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September 29, Strictly Confidential (FR) 1989 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 September 29, 1989 MONETARY POLICY ALTERNATIVES Recent Developments (1) The Federal Reserve has maintained an unchanged stance in the reserves market since the August FOMC meeting. The borrowing objec- tive has been kept at $550 million, and borrowing averaged $554 million in the two complete maintenance periods since that meeting. Through the first eight days of the current maintenance period, borrowing has increased to $758 million, but $166 million of this appears to be attributable to problems associated with Hurricane Hugo. Seasonal credit has dropped only a little since the past meeting, and adjustment borrowing (abstracting from the hurricane's effect) remains unusually low. Federal funds have traded mostly in a narrow range around 9 percent, as they have since late July. (2) With federal funds steady and economic data released over the intermeeting period generally according with market expectations, most interest rates are little changed on balance. Rates did soften some through mid-September, at least partly on a sense that the strengthening dollar could improve the odds of an easing in monetary policy. In the case of Treasury securities, this movement was accentuated by the wellpublicized difficulties of a few prominent issuers of junk bonds that touched off a mild flight to quality. At their intermeeting lows, Trea- sury bill rates were down about 1/2 percentage point, and Treasury bond yields had fallen 1/4 point. These gains began to erode when tensions in the junk bond market eased and interest rates generally edged higher as the dollar declined against other G-10 currencies. The stock market reached record highs in early September but began to retreat as problems emerged in junk bonds; on balance most indexes still are up 2 to 3 percent over the intermeeting period. (3) Interest rates on mortgages and mortgage-related securities generally have fallen relative to yields on benchmark Treasury issues. Narrower spreads in the mortgage market likely owe to improved investor confidence in the ability of the market to absorb assets from thrifts. Commercial banks, the federal mortgage agencies, and insurance companies among others, have proven willing to step up acquisitions of mortgage assets. Given this apparent willingness, along with evidence of some rebound in housing sales, it is believed that mortgage credit has been well maintained in recent months. (4) The dollar strengthened through mid-September, despite the edging down of interest rates in the United States and some increase in rates abroad. Subsequently the dollar eased, and then dropped sharply immediately after the release of the G-7 statement on September 23 and the associated visible coordinated intervention In addition, growing market expectations that monetary policy abroad might be tightened have contributed to the slippage of the dollar in recent days. On balance over the intermeeting period, the dollar is 2-1/2 per- cent lower against the trade-weighted average of other G-10 currencies. . The Desk sold about $3.4 billion against yen and marks, nearly $1 billion of this total following the G-7 meeting. (5) Growth in the monetary aggregates slowed in August and September from their advanced July pace, which likely had been boosted by the replenishment of balances used to pay taxes last spring. M1 rose at a rate of only 3/4 percent in August, and is expected to increase at around a 5 percent clip in September. While M2 also decelerated, its growth remained at a brisk 7-1/4 percent pace over August and September. At an 8-3/4 percent rate, the June-to-September expansion of M2 is near the Committee's specification at the August FOMC meeting of 9 percent, and has lifted M2 to about 4 percent, at an annual rate, above its 1988-Q4 base. Weakness in demand deposits and overnight RPs and Eurodollars restrained M2 in August and September; the retail components of M2 expanded at close to a 10 percent pace in all three months of the quarter. Growth in these components has been supported by the lagged effects of earlier declines in market interest rates. Inflows to money funds were particularly strong, buoyed by the drop in small time deposit rates, shifts from junk bond funds, and special promotional activities by certain fund sponsors. Deposit expansion was concentrated at commercial banks as the yield advantage on thrift deposits shrank. On balance, the thrift bailout so far seems primarily to have affected the composition of M2, rather than its growth rate. 1. Currency contributed importantly to this acceleration in Ml, lifting growth of the monetary base from a 1-1/4 percent rate in August to an estimated 7-1/2 percent pace in September. (6) In contrast to its minimal net effect on the growth of M2, the restructuring of the thrift industry has stunted growth of M3. Expan- sion of this aggregate slipped to less than a 2 percent rate over August and September, lower even than the 5-3/4 percent pace projected at the August FOMC meeting. This brought June-to-September growth to 4 percent, compared with the 7 percent specification of the Committee, moving it to around the lower bound of its 1989 target cone. Before today, the RTC had disbursed a little over half of the $20 billion authorized for spending in fiscal year 1989. However, only a portion of these funds, per- haps $4 to $5 billion by month-end, had been used to directly replace liabilities in M3, including deposit payoffs at liquidated institutions. 3 More important for M3 have been the efforts of a much broader group of inadequately capitalized thrift institutions to shrink their balance sheets. These undercapitalized thrifts account for the bulk of the over $17 billion decline (40 percent at an annual rate) in the sum of large time deposits and term RPs at thrift institutions from July to September. As a group, thrifts account for slightly more than half of the shortfall of M3 in September relative to the Committee's August path, with most of the remainder attributable to a significantly higher Treasury balance at commercial banks--itself partly a product of funding the thrift bailout-and some shortfall in bank credit. 2. An additional $8 billion was scheduled to be disbursed today, the last day of the fiscal year, through a special transaction that placed government securities in thrifts funded by a note issued to the RTC. At this writing, it is not clear whether this transaction has been completed. 3. The balance, aside from that disbursed today, was used to pay down advances from Federal Home Loan Banks and other non-M3 borrowings. MONEY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) July Aug. Sept.pe June to Sept.pe Ml 10.7 0.8 4-3/4 5-1/2 -1 M2 11.5 7.2 7-1/4 8-3/4 4 M3 9.0 1.9 1-1/2 4 3-1/2 Domestic nonfinancial debt 6.1 9.4 n.a. 7-3/4 8.02 Bank credit 9.9 7.8 7 8-1/4 7 6.9 0.3 8-3/4 5-1/2 -3-1/2 Total reserves 7.2 1.3 7-1/4 5-1/4 -3-1/4 Monetary base 4.0 1.3 7-1/2 4-1/4 3-1/4 588 633 595 966 890 945 QIV'88 to Sept.pe Money and credit aggregates Reserve measures Nonborrowed reserves Memo: 3 (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves pe - preliminary estimate. n.a. - not available. 1. June to August. 2. QIV '88 to August. 3. Includes "other extended credit" from the Federal Reserve. NOTE: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. The September figures assume an average level of adjustment plus seasonal borrowing of $645 million--including $95 million of special situation borrowing associated with Hurricane Hugo--and excess reserves of $950 million for the maintenance period ending October 4. -6- (7) The trend of debt growth appears to have been well maintained in recent months. Debt of the nonfinancial sectors appears to have accelerated to about a 9-1/2 percent rate of growth in August, but much of this pickup can be traced to a burst of short-term borrowing by the Treasury to cover the RTC's initial outlays; private debt growth appears to have quickened slightly. Consumer credit likely grew faster in August, at least in part because of incentive-driven increases in auto sales. The pace of borrowing in the business sector ebbed in August, however, and appears to be fairly subdued in September as well. Policy Alternatives (8) Three alternatives are presented below. Under alternative B, a federal funds rate of around 9 percent would be expected to be associated, at least initially, with adjustment plus seasonal borrowing of $500 million. This level of borrowing is $50 million less than the cur- rent assumption, in order to take into account the decline in seasonal borrowing that is likely to occur early in the intermeeting period. Based on the experience of last year, seasonal borrowing should not only drop significantly in the next maintenance period but also fall substantially further over the balance of the intermeeting period, suggesting that another downward technical adjustment might be called for before the next meeting. Such adjustments are needed this year because seasonal borrowing has reached record levels and its seasonal decline will be exceptionally large. Moreover, with adjustment borrowing close to frictional levels, it probably is relatively insensitive to movements in the spread between the federal funds and discount rates. Thus, in current circumstances the funds rate would tend to rise appreciably in the absence of technical adjustments to the borrowing assumption because the interest sensitivity of seasonal and adjustment borrowing combined is quite low. This also implies that, under alternative A, a decline of only $100 million in the borrowing objective--to $400 million--is likely to be associated with a decrease in the federal funds rate to around 8-1/2 percent; similarly, a rise of only $100 million in borrowing--to $600 million--would be associated with an increase in the federal funds rate to around 9-1/2 percent under alternative C. In any event, owing to the continued uncertainty about the borrowing relationship, some flexibility in pursuit of the borrowing objective would again seem to be warranted. (9) Under all of the alternatives, M2 is expected to stay comfortably within its annual range this year. Indeed, supported by previous declines in market interest rates, this aggregate would continue to rise within the lower half of its range over the remainder of this year. M3 is likely to grow sluggishly under all three alternatives, remaining a little above the lower end of its annual range. Growth of this aggregate will be damped by ongoing reductions in assets and M3 liabilities at undercapitalized thrifts and by RTC outlays that substitute in part for M3 managed liabilities. However, the staff has assumed both of these activities will slow somewhat on average in the fourth quarter from the pace of recent months, contributing to some acceleration in M3. M1 would expand under all three alternatives, returning it by year-end to about its level at the end of 1988. Alt. A Alt. B Alt. C 8 5 6-1/2 6-1/2 4-1/2 4-1/2 5 4 2-1/2 4-1/2 3-3/4 1/4 4-1/4 3-3/4 0 4 3-3/4 -1/2 7 to 11 7 to 11 7 to 11 Growth from September to December M2 M3 M1 Implied growth from Q4'88 to Q4'89 M2 M3 M1 Associated federal funds rate range Alternative Levels and Growth Rates for Key Monetary Aggregates M2 M3 M1 Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 3117.5 3136.3 3155.3 3117.5 3136.3 3155.3 3117.5 3136.3 3155.3 4003.2 4009.4 4014.4 4003.2 4009.4 4014.4 4003.2 4009.4 4014.4 777.2 777.7 780.8 777.2 777.7 780.8 777.2 777.7 780.8 3174.8 3195.9 3218.6 3172.7 3189.8 3206.8 3170.6 3183.7 3195.0 4029.2 4043.6 4063.7 4028.5 4041.2 4058.6 4027.8 4038.8 4053.5 784.5 788.2 793.3 783.9 786.3 789.4 783.3 784.4 785.5 11.5 7.2 7.3 11.5 7.2 7.3 11.5 7.2 7.3 9.0 1.9 1.5 9.0 1.9 1.5 9.0 1.9 1.5 10.7 0.8 4.8 10.7 0.8 4.8 10.7 0.8 4.8 7.4 8.0 8.5 6.6 6.5 6.4 5.8 5.0 4.3 4.4 4.3 6.0 4.2 3.8 5.2 4.0 3.3 4.4 5.7 5.7 7.8 4.8 3.7 4.7 3.9 1.7 1.7 Quarterly Ave. Growth Rates 3.6 1988 Q4 1.8 1989 Q1 1.2 Q2 7.3 Q3 7.7 Q4 3.6 1.8 1.2 7.3 6.8 3.6 1.8 1.2 7.3 6.0 4.8 3.7 2.9 4.7 3.6 4.8 3.7 2.9 4.7 3.4 4.8 3.7 2.9 4.7 3.1 2.3 -0.4 -5.6 1.5 5.2 2.3 -0.4 -5.6 1.5 4.1 2.3 -0.4 -5.6 1.5 3.0 8.7 8.0 8.7 6.5 8.7 5.0 4.1 4.9 4.1 4.4 4.1 3.9 5.5 6.4 5.5 4.4 5.5 2.4 1.5 3.5 4.6 3.5 3.9 4.9 1.5 3.5 4.3 3.5 3.9 4.5 1.5 3.5 4.1 3.5 3.9 4.2 3.3 3.8 3.8 3.8 3.6 3.9 3.3 3.8 3.7 3.8 3.6 3.8 3.3 3.8 3.7 3.8 3.6 3.7 -3.0 -1.5 0.2 -1.6 -1.0 0.7 -3.0 -1.5 -0.1 -1.6 -1.0 0.2 -3.0 -1.5 -0.4 -1.6 -1.0 -0.2 Levels in billions 1989 July August September October November December Monthly Growth Rates 1989 July August September October November December June 89 to Sept 89 Sept 89 to Dec. 89 Q4 Q4 Q4 Q4 Q4 Q4 88 88 88 88 88 88 to to to to to to Q2 89 Q3 89 Q4 89 Aug. 89 Sept 89 Dec. 89 1989 Target Ranges: 3.0 to 7.0 3.5 to 7.5 Chart 1 ACTUAL AND TARGETED M2 Billions of dollars 3300 7% Actual Level --Estimated Level * Short-Run Alternatives ,/' - 3250 -( 3200 -- 3150 -( 3100 3% ,- -1 3050 - I I m O II N D 1988 II I J I F I M I A I M I J J 1989 I I i I i A I I S I I O IN ID J 1990 3000 2950 Chart 2 ACTUAL AND TARGETED M3 Billions of dollars 4250 Actual Level - - - Estimated Level * Short-Run Alternatives - -- 4200 -j 4150 7.5% -4 4100 -1 4050 3.5% -- 4000 -- 3950 3900 -1 3850 I O I N D 1988 I I J I F I M I A I M I J J 1989 I I A I S I O I N I D 3800 J 1990 Chart 3 M1 Billions of dollars ,10% - 5% IS Actual Level -- - Estimated Level ------ Growth From Fourth Quarter / * Short-Run Alternatives - 830 - 820 - 810 t I S --1 800 I S S - S S S S S -9 *eB A - ........ .... ec. Is 790 0% -4 780 S -- 770 S -- 760 S -1 750 " -5% I O I D N 1988 I I J I F I M A I M J I J A 1989 I S O N D J 1990 Chart 4 DEBT Billions of dollars 10000 - Actual Level * Projected Level 9750 9500 9250 9000 O N D 1988 J F M A M J A J 1989 S O N D J 1990 8750 -10- (10) Interest rates would be expected to remain near current levels under alternative B. Markets do not now appear to be anticipating any near-term change in policy, and incoming economic data consistent with the staff greenbook forecast are not likely to provoke significant change in market sentiment. In the weeks ahead, Treasury markets may be buffeted by the possible sale of sizable volumes of REFCORP bonds and by shifting odds on triggering a debt ceiling decline on November 1, which could affect the mid-quarter refunding. The dollar would be expected to fluctuate around current lower levels, or weaken a little further should some key foreign central banks tighten policy--as to a degree now seems to be expected by markets. Should the dollar rebound strongly, however, domestic interest rates might edge off if market participants saw this as implying reduced inflation pressures and greater prospects for policy easing in the United States. (11) Under alternative B, M2 is expected to grow at a 6-1/2 percent annual rate over the September-to-December period, a little below the recent pace. This implies quarterly average growth at a 6-3/4 percent rate and a further decline in velocity at about a 1-1/2 percent rate, reflecting the lagged effects of earlier interest rate declines. Monthly inflows to retail M2 would be expected to moderate as the effects of previous declines in opportunity costs abate, and as money funds no longer are boosted by shifts from junk bond funds and by special promotional efforts. Retail deposit growth at thrift institutions is likely to remain sluggish owing to the less aggressive bidding posture of these institutions recently. On the other hand, overnight RPs are not expected to run -11- off further and demand deposits might strengthen if compensating balances need to be boosted by year-end to take account of the lower level of market interest rates. Overall, Ml should grow at around a 4-1/2 percent rate over this period, near its September pace. (12) Under alternative B, M3 growth would pick up a bit from its August and September pace to a 4-1/2 percent rate. In addition to the slowing of reductions in assets and M3 liabilities at thrifts, bank credit may strengthen. While banks continue to enjoy relatively favorable core deposit inflows, banks will need to tap additional managed liabilities to fund the faster credit growth and replace balances withdrawn by the Treasury. Banks should continue to make further large acquisitions of mortgage assets, whose returns are still relatively attractive. More generally, enlarged issuance of mortgage-backed securities and heightened activity by sponsored agencies will facilitate the redistribution of mortgage lending without further significant effects on its cost and availability. In the business sector, borrowing is expected to remain around the reduced pace of recent months, despite some dropoff in corporate share retirements owing in part to the higher cost of leveraging. Although Treasury borrowing also will slacken, this deceleration merely represents-the movement of RTC financing off budget in the new fiscal year, rather than a decline in underlying credit demands. In total, domestic nonfinancial debt is expected to grow at around an 8 percent annual rate over the fourth quarter, implying similar growth for the year, a little below the midpoint of its annual monitoring range. -12- (13) Under alternative A, short-term interest rates are likely to fall in tandem with the 50 basis point drop in the funds rate. The dollar would decline, and the decline might be substantial if the Federal Reserve's action were interpreted as a willingness to use monetary policy to bring about a depreciation of the dollar. Bond rates probably would move lower, though by less than short-term rates. Limiting the response of bonds might be a sense that following the unanticipated easing of policy, the economy could be a little stronger than previously expected in 1990 and price pressures somewhat amplified, especially if the drop in the dollar were particularly sharp. The decline in rates would tend to boost M2 growth to a somewhat faster pace than in August and September. Early next year, the continuing effects of the further decline in opportunity costs, along with a tendency for income growth to begin to strengthen, likely would result in growth of M2 at a rate above the Committee's tentative range for 1990. M3 growth would strengthen to a 5 percent rate over the September-to-December period under alternative A. (14) The tightening of policy under alternative C would come as a surprise to the markets, especially in the present international environment. Money market interest rates would rise by around the 50 basis point hike in the federal funds rate, and the dollar would strengthen. With such a tightening not built into yield curves, bond rates would be expected to firm somewhat in the near term as the market reassessed the degree of aggressiveness by the System in pursuing its price stability objective. M2 growth over the September-to-December period would slow to a 5 percent rate. The composition of inflows would move toward small time -13- deposits, whose rates adjust more promptly, and away from liquid accounts; its M1 component would slow to a 2-1/2 percent rate. The restraining effects of higher interest rates and opportunity costs under this alternative should be sufficient to hold M2 to around the middle of its tentative 1990 range in the early part of next year. M3 would grow at only a 4 percent annual rate, ending the year very close to the lower end of its 1989 range. -14- Directive language (15) Draft language for the operational paragraph, including the usual options and updating, is shown below. OPERATIONAL PARAGRAPH In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT/maintain/ INCREASE SOMEWHAT the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, 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 growth of M2 and M3 over the period from June through September THROUGH DECEMBER at annual rates of about ____ AND ____ [DEL: 9 and 7]percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a [DEL: 7 federal funds rate persistently outside a range of ____TO ____ to 11]percent. October 2, 1989 SELECTED INTEREST RATES (percent) -- 88 -- High LOW Low cosney ei Ieuy dr finds fcondry mcokm mret secondary m mrh 1 ! - I ,3 7I nw"l ! - - nIdMl ppeW - - -- -i bn prfm* m coporale I A uiliy g muncipal US gowmmnea aImIe nluy ylei US--- !a I1n I 112 .i0 ! renty sa I Bond 12I 3m 13 co'entlonal home marlgage wsecondaryI ak m e I pelmy manui .el Iln0 1 I i I I I_ I 14 (i As 8.87 8.16 6.38 61 933 6.58 8.18 603 10.50 8.50 9.16 7.33 9.36 8.16 10.73 9.63 8.34 764 11.33 9.98 1081 984 9.95 8.95 9.04 7.64 10.23 8.43 919 8.23 11.50 10.50 9.77 7.60 9.46 7.82 10.47 9.45 7.95 7.19 11.73 9.92 1122 9.68 Uoney Sep 88 Oct Nov Dec 88 88 86 8.23 8.36 8.78 9.25 7.40 7.50 7.64 8.00 10.00 10.00 10.05 10.50 8.57 8.43 872 9.11 8.9 8.80 896 9.11 10.26 10.11 1012 10.06 7.96 7.78 7.80 7.88 10.62 10.41 10.56 10.96 1048 1030 10.27 10.61 Jan Feb Mr Apr May Jun Jul Aug 89 89 89 89 89 89 89 89 9.20 9.51 10.09 9.94 9.59 9.20 8.76 8.64 8.33 8.79 8.89 914 9.13 6.96 8.72 8.32 10.50 10.93 11.50 11.50 11.50 11.07 10.98 10.50 9.20 9.32 9.61 940 8.98 8.37 7.83 8.13 9.09 9.17 9.36 918 8.86 8.28 8.11 10.09 10.25 10.37 10.33 10.09 9.65 9.54 9.55 7.63 772 1.85 7.73 7.51 7.35 7.28 7.36 1097 1103 11.47 11.32 10.90 10.39 10.11 10.38 10.73 1065 11.03 1105 10.77 10.20 988 9.99 Jun 7 89 Jun 14 89 Jun 21 89 Jun 28 89 927 908 9.25 9.23 9.08 894 8.88 886 11.29 11.00 11.00 11.00 8.48 8.30 8.47 8.33 841 8.21 8.35 8.22 9.63 9.70 9.59 9.49 7.28 7.27 7.42 7.34 10.28 10.47 10.42 10.26 1020 1004 1019 1007 ,Ju 5 89 Jul 12 89 Jul 19 89 Jul 26 89 9.09 8.83 8.73 874 .85 8.75 8,66 859 11.00 11.00 11.00 11.00 8.04 7.83 7.87 7.85 811 8 02 8.06 8.03 9.54 9.57 9.60 9.45 7.32 7.27 7.26 7.26 1014 10.19 10.20 9.92 1003 982 9.87 981 Aug 843 8.50 8.68 8.77 8.76 8.47 8.32 8.32 8.31 8.29 1079 10.50 10.50 10.50 10.50 7.60 7.92 815 8.30 8.35 7.82 7.98 8.14 821 8.24 9.54 9.56 9.55 9.58 9.56 7.19 7.31 7.39 7.47 7.46 10.23 10.36 1047 10.47 10.48 968 996 10.09 10.21 10.22 8.80 8.23 8.26 8.25 8.25 10.50 10.50 1050 10.50 8.33 8.19 8.11 8.35 8.20 815 8.11 8.27 9.55 9.49 9.56 9.60 7.43 7.45 7.59 7.59 10 43 10.30 1042 10.57 1017 1005 1003 1016 10.50 10.50 10.50 8.27 8.42 8.46p 8.22 8.30 8.31 p 802 . Weekly 2 89 Aug 9 89 Aug 16 89 Aug 23 89 Aug 30 8 Sep 6 a9 Sep 13 89 Sep 20 89 Sep 27 89 875 8.70 8.83 Daily Sep 22 89 Sep 28 89 Sep 29 89 8.99 9.20 9.47 p 776 7.87 7.91 7.75 7.85 7.90 7.66 7.80 787 8.79 886 8.96 8.20 8.25 8.24 p . Caolum 12 13 and 4 re -dy quotesfo Fdday Thursday o Fiay respecney lolowlng ihennd tn from Donoghue s MnFund R Da cokumn7 aUm lweek Wmerages NOTE weeaMA atof cotun 1it ugnlhI 1ae W an Ieage conWuKam on newcomfflmern delvey Commlenm Columnl tIShl h on 30-day mndnalMoy wnulw Idex Column 141It e FNMA pu he yield plus lon eWMelng odhwestUemwn wek Coaumn13 i he*Bond BuvWI is the serge cIterat rae on noewcomles loft - Maradjuslabf - rate mongageslARsl al mafo instlullonalencers iAh pcM lano- vahle raos at majorklttional de Ca n B16 P kxf ilae motngagenFRM)Ui oteing botn FRMs and AtMs ~ h e sne number of dcouid pot p -- pieranvydla Strictly Confidential (FR)Class II FOMC Bank Reserves, Money and Credit Aggregate Measures Seasonally adjusted OCT. Money stock mea ures and liouid st * Bank reserves' nonborrowed total monetary base M1 M2 M3 1 2 3 4 5 6 55,725 58,393 58,514 56,532 59,175 60,807 238,801 256,914 274,513 709.4 754.7 787.4 2788.3 2905.7 3057.1 3470.2 3667.7 3897.1 MONTHLY 1988-AUG. SEP. 57,663 57,985 60,903 60,824 270,979 272,420 782.4 783.7 3029.7 3035.0 OCT. NOV. DEC. 58,562 57,991 58,990 60,862 60,853 60,706 273,659 274,380 275,501 785.4 786.6 790.3 1989-JAN. FEB. MAR. 58,708 58,773 58,041 60,370 60,260 59,854 276,784 277,553 278,615 APR. MAY JUNE 57,174 57,019 56,860 59,463 58,740 58,350 JULY AUG. 58,004 58,085 58,698 58,760 Period LEVELS (MBILLIONS) : ANNUALLY (4TH QTR. I 1986 1987 1988 I 1. 2. I I Ii total loanm and nvestment 1989 Do nestic nonfinancial debt Bank credit L 2, U.S. government other' total' a 9 4109.9 4335.0 4642.9 2068.9 2237.6 2409.6 1783.8 1943.7 2098.8 5725.7 6311.1 6915.1 7509.5 8254.9 9013.9 3851.5 3861.0 4583.9 4592.2 2377.6 2381.5 2058.5 2076.2 6761.0 6806.0 8819.5 8882.2 3042.3 3059.4 3069.5 3877.9 3898.1 3915.4 4613.3 4639.4 4676.1 2401.4 2410.2 2417.2 2084.7 2098.2 6858.2 6919.6 6967.6 8942.9 9017.7 2113.5 786.3 787.4 786.3 3065.8 3069.4 3078.4 3920.2 3929.5 3950.8 4679.8 4692.0 4726.2 2422.8 2451.9 2464.9 2121.8 2137.8 2158.7 7016.0 7068.4 7109.0 9137.8 9206.1 9267.8 278,675 278,329 279,056 783.1 773.3 770.3 3080.6 3072.1 3088.0 3958.6 3954.6 3973.5 4744.1 4743.0 4746.7 2470.9 2486.3 2496.8 2168.8 2176.5 2184.3 7154.9 7204.3 7247.3 9323.7 9380.8 9431.6 279,983 280,294 777.2 777.7 3117.5 3136.3 4003.2 4009.4 4777.1 2518.1 2534.4 2184.5 2204.6 7294.8 7349.2 9479.3 9553.8 I_ I 7 19 J. I Reserves data are in millions of dollars, and have been adjusted for discontinuities. Debt data are on a monthly average basis, derived by averaging end-of-month levels of adjacent months, discontinuities. p-preliminary and have been adjusted to remove It 9081.1 Strictly Confidential (FR)Class II FOMC Components of Money Stock and Related Measures seasonally adjusted unlessotherwise noted Money market Smalll Period Currnc 1 LEVELS ISBILLIONSI : ANNUALLY (4TH QTR. ) 1986 1987 1988 1. 2. 3. 4. Demand checkable deposits depeite 2. RPs and MMDAs Saings nation NSA deposits tine deposits' EurodoliWar NSA' 4 _______ _ 354 OCT. Ieral Inltitu- purpose nd brokr dealIer lions only I 1 Large- 0 1989 .... RPs Eurodollar Savings term Commer- accep- NSA' NSA' bonds Tresury securitles clal paper' tnces 1 12 13 1 nation time dceploits 2, 1 1o" ~ 1o4 15 1 Ill 179.4 194.9 210.7 294.5 292.0 288.4 229.1 260.8 280.9 77.9 81.3 76.7 569.1 529.9 505.6 361.8 416.7 430.8 859.5 900.8 1017.6 207.6 219.7 236.0 64.7 87.2 86.5 440.8 481.6 534.7 82.6 110.0 126.0 81.0 92.2 102.5 89.8 99.6 108.7 262.5 266.0 272.3 229.8 257.0 323.9 37.5 44.6 40.8 MONTHLY 1988-AUG. SEP. 207.0 208.6 289.9 288.8 276.3 279.0 79.9 517.7 511.4 430.9 430.5 988.3 998.7 230.8 231.0 84.0 83.7 519.4 526.7 124.1 122.8 102.8 102.8 107.4 107.9 272.6 272.8 311.3 308.8 41.2 41.7 OCT. NOV. DEC. 209.7 210.5 211.8 288.9 287.7 288.6 279.4 281.0 282.3 76.0 75.7 78.4 507.5 506.7 502.7 429.2 431.8 431.3 1009.7 1017.8 1025.2 231.3 237.4 239.4 84.6 67.4 87.6 532.0 534.4 537.8 125.4 128.4 124.1 100.2 101.6 105.8 108.4 108.7 109.1 273.3 268.4 275.2 412.3 323.7 335.8 41.3 40.5 40.6 1989-JAN. FEB. MAR. 213.4 214.3 215.6 284.0 284.8 284.3 281.3 280.9 279.1 81.8 79.0 77.5 495.2 485.3 480.3 427.8 424.6 420.8 1035.7 1048.3 1061.0 241.7 247.2 255.5 89.3 89.6 87.6 544.4 551.6 558.8 125.3 128.5 131.0 100.7 100.0 105.5 109.7 110.6 111.5 274.4 267.8 273.5 334.9 344.2 349.2 40.6 39.9 41.2 APR. MAY JUNE 215.9 216.4 217.4 281.4 278.2 275.0 276.5 271.3 270.7 74.5 73.5 76.0 471.3 457.0 456.9 412.8 404.7 402.0 1083.1 1105.8 1118.5 259.1 258.9 265.1 87.7 91.6 95.1 567.7 572.1 573.0 128.8 129.3 129.3 101.3 100.5 99.3 112.3 112.9 113.8 277.6 280.8 267.7 354.2 353.5 350.5 41.4 41.1 41.2 JULY AUG. 218.0 218.4 278.9 277.6 273.2 274.5 77.4 459.8 465.4 401.5 402.3 1126.4 1131.7 274.6 285.5 98.2 100.6 573.0 568.7 125.1 119.6 99.8 97.2 114.6 265.9 351.4 42.1 Net of oney 77.3 74.8 rmrket mutual fund holdings of these items. institutions rpurchse agreements. All IRA and Keogh accounts at commercial banks and thrift Includes retil Excludes IRA and Keogh accounts. institutions. Net of large denomination time deposits held by money markt mutual funds and thrift p-preliminary are subtrcted from small time deposits. Treasury bills ----------- ________ Period Net purchases 1984 1985 1986 1987 1988 Redemption (-) rea----rNet puchases 3 Net within chan 1-year 7,700 3,500 1,000 9,029 2,200 3,779 14,596 19,099 3,905 5,435 1988--01 02 Q3 94 319 423 1,795 5,098 2,200 -1,881 423 1,795 5,098 1989--Q1 Q2 2,200 2,496 3,842 2,400 -6,042 96 -154 -3,688 600 1,600 -754 -5,288 3,077 -10 -571 -5,517 -934 1,200 1,200 2,400 800 3,077 -1,210 -1,771 -7,917 -1,734 1989--January February March April May June July August June 7 14 21 28 -571 July 5 12 19 26 -113 -255 -4,710 -127 2 9 16 23 30 -462 -150 -230 -403 COU-Federal Redemp1-5 5-10 over 10 826 1,349 190 3,358 2,177 1,938 2,185 893 9,779 4,686 236 358 236 2,441 1,404 441 293 158 1,858 1,398 1,092 -800 3,661 1,084 1,824 -228 -20 -- 172 1,361 287 284 172 Net tions (-) Net agencies redemptions chane (-) change outright holdings total Net RPs 3,440 4,185 1,476 17,366 15,099 6,964 18,619 20,178 20,994 14,513 1,450 3,001 10,033 -11,033 1,557 -175 1,017 -975 6,737 562 3,903 -3,011 7,030 1,717 8,776 -3,514 5,220 1,393 -1,541 -248 2,104 -6,477 2,075 -5,591 924 -3 -225 -23 -225 -925 -5,553 1,436 -75 2,179 -75 -5,131 -1,285 -1,771 -7,984 -1,884 -6,813 2,079 -856 14,448 -23,527 10,002 -5,152 617 -22 -150 -13 -150 600 600 -1,171 -600 -1,171 -600 1,811 4,078 2,508 900 600 600 600 -113 -855 -5,310 -727 -122 -855 -5,323 -772 -6,581 10,832 -9,202 815 -1,062 -550 -630 -403 -1,062 -550 -780 -403 590 1,914 -432 40 -2,875 -54 2,793 56 9,045 -6,609 231.4 -3.3 600 400 400 -150 Sept. Memo: 6 13 20 27 6 LEVEL (bil.$) September 27 hag Treasury coupons -- 11,479 18,096 20,099 12,933 7,635 August STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES1 Millions of dollars, not seasonally adjusted October 2, 1989 102.3 31.4 Change from end-of-period to end-of-period. Outright transactions in market and with foreign accounts. 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 coupon issues. 51.6 13.1 122.6 4. Reflects net change and redemptions (-) of Treasury and agency securities. 5. Includes change in RPs (+), matched sale-purchase transactions (-), and matched purchase sale transactions (+). 6. The levels of agency issues were__ as follows: I within S1-ear 1-5 5-10 12.2 3.2 1.0 over 101 total 0.2 6.6
@FedFRASER