -47 -9,456 5,482 4,652 -1,963 328 100 100 -1,929 1,200 717 2,072 373 405 7385 541 236 320 1,234 -789 1,234 -- Sept.3 10 17 24 ----- Oct. 1 8 15 Net oldings Total '" -- " '" " -- " -3 S " -- -402 -18 2,914 -6,052 2,287 22p 29 LEVEL--Oct. i4 I/ 15 46.7 11.2 36.3 13.1 14.8 2.1 4.8 1.2 0.7 8.8 130.9 b411 4 Change from end-of-period to end-of period. Outright transactions in market and with foreign accounts, and redemptions (-) in bill auctions. Outright transactions in market and with foreign accounts, and short-term notes acquired in exchange for maturing bills. Excludes redemption, maturi ty shifts, rollovers of maturing coupon issues, and direct Treasury borrowing from the System. Outright transactions in market and with foreign accounts only. Excludes redemptions and maturity shifts. In addition to the net purchases of securities, also reflect changes in System holdings of bankers' acceptances, direct Treasury borrowings from the System and redemptions (-) of agency and Treasury coupon issues. Includeschanges in both RPs (+) and matched sale-purchase transactions (-). On October 1, 1979, $668 million of maturing 2- and 4-year notes were exchanged for a like amount of short-term bills, because the note quctions were delayed. On October 9 and 10, the bills were exchanged for new 2- and 4-year notes, respectively. Maturing 2-year notes were exchanged on June 2 for special 2-day bills. At their maturity the bills were exchanged for new 2-year notes. STRICTLY CONFIDENTIAL (FR) CLASS II - FOMC October 20, 1980 TABLE 3 SECURITY DEALER POSITIONS AND BANK POSITIONS (Millions of dollars) U.S. Govt. Security Dealer Positions Bills Coupon S Issues Underwriting Syndicate Positions Corporate Municipal Bonds Bonds Memeber Bank Reserve Positions Excess** Borrowing at FRB** Reserves Total Seasonal | Special I I 1979--High Low 8,091 138 902 -2,569 726 -122 1980--High Low 8,838 1,972 2,263 -1,482 1,080p -228p 1979--Sept. 2,392 -1,608 Oct. Nov. Dec. 2,289 4,427 5,760 1980--Jan. Feb. Mar. Adjustment 2,866 510 2,960 628 3,439 215p 177 5 3,298 12 191 1,340 174 1,167 -1,576 -514 -1,901 272 244 441 2,023 1,911 1,473 155 140 81 1,863 1,763 1,390 4,380 2,937 2,964 -944 -212 -659 251 211 1,241 1,644 2,823 74 97 151 1,167 99 7,838 4,008 3,724 4,581 5,108 *3,681 167 1,372 1,429 634 798 *-416 204 2,455 1,018 155 63 12p 6p 9 p 25p 552 743 307p 25 3 p 24 1p 33 p 1,748 212 61p 136p 408p 1,253p 1980--Aug. 6 13 20 27 5,332 5,278 6,304 4,264 849 2,263 229 41 65 158 15 28 147 134 134 96 688p 89p 314 p 89 p 828p 3 90 p 34 5 p 0 70 p 258p 273p 261p 201p 563 p lllp 78p 489p Sept.3 10 17 24 4,274 3,988 4,404 *3,112 170 -279 -814 *-268 3 15 78 45 89 .150 287 156 489p 239p 30 4 p 19 8 p 57 54p 1, 34 8p 594 p 1,213p 6 1, 13p 0 0 1,130p 523p 1,192p 1,600p Oct. 1 8 15 22 *2,601 *2,042 *2,726 *-517 *-113 *164 69 22 80 378p 3 94 p 320p 1, 8 73p 1,248p 1,107p 0 0 0 1,833p 1,200p 1,046p Apr. May June July Aug. Sept. 204 190 223p 281p 307p 264p 0 0 10p 3 79 p p 658 p 1,311p 39 5 p 1,558 p 2,573 29 NOTE: Government security dealer trading positions are on a commitment basis. Trading positions, which exclude Treasury securities financed by repurchase agreements maturing in 16 days or more, are indicators of holdings available for sale over the near-term. Underwriting syndicate positions consist of issues still in syndicate, excluding trading positions. Weekly data are daily averages for statement weeks, except for corporate and municipal issues in syndicate, which are Friday figures. * Strictly Confidential. ** Monthly averages for excess reserves and borrowings are weighted averages of statement week figures.
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