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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) September 17, Class I - FOMC 1993 MONETARY POLICY ALTERNATIVES Recent Developments (1) The federal funds rate averaged close to the Committee's expectation of 3 percent during the intermeeting period. Short-term interest rates have edged down since the August meeting, while intermediate- and long-term rates have decreased 20 to 30 basis points, on balance. 23 These declines extended the drop in longer-term rates since their recent highs, posted just after the July HumphreyHawkins testimony, to nearly 3/4 percentage point. A sizable portion of these reductions in rates appears to incorporate a moderation in inflation expectations, a notion supported by survey data. Revisions to the inflation outlook were probably prompted by generally favorable data on broad price indexes and evidence of continuing sluggishness in economic activity. The market response to the cast of data on aggregate demand and to greater assurance of fiscal restraint suggests that real long- 1. The Desk's allowance for adjustment plus seasonal borrowing was kept unchanged at $250 million, while actual borrowing, which was boosted by technical difficulties at two large banks, averaged $425 million in the two full maintenance periods since the August FOMC meeting. 2. Rate movements are calculated using quotes through noon, September 17. At that time a few banks had reduced their prime rates from 6 to 5-3/4 percent, but none were money-center banks and the action had not become general. 3. The thirty-year constant maturity Treasury yield has dropped a bit more than rates on corporate bonds and mortgages. However, this differential primarily reflects movements in the exceptional premium for the most recently auctioned Treasury bond--the security used in the construction of the constant maturity yield. Owing to the Treasury's decision to reduce the volume of such securities offered and the frequency of auctions in the future, the yield on the thirty-year bond auctioned in early August has been unusually far below nearby securities on the yield curve, and the gap has widened on balance over the intermeeting period. Indeed, private securities underwriters are said to be using a more seasoned issue as a benchmark for pricing decisions. term interest rates may also have fallen since late July; this interpretation of rate movements is consistent with the reduced foreign exchange value for the U.S. dollar and continued strength in stock markets. Market perceptions, in light of incoming data, that the Federal Reserve would raise nominal short-term rates later and by less than was previously foreseen probably contributed to declines in real yields on bonds and equity. Apparently, investors turned increasingly to longer-term assets to preserve returns, which has helped to lift most major stock market indexes 1 to 2 percent since the August meeting. (2) On balance, the weighted average foreign exchange value of the dollar fell about 3 percent since the last meeting, depreciating even more against the mark and other European currencies, while appreciating about 3 percent against the yen. The dollar was buoyed against -- the yen early in the period by U.S. intervention sales of yen ($165 million equivalent) and the accompanying public statement by the Treasury Department, which the market apparently read as signalling a new attitude--that further strengthening of the yen was not desirable. The mark's strength was partly related to the unexpectedly slow pace of interest rate reductions by the Bundesbank; while the discount and Lombard rates were cut 50 basis points on September 10, the key RP rate was lowered only 10 basis points. German three-month market rates were essentially unchanged and long-term rates declined 25 basis points over the intermeeting period. Other ERM monetary authorities continued to be cautious in reducing interest rates, despite the additional leeway offered by the wider, 15 percent, exchange rate margins. Japanese three-month interest rates fell 30 basis points and long-term rates 10 basis points. (3) demand. Appetites for longer-term securities continue to weaken M2 Bond and stock mutual funds posted a record gain in July, and weekly data indicate an even stronger advance in August. M2 grew at the subdued rate of 1-3/4 percent in August, close to the forecast in the last bluebook, leaving the aggregate slightly above the lower end of its annual growth cone. A temporary dip in mortgage refinancing likely restrained M2 growth last month. trends: Components generally followed recent M1 again grew rapidly--at a 10-1/2 percent rate for the month; 4 savings and MMDAs posted a moderate gain, while there were runoffs in small time deposits and money market mutual funds, the closest substitutes for capital market investments. 5 (4) M3 growth was slow in August, although it rose for the first time in three months and was somewhat above the staff projection at the last meeting. growth cone. This aggregate is now at the lower end of its Sluggish depository credit continued to depress M3 growth. With credit demands continuing to be concentrated in capital markets, bank credit decelerated to a 3-1/4 percent rate of growth in August. Most of the increase was in bank securities portfolios; business loans 4. Total reserves and the monetary base grew at 9-3/4 and 11-1/2 percent rates, respectively, in August. 5. M2 plus bond and stock mutual funds (excluding institutional holdings and IRA/Keogh accounts) is estimated to have grown at about a 5 percent rate in August, the same as its average pace for the year to date. 6. The unexpected pickup in M3 in August owed primarily to a decline in money fund holdings of large CDs, which resulted in a rare, albeit small, increase in net CDs in this aggregate. (The aggregates are constructed on a consolidated basis by subtracting deposits held by money-stock issuers--depository institutions and money funds--from reported deposit liabilities.) Expansion of M3 continued to be held down by the decline in institutional money funds that began in September of 1992; the stable short-term interest rate environment since then has eliminated the yield advantage of their slowlyadjusting average returns over direct investment in money market instruments. were little changed, while real estate and consumer loan growth slowed, and security loans ran off. (5) The growth of nonfederal debt, though still subdued, appears to have picked up a little in recent months, with both business and household borrowing strengthening somewhat. In the business sector, commercial paper issuance has been strong of late, but the bulk of net borrowing remained focused on bond markets. Receptive financial markets readily absorbed heavy bond issuance and a pickup in initial public offerings of equity, the proceeds of which financed considerable retirement of higher-cost bonds and probably the paydown of bank loans. The improvement in household financial positions has supported higher debt growth. Consumer credit picked up to a 7 percent pace in July (on a month-average basis), appreciable growth. and bank data for August suggest further Mortgage debt is estimated to be expanding moderately, as households do not appear to be taking out significant additional cash in refinancing their mortgages. From the fourth quarter of 1992 through July, nonfederal debt grew at only a 3 percent rate. Federal debt growth eased over the summer from its rapid second-quarter rate on a seasonally adjusted basis. Total domestic nonfinancial debt is estimated to have grown at a 5-1/2 percent rate in July, and at a 4-1/2 percent rate from the fourth quarter through July, leaving this aggregate somewhat above the lower bound of its monitoring range for 1993. MONEY, CREDIT, AND RESERVE AGGREGATES (Seasonally adjusted annual rates of growth) June July Aug QIV to Aug M1 7.2 13.8 10.5 10.2 M2 2.6 2.2 1.8 1.2 M3 -0.8 -0.3 1.6 .0 Domestic nonfinancial debt Federal Nonfederal 6.4 12.2 4.3 5.6 7.4 5.0 ---- 4.6 9.3 3.0 9.1 8.8 3.4 5.0 Nonborrowed reserves 2 3.8 8.1 7.4 10.3 Total reserves 5.1 9.4 9.7 10.8 10.9 9.5 11.5 10.2 Adjustment plus seasonal borrowing 181 244 352 Excess reserves 911 1089 949 Money and credit aggregates Bank credit Reserve measures Monetary base Memo: 1. 2. (Millions of dollars) QIV to July for debt aggregates. 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. Reserve data incorporate adjustments for discontinuities associated with changes in reserve requirements. Policy Alternatives (6) Three policy alternatives are presented for consideration by the Committee. Under alternative B, federal funds would continue to trade around 3 percent in combination with an initial allowance for adjustment plus seasonal borrowing of $250 million. Under alterna- tive A, the federal funds rate would decline to 2-1/2 percent, either through a reduction in the initial borrowing allowance or a cut in the discount rate by 50 basis points and an unchanged initial borrowing allowance. Under alternative C, the federal funds rate would rise to 3-1/2 percent in association with a boost in the initial borrowing allowance. (7) Alternative B is consistent with the staff's economic forecast. In that forecast, short-term rates are assumed to remain at current levels through the end of 1994. Growth in output settles into a pace broadly in line with that of potential output, preserving the current modest slack in resource markets. edges lower. Accordingly, core inflation Market participants apparently believe that the federal funds rate will remain at 3 percent, at least for the next several months, and under alternative B, money market interest rates would remain around current levels. However, participants seem to expect stronger economic growth over coming months than implicit in the staff forecast and little further progress in reducing inflation. In the absence of stronger growth, intermediate- and longer-term rates might well drift lower as incoming data tilt market sentiment and investors continue to reach for yield. Bond yields could remain unusually volatile for a time as market participants continue to assess the 7. Demands for seasonal credit are likely to diminish over the intermeeting period, as they typically do in the fall, calling for downward technical adjustment to the borrowing allowance. sustainability of the much reduced levels of long-term rates that have recently been reached. This skittishness may focus particularly on indicators bearing on the outlook for prices, partly in light of their possible implications for monetary policy going forward. Consistent with the staff forecast of policy easings in Germany and Japan, the dollar should trade on the high side of recent levels under alternative B. (8) While lower long-term rates and tight quality spreads should continue to spur considerable activity in capital markets, net growth in debt is expected to remain moderate. Debt of nonfederal sectors is projected to grow more rapidly over the balance of the year than in the first half but more slowly than nominal output. In the business sector, net equity issuance should stay around the elevated levels of late, restraining borrowing. Households likely will respond vigorously to recent declines in mortgage rates, but mainly to refinance existing mortgages. Mortgage and consumer debt is expected to continue to increase at a moderate rate. Including the federal government, the debt of nonfinancial sectors is projected to expand at a bit more than a 4 percent pace over the final five months of the year, leaving its growth for the year at 4-1/2 percent, a little above the lower bound of its annual range. (9) As shown in the table below, M2 under alternative B is projected to grow at a 2 percent average rate over the final four months of this year. Special factors, especially mortgage refinancings. Alt. A Alt. B Alt. C Growth from August to December M2 M3 M1 2-1/2 1 13-1/4 2 3/4 12-1/4 1-1/2 1/2 11-1/4 1-1/2 1/4 11-1/2 1-1/2 1/4 11 1-1/4 0 10-3/4 Growth from Q4:1992 to December 1993 M2 M3 M1 should boost M2 growth a little over this period. Underlying growth in this aggregate, however, will remain quite sluggish. Although the flatter yield curve should eventually damp the shift from M2 to capital market assets, we do not expect any slowing in the near term: indeed, with recent capital gains enhancing the advertised returns on mutual funds, inflows could remain quite brisk. On a quarterly average basis, growth in M2 would slow to a 1-1/2 percent rate in the fourth quarter, implying growth for the year on a Q4-to-Q4 basis of 1-1/4 percent.9 Growth in M2 velocity would pick up to a 4 percent rate in the fourth quarter, bringing the increase for the year to 3 percent. Under alternative B, M3 would grow at a 3/4 percent rate over the remainder of this year, leaving this aggregate just above both its fourth-quarter 1992 level and the bottom of its 8. We expect that NationsBank will transfer its government security dealer operations, with associated RPs, to a nonbank affiliate in October, reversing the transaction it made in July and depressing M2. In part reflecting the surge in refinancing, M1 is projected to accelerate to a 12-1/4 percent pace over the August-to-December period. Accompanying this strength in M1, total reserves are expected to increase at a 16-3/4 percent pace over the period and the monetary base at a 10-3/4 percent rate. 9. The growth of M2 continues to fall short of staff money demand models by substantial margins. More conventional models are predicting about 5 percent growth this year; even the expanded models that include the effects of the steep yield curve call for about 3-1/2 percent growth in 1993. Alternative Levels and Growth Rates for Key Monetary Aggregates M2 Alt. A Levels in Billions Jul-93 Aug-93 Sep-93 Oct-93 Nov-93 Dec-93 M3 Alt. B Alt. C Alt. A M1 Alt. B 3521.4 3526.7 3533.6 3536.2 3545.9 3555.1 3521.4 3526.7 3532.7 3533.3 3541.2 3549.2 3521.4 3526.7 3531.8 3530.3 3536.5 3543.3 Jul-93 2.2 2.2 2.2 -0.3 -0.3 Aug-93 Sep-93 Oct-93 Nov-93 Dec-93 1.8 2.3 0.9 3.3 3.1 1.8 2.0 0.2 2.7 2.7 1.8 1.7 -0.5 2.1 2.3 1.6 0.9 -0.5 1.9 1.9 1.6 0.7 -0.8 1.5 1.5 -1.8 2.2 3.2 2.1 -1.8 2.2 3.1 1.6 -1.8 2.2 3.1 1.1 -3.7 2.5 1.1 0.8 To Jun-93 Sep-93 Dec-93 Dec-93 Dec-93 1.0 2.1 2.3 2.4 2.4 1.0 2.0 2.0 1.9 1.9 1.0 1.9 1.6 1.4 1.3 92 Q4 92 Q4 92 Q4 Jun-93 Aug-93 Dec-93 0.9 1.2 1.6 0.9 1.2 1.4 90 Q4 91 Q4 2.8 91 Q4 92 Q4 1.8 92 Q4 93 Q4 1.4 4169.9 4175.3 4178.4 4176.7 4183.3 4189.9 4169.9 4175.3 4177.7 4174.9 4180.2 4185.4 Alt. C 4169.9 4175.3 4177.0 4173.2 4177.0 4180.9 Alt. A Alt. B Alt. C 1085.5 1095.0 1103.9 1115.5 1129.1 1143.2 1085.5 1095.0 1103.3 1113.9 1126.4 1139.6 1085.5 1095.0 1102.8 1112.3 1123.7 1135.9 -0.3 13.8 13.8 13.8 1.6 0.5 -1.1 1.1 1.1 10.5 9.7 12.6 14.7 15.0 10.5 9.1 11.5 13.5 14.0 10.5 8.5 10.4 12.3 13.0 -3.7 2.5 1.1 0.6 -3.7 2.5 1.1 0.3 6.6 10.5 12.7 12.6 6.6 10.5 12.7 11.7 6.6 10.5 12.6 10.8 0.2 0.7 0.9 1.0 1.1 0.2 0.6 0.7 0.7 0.7 0.2 0.6 0.5 0.4 0.4 9.1 11.4 13.0 13.2 14.2 9.1 11.2 12.4 12.2 13.2 9.1 11.0 11.7 11.2 12.0 0.9 1.2 1.2 -0.2 0.0 0.3 -0.2 0.0 0.2 -0.2 0.0 0.1 9.4 10.2 11.4 9.4 10.2 11.1 9.4 10.2 10.8 2.8 2.8 1.1 1.1 1.1 8.0 8.0 8.0 1.8 1.8 0.3 0.3 0.3 14.3 14.3 14.3 1.3 1.2 0.2 0.1 0.0 11.0 10.8 10.5 Monthly Growth Rates Quarterly Averages 93 Q1 93 Q2 93 Q3 93 Q4 Growth Rate From Dec-92 Jun-93 Jun-93 Aug-93 Sep-93 1993 Target Ranges: 1.0 to 5.0 0.0 to 4.0 Chart 1 ACTUAL AND TARGETED M2 Billions of Dollars 3750 * Actual Level Short-Run Alternatives 3700 3650 3600 * * * A B C . 1% - 3550 3500 3450 3400 D ON 1992 J F MA M J J 1993 A S ON D J 1994 3350 Chart 2 ACTUAL AND TARGETED M3 Billions of Dollars - 4400 Actual Level * Short-Run Alternatives -- 4350 -- 4300 -- 4250 -- 4200 A - 0% -44150 - 1 ON D 1992 1 1 1 1 J F 1 MA 1 1 1 I M I I J J 1993 1 1 1 A I 1 S I I I I I I I N D J 1994 4100 4050 Chart 3 M1 Billions of Dollars 1200 - * Actual Level 15% Short-Run Alternatives 1150 - - .* 1050 1000 O N 1992 D J F M A M J J 1993 A S O N D J 1994 Chart 4 DEBT Billions of Dollars 12800 * Actual Level 8% Projected Level -- 12600 -- .. 4% - -( 12400 12200 12000 -1 11800 -- 11600 I I O N D I F M A M J J 1993 A S I l l I l l l I l l I J O N I D J 1994 11400 -10- annual range. Sluggish demand for bank loans is expected to hold down banks' needs for funds. Moreover, the RTC, with new funding author- ity, is expected to begin working down its backlog of resolutions in coming months, leading to more rapid shrinkage of thrift institutions and the substitution of Treasury financing for deposit financing to carry acquired assets. (10) Under alternative A, money market interest rates would drop by the full 50 basis point decline in the federal funds rate. The prime rate would also decrease by this amount. Intermediate-term rates would fall appreciably, as expectations of the path of shortterm rates in the months ahead were revised down, and the dollar would weaken on foreign exchange markets. Real long-term rates would move lower as well, and the drop in interest and exchange rates would provide additional stimulus to spending over time. The extent of the decline in nominal bond rates, however, would depend importantly on how the market interpreted the Committee's rationale for this action. (11) This alternative might seem attractive if the Committee saw the lack of progress toward full employment in the staff outlook as unsatisfactory and was willing to settle for essentially no further disinflation in this expansion; market perceptions that the Committee had down-weighted its price stability objective could limit declines in nominal long-term rates. Alternative A might also be chosen if the Committee saw economic activity and inflation as possibly coming in below the staff forecast; market perceptions that the Committee was signalling an expectation that the outlook for real activity had deteriorated and for disinflation had improved could result in substantial declines in bond yields. Although the longer-term effects of lower interest rates on money demand may be uncertain, over the next several months deposit rates would lag declines in market rates, -11boosting money growth under this alternative and providing a little more assurance that the broad monetary aggregates would finish the year within their ranges. Given the staff spending forecast, M2 would expand at a 2-1/2 percent rate over the remainder of the year, ending the year 1-1/2 percent above its fourth-quarter 1992 base. The boost to growth in income beginning late in the year would tend to lift this aggregate further into its tentative 1994 range early next year. Some of the more rapid growth in M2 would show through to M3 under alternative A, but expansion of this aggregate would remain quite weak as borrowers continued to direct their credit demands toward long-term markets. (12) Under alternative C, interest rates would rise and the dollar would strengthen on foreign exchange markets. Money market rates would increase by the full 50 basis point rise in the federal funds rate. Although markets seem still to expect a tightening in policy at some point, action under this alternative would come much sooner than now built into the yield curve. Intermediate-term rates would increase significantly, especially if the tightening were seen as signalling a more aggressive posture of the Federal Reserve against inflation and a higher trajectory of short-term rates for a considerable period. However, lower prospective inflation might decrease far- ahead forward rates, limiting advances in nominal bond yields. (13) Alternative C might be favored if the modest degree of price deceleration in the staff forecast were viewed to be unsatisfactory. Tighter money market conditions might also be sought if the Committee were concerned that low nominal and real short-term rates were fostering runups in capital market prices that were unsustainable, risking either excessive stimulus to spending and inflation down the road or a sharp correction in financial markets with potential -12- systemic implications. M2 under this alternative is projected to grow at a 1-1/2 percent rate over the final four months of the year, restrained primarily by higher opportunity costs and less robust mortgage refinancings. M2 growth could be faster than this if declines in bond and stock prices prompted a reassessment of the relative risks of deposits and capital market instruments. M3 would expand at only a 1/2 percent rate over this period, held down in part by sizable outflows from institution-only money market funds. These growth rates would place both aggregates near the bottom of their annual ranges for this year, and on a lower trajectory going into 1994 than under alternative B, partly reflecting damped income growth. -13- Directive Language (14) 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 SOMEWHAT/maintain/ INCREASE SOMEWHAT the existing degree of pressure on reserve positions. In the context of the Committee's long- run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly (SOMEWHAT) greater reserve restraint (WOULD/MIGHT) or slightly (SOME- WHAT) lesser reserve restraint (WOULD) might be acceptable in the intermeeting period. The contemplated reserve con- ditions are expected to be consistent with modest growth in M2 and [DEL: little net change in] M3 over the balance of the YEAR [DEL: third quarter]. September 20, 1993 SELECTED INTEREST RATES (percent) Long-Term Short-Term CDs secondary market Treasury bills secondary market federal funds 3-month I 6-month I 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 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 92 -- High -- Low 4.20 2.86 4.05 2.69 4.22 2.82 4.51 2.91 4.32 3.07 5.02 3.17 4.51 2.74 6.50 6.00 6.32 4.24 7.65 6.30 8.07 7.29 8.99 8.06 6.87 6.12 9.09 9.03 6.22 7.73 7.84 4.97 93 -- High -- Low 3.24 2.87 3.10 2.82 3.26 2.94 3.48 3.07 3.28 3.06 3.39 3.07 2.92 2.59 6.00 6.00 5.06 4.07 6.73 5.30 7.46 5.93 8.28 6.83 6.44 5.44 8.17 6.82 8.14 6.82 5.36 4.33 Monthly Sep Oct Nov Dec 92 92 92 92 3.22 3.10 3.09 2.92 2.91 2.86 3.13 3.22 2.96 3.04 3.34 3.36 3.06 3.17 3.52 3.55 3.13 3.26 3.58 3.48 3.25 3.22 3.25 3.71 2.91 2.79 2.83 2.82 6.00 6.00 6.00 6.00 4.42 4.64 5.14 5.21 6.42 6.59 6.87 6.77 7.34 7.53 7.61 7.44 8.11 8.40 8.51 8.27 6.40 6.59 6.56 6.43 7.85 8.12 8.35 8.22 7.92 8.09 8.31 8.22 5.11 5.06 5.26 5.45 93 93 93 93 93 93 93 93 3.02 3.03 3.07 2.96 3.00 3.04 3.06 3.03 3.00 2.93 2.95 2.87 2.96 3.07 3.04 3.02 3.14 3.07 3.05 2.97 3.07 3.20 3.16 3.14 3.35 3.25 3.20 3.11 3.23 3.39 3.33 3.30 3.19 3.12 3.11 3.09 3.10 3.21 3.16 3.14 3.21 3.14 3.15 3.13 3.11 3.19 3.15 3.14 2.83 2.72 2.66 2.65 2.62 2.62 2.64 2.64 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 4.93 4.58 4.40 4.30 4.40 4.53 4.43 4.36 6.60 6.26 5.98 5.97 6.04 5.96 5.81 5.68 7.34 7.09 6.82 6.85 6.92 6.81 6.63 6.32 8.13 7.80 7.61 7.66 7.75 7.59 7.43 7.16 6.40 6.12 5.85 5.99 5.92 5.87 5.80 5.67 8.03 7.65 7.57 7.46 7.48 7.41 7.19 7.05 8.02 7.68 7.50 7.47 7.47 7.42 7.21 7.11 5.23 4.98 4.79 4.71 4.65 4.64 4.56 4.48 Jan Feb Mar Apr May Jun Jul Aug Weekly Jun Jun Jun Jun Jun fixed-rate fixed-rate ARM 2 9 16 23 30 93 93 93 93 93 3.09 2.96 3.01 3.00 3.13 3.06 3.10 3.06 3.07 3.06 3.21 3.26 3.19 3.18 3.16 3.43 3.48 3.37 3.36 3.35 3.19 3.24 3.20 3.19 3.20 3.16 3.19 3.19 3.19 3.21 2.62 2.62 2.62 2.62 2.63 6.00 6.00 6.00 6.00 6.00 4.59 4.64 4.54 4.51 4.42 6.10 6.07 5.99 5.93 5.82 6.92 6.89 6.83 6.79 6.69 7.69 7.59 7.58 7.48 7.46 5.91 5.92 5.86 5.79 5.75 7.55 7.43 7.37 7.29 7.17 7.47 7.48 7.38 7.34 7.23 4.66 4.67 4.64 4.59 4.58 Jul Jul Jul Jul 7 14 21 28 93 93 93 93 3.10 3.01 3.09 3.03 3.00 3.02 3.04 3.09 3.09 3.12 3.15 3.24 3.27 3.27 3.29 3.46 3.15 3.15 3.14 3.18 3.17 3.15 3.13 3.15 2.63 2.64 2.63 2.65 6.00 6.00 6.00 6.00 4.36 4.35 4.39 4.59 5.79 5.76 5.74 5.92 6.68 6.62 6.56 6.68 7.44 7.36 7.48 7.37 5.76 5.74 5.87 5.87 7.20 7.08 7.33 7.19 7.19 7.16 7.20 7.25 4.56 4.53 4.56 4.55 Aug Aug Aug Aug 4 11 18 25 93 93 93 93 3.10 2.98 3.06 2.98 3.06 3.03 3.01 2.99 3.20 3.17 3.12 3.10 3.40 3.36 3.28 3.25 3.16 3.16 3.13 3.14 3.16 3.15 3.15 3.12 2.65 2.64 2.64 2.64 6.00 6.00 6.00 6.00 4.52 4.48 4.38 4.26 5.84 5.82 5.71 5.58 6.55 6.48 6.32 6.21 7.31 7.17 7.09 6.97 5.83 5.68 5.61 5.56 7.23 7.12 6.97 6.87 7.21 7.17 7.10 6.97 4.55 4.51 4.45 4.41 Sep Sep Sep 1 93 8 93 15 93 3.08 2.99 3.03 3.01 2.96 2.97 3.11 3.05 3.07 3.23 3.16 3.22 3.13 3.11 3.12 3.13 3.13 3.13 2.64 2.64 2.64 6.00 6.00 6.00 4.19 4.07 4.17 5.45 5.30 5.33 6.10 5.93 5.94 6.83 6.85 -- 5.52 5.44 5.49 6.82 6.91 6.88 6.93 6.82 6.96 4.40 4.33 4.36 10 93 16 93 17 93 2.94 3.10 -- p 2.96 2.95 -- 3.06 3.07 - 3.18 3.25 - 3.11 3.12 3.12 3.12 3.14 6.00 6.00 4.11 4.19 5.29 5.37 5.89 6.01 Daily Sep Sep Sep -- NOTE: Weekly data for columns 1 through 11are 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 isthe 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. p - preliminary data Strictly Confidential (FR). Class II FOMC Money and Credit Aggregate Measures lasOM SEPTEMER 20, 193 Seonlly adjusted Sesonally adjusted Money stock measures and liquid assets Period M1 Bank credit nontransactions components tot loans total loans M2 In M2 3 S2 Annual growth rates(%): Annually (Q4 to Q4) 1990 1991 1992 In M3 only 4 M3 L and investments' S ~ 7 Domestic nonfinancial debt' U. S. government 2 a other total 9 4.3 8.0 14.3 4.0 2.8 1.8 3.9 1.1 -2.6 -6.5 -6.2 -6.6 1.8 1.1 0.3 2.0 0.3 1.3 5.7 3.4 3.8 10.2 11.3 10.7 5.5 2.6 3.1 6.6 4.6 5.0 Quarterly Average 1992-3rd QTR. 1992-4th QTR. 1993-1st QTR. 1993-2nd QTR. 11.6 16.8 6.6 10.5 0.9 2.7 -1.8 2.2 -3.2 -2.7 -5.3 -1.3 -3.5 -14.4 -13.1 3.8 0.1 -0.1 -3.7 2.5 1.1 1.6 -2.4 3.4 3.5 4.1 1.8 5.9 12.5 6.7 7.6 10.4 3.4 3.5 2.5 2.5 5.7 4.3 3.8 4.6 Monthly 1992-AUG. SEP. OCT. NOV. DEC. 15.2 18.0 19.1 15.7 8.8 3.1 2.8 3.9 2.3 -0.3 -1.5 -3.1 -2.2 -3.2 -4.1 1.7 -6.1 -24.4 -13.9 -19.4 2.9 1.3 -0.8 -0.4 -3.4 3.3 2.8 0.8 2.5 -1.7 6.6 6.3 3.4 2.7 2.1 12.2 8.2 1.0 7.2 13.8 4.1 3.4 3.7 3.3 2.7 6.2 4.7 3.0 4.3 5.6 7.8 -0.2 2.6 8.9 27.4 7.2 13.8 10.5 -3.3 -3.7 -0.9 0.7 10.5 2.6 2.2 1.8 -7.8 -5.2 -2.4 -2.9 3.3 0.6 -2.8 -2.1 -28.0 11.0 -3.5 17.3 -1.4 -18.9 -14.1 0.2 -7.2 -1.4 -1.3 3.3 8.6 -0.8 -0.3 1.6 -5.9 -1.0 -0.5 4.1 10.0 0.6 0.0 -1.2 3.3 6.1 3.7 8.6 9.1 8.8 3.4 4.0 4.7 11.8 10.7 10.2 12.2 7.4 2.8 1.8 1.9 2.4 2.9 4.3 5.0 3.1 2.5 4.5 4.6 4.8 6.4 5.6 1993-JAN. PBB. MAR. APR. MAY JUNO JULY AUG. p Levels ($Billions): Monthly 1993-APR. 1043.0 3476.8 2433.7 667.5 4144.2 5030.3 2972.7 3148.9 8713.9 11862.8 MAY 1066.8 3507.2 2440.3 666.7 4173.9 5072.4 2994.0 3175.6 8734.8 11910.4 JUNE JULY AUG. p 1073.2 1085.5 1095.0 3514.9 3521.4 3526.7 2441.6 2436.0 2431.7 656.2 648.5 648.6 4171.0 4169.9 4175.3 5074.8 5074.9 3016.8 3038.9 3047.5 3207.9 3227.8 8765.9 8802.2 11973.8 12030.0 2 9 16 23 30 p 1091.3 1091.5 1095.2 1096.1 1097.6 3527.0 3523.0 3530.7 3529.7 3522.4 2435.7 2431.5 2435.6 2433.5 2424.9 647.2 647.3 649.6 647.1 651.9 4174.2 4170.3 4180.3 4176.7 4174.3 6 p 1103.1 3535.1 2432.0 641.5 4176.6 Weekly 1993-AUG. SEP. 1. Adjusted for breaks caused by reclassifications. 2. Debt data are on a monthly average basis, derived by averaging end-of-month levels of adjacent months, and have been adjusted to remove discontinuities. p preliminary pe preliminary estimate Strictly Confidentila (FR)Class II FOMC Components of Money Stock and Related Measures Seasonay adjusted unle Period Currency Damand deposits Other checkable deposits 1 I_ Levels ($Bll1ons): Annually (4th gtr.) 1990 1991 1992 Overnight RPs and Eurodollar NSA' Savings deposits' 5 deposits * I _ I I T I Large denon.nalion time deposilsI -a-4 _ Term RP's NSA' Term Eurodollars NSA' --- 1 - Savings bonds I - Short-term Commercial Treasury ,WT' securities Bankers acceplanoel - 348.2 362.9 344.1 131.5 175.6 207.5 496.8 433.3 361.9 93.6 74.7 80.5 68.0 60.7 47.0 125.2 137.0 154.5 329.9 319.4 325.6 356.2 336.3 369.6 36.3 24.4 20.4 926.9 912.7 348.9 343.9 220.9 220.7 378.1 373.7 75.8 77.6 51.4 49.4 147.4 149.3 322.9 321.0 355.7 363.4 31.1 20.7 1170.5 1180.4 1186.0 896.5 881.7 870.1 346.3 343.7 342.3 210.9 209.2 202.3 367.0 361.3 357.5 79.6 81.4 80.6 48.1 47.2 45.6 151.9 154.7 156.8 320.2 325.1 331.6 368.0 372.4 368.4 20.5 20.3 30.4 73.3 74.1 74.5 1184.4 1182.4 1178.8 861.3 856.1 851.1 339.5 333.6 333.1 197.7 350.7 346.3 340.5 79.7 82.1 85.7 43.6 47.0 50.4 158.9 161.1 162.7 337.1 340.9 338.0 360.7 355.9 360.3 20.6 20.2 19.3 386.2 395.5 397.9 72.7 70.0 73.9 1181.6 1193.7 1198.7 844.2 837.4 829.8 331.8 336.8 336.5 200.4 202.8 198.1 346.0 345.9 342.7 88.8 89.7 92.8 49.8 50.5 47.6 163.9 164.8 165.7 337.4 345.9 350.3 365.5 368.3 369.1 19.3 19.4 16.7 403.3 403.9 76.3 78.6 1200.1 1205.1 821.3 814.2 336.3 334.5 195.0 193.3 338.2 338.4 96.4 96.1 44.0 45.4 167.2 349.7 373.0 15.1 245.4 265.8 290.0 277.7 287.0 338.8 293.1 329.6 380.2 78.8 73.4 75.4 919.8 1028.8 1179.0 1171.6 1081.0 883.8 282.4 286.3 322.5 329.0 362.8 366.7 76.5 74.4 1145.7 1158.9 OCT. NOV. DEC. 288.0 289.8 292.3 336.0 339.5 340.9 373.7 381.6 385.2 75.7 75.8 74.8 1993-JAN. FBB. MAR. 294.8 296.9 299.0 341.9 341.9 342.0 388.6 386.4 386.3 APR. MAY JUNE 301.6 304.0 306.8 347.3 359.1 360.6 JULT AUG. p 309.6 312.5 365.8 370.8 Monthly 1992-AU0. BBP. Money market mutual funds genera purpose Institutions and o broker/ dealer Small denomination time SEPTEMBER 0. 1993 otherwise noted 201.9 200.9 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 nstitutions 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 NET CHANGES IN SYSTEM HOLDINGS OF SECURITES Millions of dollars, not seasonally adjusted September 17,1993 Treasury bills Period 1990 1991 Net 2 purchases Redemptions (-) Treasurycoupons Net change 1992 ---Q1 --Q2 --Q3 ---04 13.048 19,038 11,486 425 -1,000 4,415 867 8,805 -2,600 4,415 867 8.805 7,749 ---Q2 7,749 1992 September October November December 595 4,072 1,064 3,669 11 18 25 September 1 8 15 Memo: LEVEL (bil. $)6 September 15 --- 50 6,583 13,118 -100 1,280 2,818 375 2,333 285 350 461 2,452 2,193 3,900 4,572 597 945 1,276 279 244 1,441 2,490 716 1,147 350 3,500 200 4,172 200 750 Net Change 655 731 947 Federal agencies redemptions ) Net change outright holdings total 4 Net RPs 595 4,072 1,064 3,669 461 - 1,176 100 375 11,282 19,365 13,240 27,726 30,219 11,128 -1,614 -13,215 --------- 2,452 3,730 5,927 7,256 -233 7,896 6,617 15,939 -14,636 1,137 14,195 -13,912 705 1,110 ----- 3,141 4,990 2,851 12,648 -461 10,624 731 ----- 5,332 200 6,756 300 5,890 4,272 7,820 3,848 9,739 -19,267 2,425 2,929 -103 -85 3,039 5,083 308 7,258 -166 2,577 -6,128 4,788 879 -5,514 4,112 12,027 -14,317 4,528 228 5,664 819 420 258 - -7,245 -5,464 1,458 9,629 4,161 -6,769 -2,771 3,712 -9,914 6,299 -1,159 2,726 -4,815 3,833 -3,206 1.867 947 --- ---- --- 279 244 902 1,441 2,490 3,141 4,990 100 121 349 7,280 228 5,664 819 420 280 Redemptions (.) over 10 510 1-5 3,043 1,096 1993 ---Q1 1993 January February March April May June July August Weekly June 2 9 16 23 30 July 7 14 21 28 August 4 Net purchases 3 withn 1 ear 17,448 20,038 13,086 1992 STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC 1 200 1,100 200 1,800 228 5,664 819 420 280 -- 200 379 276 143 104 10 63 158.9 300 100 650 250 211 379 276 143 104 10 63 200 2,300 .. 1,150 350 200 4,026 191.5 1. Change from end-of-period to end-of-period. 2. Outright transactions in market and with foreign accounts. 3. Outright transactions in market and with foreign accounts, and short-term notes acquired in exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues. -19 -298 -49 300 379 1,426 368 304 4,036 63 191.5 75.0 22.5 31.1 320.1 330.9 4. Reflects net change in 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 .... Wihin September 15 1 year 1.9 1-5 2.2 5-10 0.6 over 10 0.1 -5.8 -m total 4.8
@FedFRASER