Full text of Monetary Trends : December 1999
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December 1999 MonetaryTrends The Market’s View of FOMC Announcements Since 1994, the Federal Open Market Committee has announced changes in its target for the federal funds rate immediately upon making them. After every meeting since May 18, 1999, the FOMC has also announced any bias, or asymmetry, in its expectations for the direction of future policy moves. The precise meaning of an asymmetric directive and the horizon over which it applies have, however, been subject to differing interpretations. Some observers have interpreted an asymmetric directive as indicating a likely policy move in the direction of the bias at the next scheduled FOMC meeting, while others have interpreted asymmetry as signaling a possible move, perhaps at the chairman’s discretion, before the next scheduled meeting. To help clarify its decisions, the FOMC has recently established a subcommittee to review both the wording of its policy directive and the Committee’s announcement following its meetings. An indication of the market’s response to FOMC announcements can be gleaned from trading in the federal funds futures market. For each of the first six meetings of 1999, the chart plots implied expected yields on federal funds during the month following the next scheduled FOMC meeting date, as reflected in trading on each FOMC meeting date and five days before and five days after those dates. Thus, for the Feb. 3 meeting, the plotted yields are derived from trading in April futures contracts on Feb. 3—as well as the five days on each side of that date. Also plotted is the FOMC’s current funds rate target on each date. Vertical lines on June 30 and Aug. 24 indicate the 25 basis point target increases by the FOMC on those dates. The chart thus provides an indication of whether FOMC announcements affected market expectations for policy changes at the next scheduled FOMC meeting (though not about market expectations of policy changes before the next FOMC meeting). The FOMC press releases issued after the May 18 and Oct. 5 meetings indicated that the Committee had adopted directives that were tilted toward the possibility of a future firming of policy. Press releases issued following the meetings of June 30 and Aug. 24, in contrast, indicated that the FOMC had adopted directives that contained no bias regarding the direction of future actions. The chart illustrates that since March, market participants have expected the federal funds rate to rise above the FOMC’s current target. The chart also reveals that expectations for future changes in the funds rate did not change markedly on most FOMC meeting dates, even on May 18 and Oct. 5 when the FOMC announced that it had adopted directives that were biased toward future tightening. On June 30, however, the implied expected federal funds rate yield for September fell from 5.20 percent to 5.13 percent, suggesting that despite raising its funds rate target from 4.75 percent to 5 percent, the FOMC’s adoption of a symmetric directive regarding the outlook for near-term policy action caused market participants to downgrade their expectations for future tightening. —David C. Wheelock Views expressed do not necessarily reflect official positions of the Federal Reserve System. TableofContents Page 3 Monetary and Financial Indicators at a Glance 4-5 Monetary Aggregates and Their Components 6 Monetary Aggregates: Monthly Growth 7 Reserves Markets and Short-Term Credit Flows 8 Measures of Expected Inflation 9 Interest Rates 10 Policy-Based Inflation Indicators 11 Implied Forward Rates, Futures Contracts, and Inflation-Protected Securities 12-13 Velocity, Gross Domestic Product, and M2 14 Bank Credit 15 Stock Market Index, and Foreign Inflation and Interest Rates 16-18 Reference Tables 18-20 Definitions, Notes, and Sources Conventions used in this publication: 1. Unless otherwise indicated, data are monthly. 2. Shaded areas indicate recessions, as dated by the National Bureau of Economic Research. 3. The percent change at an annual rate is the simple, not compounded, monthly percent change multiplied by 12. For example, using consecutive months, the percent change at an annual rate in x between month t-1 and the current month t is: [(x t / x t-1) - 1] x 1200. Note that this differs from National Economic Trends. In that publication monthly percent changes are compounded and expressed as annual growth rates. 4. The percent change from year ago refers to the percent change from the same period in the previous year. For example, the percent change from year ago in x between month t-12 and the current month t is: [(x t / x t-12) - 1] x 100. We welcome your comments addressed to: Editor, Monetary Trends Research Division Federal Reserve Bank of St. Louis P.O. Box 442 St. Louis, MO 63166 or to: webmaster@stls.frb.org Monetary Trends is published monthly by the Research Division of the Federal Reserve Bank of St. Louis. Single-copy subscriptions are available free of charge by writing Public Affairs Office, Federal Reserve Bank of St. Louis, Post Office Box 442, St. Louis, MO 63166-0442 or by calling (314) 444-8808 or (314) 444-8809. Subscription forms can also be filled out electronically at http://www.stls.frb.org/research/order/pubform.html. For more information on data, please call (314) 444-8590. Information in this publication is also included in the Federal Reserve Economic Data (FRED) electronic bulletin board at (314) 621-1824 or internet World Wide Web server at http://www.stls.frb.org/fred. The entire publication is also available electronically at http://www.stls.frb.org/publications/mt. MonetaryTrends 11/16/99 M2 and MZM Reserve Market Rates Billions of $ 4700 Percent 6.2 5% Effective Federal Funds Rate Expected Federal Funds Rate 1% 4400 5.8 5% 4100 1% M2 5.4 3800 Discount Rate 5.0 3500 4.6 3200 MZM 2900 4.2 1996 1997 1998 1999 1996 1997 1998 1999 Dotted lines indicate the FOMC target ranges. Adjusted Monetary Base Treasury Yield Curve Percent change at an annual rate 20 Percent 6.8 Week ending: 11/13/98 10/15/99 6.4 11/12/99 15 6.0 10 5.6 5 5.2 0 4.8 -5 4.4 1996 1997 1998 1999 3m1y 2y 3y 5y 7y 10y 20y 30y Total Bank Credit Interest Rates Percent change at an annual rate 30 Aug 99 Sep 99 Oct 99 Federal Funds Rate 5.07 5.22 5.20 Discount Rate 4.56 4.75 4.75 Prime Rate 8.06 8.25 8.25 Conventional Mortgage Rate 7.94 7.82 20 . Treasury Yields Treasury Yields: 10 0 -10 1996 1997 1998 . . 7.85 . . . 3-month constant maturity 4.87 4.82 5.02 6-month constant maturity 5.09 5.08 5.20 1-year constant maturity 5.20 5.25 5.43 3-year constant maturity 5.77 5.75 5.94 5-year constant maturity 5.84 5.80 6.03 10-year constant maturity 5.94 5.92 6.11 30-year constant maturity 6.07 6.07 6.26 1999 Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 MZM and M1 Percent change from year ago 20 15 MZM 10 5 0 M1 -5 -10 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 87 88 89 90 91 92 93 94 95 96 97 98 99 87 88 89 90 91 92 93 94 95 96 97 98 99 M2 Percent change from year ago 15 12 9 6 3 0 82 83 84 Dotted lines indicate the FOMC target ranges. M3 Percent change from year ago 15 12 9 6 3 0 -3 82 83 84 85 86 Dotted lines indicate the FOMC target ranges. Monetary Services Index - M2 Percent change from year ago 9 6 3 0 -3 82 83 84 85 86 Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 Adjusted Monetary Base Percent change from year ago 15 12 9 6 3 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Domestic Nonfinancial Debt Currency Held by the Nonbank Public Percent change from year ago Percent change from year ago 15 12 12 Federal 9 9 6 6 3 Total 3 0 -3 0 1992 1993 1994 1995 1996 1997 1998 1999 1996 1997 1998 Time Deposits Checkable and Savings Deposits Percent change from year ago Percent change from year ago 24 20 15 18 10 Large Denomination 12 Savings 5 0 6 -5 0 1999 Small Denomination Checkable -10 -6 -15 1996 1997 1998 1999 Money Market Mutual Fund Shares 1996 1997 1998 1999 Repurchase Agreements and Eurodollars Percent change from year ago Billions of dollars 40 Billions of dollars 320 230 Repos (left) 35 Institutional funds 280 190 30 25 240 150 Eurodollars (right) 20 200 15 110 Retail funds 10 160 1996 1997 1998 1999 70 1996 Federal Reserve Bank of St. Louis 1997 1998 1999 MonetaryTrends 11/16/99 M1 Percent change at an annual rate 40 30 20 10 0 -10 -20 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 MZM Percent change at an annual rate 30 20 10 0 -10 -20 82 83 84 M2 Percent change at an annual rate 35 30 25 20 15 10 5 0 -5 82 83 84 M3 Percent change at an annual rate 20 15 10 5 0 -5 82 83 84 Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 Adjusted and Required Reserves Billions of $ 90 Adjusted 60 30 Required 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Total Borrowings, nsa Excess Reserves plus RCB Contracts Billions of $ Billions of $ 0.8 10 0.6 8 0.4 6 0.2 4 0.0 2 1992 1993 1994 1995 1996 1997 1998 1999 1992 1993 1994 1995 1996 1997 1998 Nonfinancial Commercial Paper Percent change from year ago 90 60 30 0 -30 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Consumer Credit Percent change from year ago 20 15 10 5 0 -5 82 83 84 Federal Reserve Bank of St. Louis 1999 MonetaryTrends 11/16/99 Inflation and Inflation Expectations Percent 12 9 Federal Reserve Bank of Philadelphia CPI inflation 6 Humphrey-Hawkins inflation range 3 University of Michigan 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 The shaded region shows the Humphrey-Hawkins CPI inflation range. See page 19 for information. Treasury Security Yield Spreads Yield to maturity 5 30 year - 3 month 4 3 2 1 3 year - 3 month 0 -1 30 year - 3 year 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 97 98 99 Real Interest Rates Percent, Real rate = Nominal rate less CPI inflation 10 8 6 1-year Treasury Yield 4 2 Federal Funds Rate 0 -2 82 83 84 85 86 87 88 89 90 91 92 93 94 Federal Reserve Bank of St. Louis 95 96 00 MonetaryTrends 11/16/99 Short Term Interest Rates Percent 18 14 90-day Commercial Paper 10 Prime Rate 6 3-month Treasury Yield 2 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 90 91 92 93 94 95 96 97 98 99 Long Term Interest Rates Percent 18 15 Conventional mortgage 12 9 Corporate Aaa 30-year Treasury Yield 6 3 82 83 84 85 86 87 88 89 Long Term Interest Rates Short Term Interest Rates Percent Percent 9 6.0 90-day Commercial Paper Corporate Baa 5.5 30-year Treasury Yield 5.0 7 3-month Treasury Yield 4.5 5 10-year Treasury Yield 3 4.0 3.5 1996 1997 1998 1999 1996 1997 1998 1999 FOMC Expected Federal Funds Rate and Discount Rate Percent 16 12 Federal Funds Rate 8 Discount Rate 4 0 82 83 84 85 86 87 88 89 90 91 92 93 94 Federal Reserve Bank of St. Louis 95 96 97 98 99 MonetaryTrends 11/16/99 Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates This chart reflects data through the second quarter of 1999 and has not been revised to reflect the recent comprehensive revision of GDP by the BEA. 9 6 3 Actual 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Calculated federal funds rate is based on Taylor’s rule. See notes on page 19. Actual and Potential Real GDP Actual CPI Inflation Billions of chain-weighted 1992 dollars Percent change from year ago 7 8000 6 7500 5 7000 4 Potential 3 6500 2 6000 Actual 1 5500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1990 1999 1991 1992 1993 1994 1995 1996 1997 1998 1999 1998 1999 Monetary Base Growth* and Inflation Targets Percent 12 Actual (2-year moving average) 10 8 6 4 2 0% 1% 2% 3% 4% Target Inflation Rates 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 *Modified for the effects of sweeps programs on reserve demand. Calculated base growth is based on McCallum’s rule. See notes on page 19. Monetary Base Velocity Growth Real Output Growth Percent Percent 4 6 Actual 0 10-year moving average 3 -4 0 4-year moving average Actual -8 -3 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1990 1991 1992 Federal Reserve Bank of St. Louis 1993 1994 1995 1996 1997 MonetaryTrends 11/16/99 Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent 9 8 7 Percent, daily data 6.3 Week ending: 11/13/98 10/15/99 11/12/99 6.2 6 6.0 5 5.9 4 5.8 3 5.7 2 2y 3y 5y 7y Nov 1999 6.1 10y 20y 30y Dec 1999 Jan 2000 5.6 09/13 Rates on Selected Fed Funds Futures Contracts 09/20 09/27 10/04 10/11 10/18 10/25 11/01 11/08 11/15 Implied Yields on Fed Funds Futures Percent, daily data Percent 5.5 5.7 Jan 2000 5.6 10/15/1999 5.4 Dec 1999 11/15/1999 5.5 5.3 5.4 Nov 1999 5.2 09/20/1999 5.3 09/13 09/20 09/27 10/04 10/11 10/18 10/25 11/01 11/08 Inflation-Protected Treasury Yields 11/15 Nov Dec Mar Apr Percent, weekly data 4.25 3.5 10-year 3.0 4.00 5-year 2.5 3.75 3.25 Feb Inflation-Protected Treasury Yield Spreads Percent, weekly data 3.50 Jan 30-year 2.0 1.5 30-year 10-year 5-year 1.0 0.5 1997 1998 1999 1997 Inflation-Indexed 30-Year Bonds 1998 1999 Inflation-Indexed 10-Year Bonds Percent, weekly data Percent, weekly data 6 4.5 5 US 4.0 Canada 3.5 4 UK 3 3.0 US 2.5 2 UK 2.0 1 1.5 1995 1996 1997 1998 1999 1995 Federal Reserve Bank of St. Louis 1996 1997 1998 1999 MonetaryTrends 11/16/99 MZM Velocity and Opportunity Cost Velocity = Nominal GDP / MZM Opportunity Cost = 3 month T-bill rate less MZM own rate 10.0 3.1 2.8 7.5 Velocity 2.5 5.0 2.2 2.5 Opportunity Cost 1.9 0.0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 M2 Velocity and Opportunity Cost Velocity = Nominal GDP / M2 Opportunity Cost = Treasury rate less M2 own rate 2.2 10.50 2.1 8.75 Velocity 2.0 7.00 1.9 5.25 Opportunity Cost (5-yr T-bond) 1.8 3.50 1.7 1.75 Opportunity Cost (3-mo T-bill) 1.6 0.00 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 M2, MZM and Nominal GDP Billions of $ 10000 Nominal GDP 8000 6000 M2 4000 MZM 2000 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 96 97 98 99 Interest Rates Percent 15 12 9 5-yr bond M2 own 6 3-mo bill MZM own 3 0 82 83 84 85 86 87 88 89 90 91 92 93 94 Federal Reserve Bank of St. Louis 95 MonetaryTrends 11/16/99 Real Gross Domestic Product Percent change from year ago 9 6 3 0 -3 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Gross Domestic Product Percent change from year ago 18 15 12 9 6 3 0 82 83 84 85 Gross Domestic Product Price Index Percent change from year ago 12 9 6 3 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 M2 Percent change from year ago 18 15 12 9 6 3 0 82 83 84 Dashed lines indicate 10-year moving averages Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 Bank Credit Percent change from year ago 12 10 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1996 1997 1998 1999 1996 1997 1998 1999 1996 1997 1998 1999 Investment Securities in Bank Credit at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1990 1991 1992 1993 1994 1995 Total Loans and Leases in Bank Credit at Commercial Banks Percent change from year ago 15 10 5 0 -5 1990 1991 1992 1993 1994 1995 Commercial and Industrial Loans at Commercial Banks Percent change from year ago 20 15 10 5 0 -5 1990 1991 1992 1993 1994 1995 Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 Standard and Poor’s 500 1400 42 1200 36 1000 30 Price/earnings ratio (right) 800 24 600 18 400 12 Composite Index (left) 200 6 0 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 Inflation and Long-Term Interest Rates Trend in Consumer Price Inflation Rates Recent Long-Term Government Bond Rates Percent change from year ago 1998Q4 1999Q1 1999Q2 1999Q3 Percent Jul99 Aug99 Sep99 Oct99 United States 1.48 1.73 2.09 2.32 6.22 6.37 6.43 6.60 Canada 1.08 0.80 1.59 2.18 5.61 5.84 5.87 6.24 France 0.37 0.26 0.36 0.53 5.08 5.17 5.35 . Germany 0.44 0.26 0.48 0.64 4.68 4.88 5.04 5.29 Italy 1.74 1.39 1.44 1.72 4.95 5.16 5.32 5.56 Japan 0.46 -0.10 -0.25 0.03 1.71 1.90 1.76 1.79 United Kingdom 2.96 2.20 1.42 1.17 5.33 5.38 5.65 . Inflation and Long-Term Interest Rates Differentials Percent 2 Inflation differential = Foreign inflation less U.S. Inflation Percent 3 Long-term rate differential = Foreign rate less U.S. rate U.K. Canada 1 0 U.K. 0 Japan Germany -3 -1 Canada Japan Germany -2 -6 1996 1997 1998 1999 1996 Federal Reserve Bank of St. Louis 1997 1998 1999 MonetaryTrends 11/16/99 Money Stock M1 Bank MZM M2 M3 Credit Monetary Base Reserves MSI M2 1994 . 1145.340 2919.235 3500.100 4303.777 3230.013 421.574 80.684 205.514 1995 . 1142.820 2905.387 3572.376 4499.721 3500.404 443.511 76.849 210.302 1996 . 1106.126 3095.474 3745.602 4796.153 3684.033 455.586 73.415 217.734 1997 . 1069.573 3317.480 3931.295 5176.320 3952.216 478.753 68.918 226.990 1998 . 1079.456 3702.138 4221.138 5700.668 4324.270 508.978 66.952 242.089 1997 1 1076.381 3221.703 3849.846 5012.635 3830.573 470.027 70.409 222.780 . 2 1065.603 3274.106 3895.394 5109.916 3911.280 473.896 68.177 225.080 . 3 1068.155 3347.031 3956.934 5228.843 3991.653 480.945 68.565 228.280 . 4 1068.155 3427.080 4023.005 5353.886 4075.358 490.144 68.519 231.820 1998 1 1076.826 3521.466 4099.036 5490.882 4188.465 498.387 67.711 235.857 . 2 1079.349 3635.433 4175.386 5628.141 4243.587 502.060 66.084 239.787 . 3 1074.077 3741.066 4246.608 5748.823 4342.740 511.592 66.951 243.463 . 4 1087.571 3910.588 4363.523 5934.823 4522.286 523.871 67.063 249.250 1999 1 1095.220 4025.421 4442.022 6046.987 4518.692 536.301 67.557 252.993 . 2 1104.750 4119.481 4505.467 6133.942 4527.762 545.930 66.311 256.440 . 3 1098.426 4189.719 4563.534 6221.103 4586.334 558.018 68.128 259.637 1997 Oct 1062.064 3399.477 3999.803 5305.712 4040.648 485.892 67.709 230.560 . Nov 1067.528 3424.764 4022.827 5352.539 4080.693 490.783 68.772 231.750 . Dec 1074.873 3457.000 4046.385 5403.407 4104.732 493.756 69.076 233.150 1998 Jan 1073.810 3486.131 4071.076 5448.172 4159.574 496.198 68.918 234.430 . Feb 1076.021 3521.706 4100.450 5483.148 4187.995 499.555 67.414 235.900 . Mar 1080.646 3556.561 4125.581 5541.327 4217.827 499.408 66.801 237.240 . Apr 1082.094 3601.279 4154.526 5586.189 4220.744 499.601 66.000 238.870 . May 1078.171 3634.842 4173.935 5627.871 4242.645 502.385 66.134 239.650 . Jun 1077.782 3670.178 4197.696 5670.364 4267.371 504.193 66.117 240.840 . Jul 1075.365 3694.535 4215.098 5690.425 4287.096 507.677 66.366 241.950 . Aug 1072.214 3735.309 4240.558 5746.351 4346.583 511.093 67.434 243.160 . Sep 1074.653 3793.355 4284.168 5809.694 4394.541 516.006 67.052 245.280 . Oct 1080.404 3854.353 4325.546 5871.776 4489.826 520.803 67.055 247.330 . Nov 1088.956 3912.146 4364.036 5936.876 4528.970 524.379 67.183 249.300 . Dec 1093.354 3965.264 4400.986 5995.818 4548.063 526.432 66.952 251.120 1999 Jan 1091.000 3993.505 4424.960 6016.954 4538.600 531.713 68.375 252.230 . Feb 1092.648 4034.733 4445.571 6064.727 4523.238 538.145 67.918 253.050 . Mar 1102.013 4048.025 4455.534 6059.281 4494.239 539.045 66.379 253.700 . Apr 1108.398 4093.213 4488.319 6103.929 4509.467 539.623 63.827 255.560 . May 1104.751 4120.289 4505.870 6132.664 4518.816 548.349 68.239 256.450 . Jun 1101.102 4144.940 4522.213 6165.232 4555.003 549.818 66.868 257.310 . Jul 1099.506 4164.320 4543.075 6191.628 4552.422 553.082 66.902 258.500 . Aug 1102.353 4193.943 4564.459 6218.564 4587.573 556.746 67.283 259.640 . Sep 1093.420 4210.893 4583.067 6253.117 4619.007 564.226 70.198 260.770 . Oct 1098.573 4237.099 4602.275 6306.904 4626.616 572.948 72.766 261.820 *All values are given in billions of dollars Federal Reserve Bank of St. Louis MonetaryTrends 11/16/99 Federal Discount Prime Funds Rate Rate 1994 . 4.20 3.60 7.14 1995 . 5.84 5.21 8.83 1996 . 5.30 5.02 1997 . 5.46 1998 . 3-mo CDs Treasury Yields Corporate S&L Conventional 3 mo 3 yr 30 yr Aaa Bonds Aaa Bonds Mortgage 4.63 4.37 6.26 7.37 7.96 5.77 8.35 5.92 5.66 6.26 6.88 7.59 5.80 7.95 8.27 5.39 5.15 5.99 6.70 7.37 5.52 7.80 5.00 8.44 5.62 5.20 6.10 6.61 7.26 5.32 7.60 5.35 4.92 8.35 5.47 4.91 5.14 5.58 6.53 4.93 6.94 1997 1 5.28 5.00 8.27 5.44 5.20 6.19 6.82 7.43 5.44 7.79 . 2 5.52 5.00 8.50 5.69 5.19 6.42 6.93 7.57 5.49 7.93 . 3 5.53 5.00 8.50 5.60 5.18 6.01 6.53 7.17 5.23 7.47 . 4 5.51 5.00 8.50 5.73 5.23 5.78 6.14 6.88 5.14 7.20 1998 1 5.52 5.00 8.50 5.55 5.19 5.46 5.88 6.67 4.94 7.05 . 2 5.50 5.00 8.50 5.59 5.11 5.57 5.85 6.64 5.00 7.09 . 3 5.53 5.00 8.50 5.53 4.96 5.11 5.47 6.49 4.95 6.87 . 4 4.86 4.66 7.92 5.20 4.37 4.41 5.11 6.33 4.82 6.76 1999 1 4.73 4.50 7.75 4.90 4.53 4.87 5.37 6.42 4.87 6.88 . 2 4.75 4.50 7.75 4.98 4.59 5.35 5.80 6.93 5.05 7.20 . 3 5.09 4.60 8.10 5.38 4.79 5.71 6.04 7.33 5.42 7.80 1997 Oct 5.50 5.00 8.50 5.65 5.11 5.84 6.33 7.00 5.19 7.29 . Nov 5.52 5.00 8.50 5.74 5.28 5.76 6.11 6.87 5.19 7.21 . Dec 5.50 5.00 8.50 5.80 5.30 5.74 5.99 6.76 5.03 7.10 1998 Jan 5.56 5.00 8.50 5.54 5.18 5.38 5.81 6.61 4.88 6.99 . Feb 5.51 5.00 8.50 5.54 5.23 5.43 5.89 6.67 4.92 7.04 . Mar 5.49 5.00 8.50 5.58 5.16 5.57 5.95 6.72 5.03 7.13 . Apr 5.45 5.00 8.50 5.58 5.08 5.58 5.92 6.69 5.00 7.14 . May 5.49 5.00 8.50 5.59 5.14 5.61 5.93 6.69 5.04 7.14 . Jun 5.56 5.00 8.50 5.60 5.12 5.52 5.70 6.53 4.97 7.00 . Jul 5.54 5.00 8.50 5.59 5.09 5.47 5.68 6.55 5.01 6.95 . Aug 5.55 5.00 8.50 5.58 5.04 5.24 5.54 6.52 5.01 6.92 . Sep 5.51 5.00 8.49 5.41 4.74 4.62 5.20 6.40 4.84 6.72 . Oct 5.07 4.86 8.12 5.21 4.07 4.18 5.01 6.37 4.76 6.71 . Nov 4.83 4.63 7.89 5.24 4.53 4.57 5.25 6.41 4.87 6.87 . Dec 4.68 4.50 7.75 5.14 4.50 4.48 5.06 6.22 4.83 6.72 1999 Jan 4.63 4.50 7.75 4.89 4.45 4.61 5.16 6.24 4.85 6.79 . Feb 4.76 4.50 7.75 4.90 4.56 4.90 5.37 6.40 4.80 6.81 . Mar 4.81 4.50 7.75 4.91 4.57 5.11 5.58 6.62 4.96 7.04 . Apr 4.74 4.50 7.75 4.88 4.41 5.03 5.55 6.64 4.89 6.92 . May 4.74 4.50 7.75 4.92 4.63 5.33 5.81 6.93 5.05 7.15 . Jun 4.76 4.50 7.75 5.13 4.72 5.70 6.04 7.23 5.22 7.55 . Jul 4.99 4.50 8.00 5.24 4.69 5.62 5.98 7.19 5.24 7.63 . Aug 5.07 4.56 8.06 5.41 4.87 5.77 6.07 7.40 5.47 7.94 . Sep 5.22 4.75 8.25 5.50 4.82 5.75 6.07 7.39 5.56 7.82 . Oct 5.20 4.75 8.25 6.13 5.02 5.94 6.26 7.55 5.78 7.85 *All values are given as a percent at an annual rate Federal Reserve Bank of St. Louis MonetaryTrends M1 MZM 11/16/99 M2 M3 Percent change from previous period 1994 . 6.17 2.61 1.38 1.60 1995 . -0.22 -0.47 2.06 4.55 1996 . -3.21 6.54 4.85 6.59 1997 . -3.30 7.17 4.96 7.93 1998 . 0.92 11.59 7.37 10.13 1997 1 -0.47 1.77 1.19 1.87 . 2 -1.00 1.63 1.18 1.94 . 3 0.24 2.23 1.58 2.33 . 4 0.00 2.39 1.67 2.39 1998 1 0.81 2.75 1.89 2.56 . 2 0.23 3.24 1.86 2.50 . 3 -0.49 2.91 1.71 2.14 . 4 1.26 4.53 2.75 3.24 1999 1 0.70 2.94 1.80 1.89 . 2 0.87 2.34 1.43 1.44 . 3 -0.57 1.71 1.29 1.42 1997 Oct -0.26 0.66 0.46 0.70 . Nov 0.51 0.74 0.58 0.88 . Dec 0.69 0.94 0.59 0.95 1998 Jan -0.10 0.84 0.61 0.83 . Feb 0.21 1.02 0.72 0.64 . Mar 0.43 0.99 0.61 1.06 . Apr 0.13 1.26 0.70 0.81 . May -0.36 0.93 0.47 0.75 . Jun -0.04 0.97 0.57 0.76 . Jul -0.22 0.66 0.41 0.35 . Aug -0.29 1.10 0.60 0.98 . Sep 0.23 1.55 1.03 1.10 . Oct 0.54 1.61 0.97 1.07 . Nov 0.79 1.50 0.89 1.11 . Dec 0.40 1.36 0.85 0.99 1999 Jan -0.22 0.71 0.54 0.35 . Feb 0.15 1.03 0.47 0.79 . Mar 0.86 0.33 0.22 -0.09 . Apr 0.58 1.12 0.74 0.74 . May -0.33 0.66 0.39 0.47 . Jun -0.33 0.60 0.36 0.53 . Jul -0.14 0.47 0.46 0.43 . Aug 0.26 0.71 0.47 0.44 . Sep -0.81 0.40 0.41 0.56 . Oct 0.47 0.62 0.42 0.86 Federal Reserve Bank of St. Louis Definitions Notes M1: the sum of: currency held outside the vaults of depository institutions, Federal Reserve Banks, and the U.S. Treasury; travelers checks; and demand and other checkable deposits issued by financial institutions, except demand deposits due to the Treasury and depository institutions, minus cash items in process of collection and Federal Reserve float. Page 3: MZM, or “Money, Zero Maturity” includes the zero maturity, or immediately available, components of M3. MZM equals M2 minus small denomination time deposits, plus institutional money market mutual funds (that is, the money market mutual funds included in M3 but excluded from M2). Readers are cautioned that since early 1994 the level and growth of M1 have been depressed by retail sweep programs that reclassify transactions deposits (demand deposits and other checkable deposits) as savings deposits overnight, thereby reducing banks’ required reserves; see http://www.stls.frb.org/research/swdata.html. For analytical purposes, MZM largely replaces M1. The Discount Rate and Expected Federal Funds Rate shown in the chart Reserve Market Rates, are plotted as of the date of the change, while the Effective Federal Funds Rate is plotted as of the end of the month. Interest rates in the table are monthly averages from the Board of Governors H.15 Statistical Release. Treasury Yield Curve shows constant maturity yields calculated by the U.S. Treasury Department for securities with 3 months and 1, 2, 3, 5, 7,10, 20 and 30 years to maturity. Daily data and a description are available at http://www.stls.frb.org/fred/data/wkly.html. See also Federal Reserve Bulletin, table 1.35. MZM: M2 minus small denomination time deposits, plus institutional money market mutual funds. The label MZM was coined by William Poole (1991) for this aggregate, proposed earlier by Motley (1988). Due to distortions caused by regulatory changes, the largest of which the introduction of money market accounts, data for MZM begin March 1983 in this publication. M2: M1 plus: savings deposits (including money market deposit accounts) and small denomination (less than $100,000) time deposits issued by financial institutions; and shares in retail money market mutual funds (funds with initial investments of less than $50,000), net of retirement accounts. M3: M2 plus: large denomination ($100,000 or more) time deposits; repurchase agreements issued by depository institutions; Eurodollar deposits, specifically, dollar-denominated deposits due to nonbank U.S. addresses held at foreign offices of U.S. banks worldwide and all banking offices in Canada and the United Kingdom; and institutional money market mutual funds (funds with initial investments of $50,000 or more). Bank Credit: all loans, leases and securities held by commercial banks. Domestic Nonfinancial Debt: total credit market liabilities of the U.S. Treasury, federally sponsored agencies, state and local governments, households, and firms except depository institutions and money market mutual funds. Adjusted Monetary Base: the sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series is a spliced chain index; see Anderson and Rasche (1996a,b). Adjusted Reserves: the sum of vault cash and Federal Reserve Bank deposits held by depository institutions, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories. This series, a spliced chain index, is numerically larger than the Board of Governors’ measure which excludes vault cash not used to satisfy statutory reserve requirements and Federal Reserve Bank deposits used to satisfy required clearing balance contracts; see Anderson and Rasche (1996a) and http://www.stls.frb.org/research/newbase.html. Monetary Services Index: an index which measures the flow of monetary services received by households and firms from their holdings of liquid assets; see Anderson, Jones and Nesmith (1997). Indexes are shown for the assets included in M2; additional data are available at http://www.stls.frb.org/research/msi/index.html. Note: M1, M2, M3, Bank Credit and Domestic Nonfinancial Debt are constructed and published by the Board of Governors of the Federal Reserve System. For details, see Federal Reserve Bulletin, tables 1.21 and 1.26. MZM, Adjusted Monetary Base, Adjusted Reserves and Monetary Services Index are constructed and published by the Research Division of the Federal Reserve Bank of St. Louis. Page 5: Total Checkable Deposits is the sum of demand and other checkable deposits. Total Savings Deposits is the sum of money market deposit accounts (MMDA), and passbook and statement savings. Time Deposits have a minimum initial maturity of 7 days. Large Time Deposits are deposits of $100,000 or more. Retail and Institutional Money Market Mutual Funds are as included in M2 and the non-M2 component of M3, respectively. Page 7: Excess Reserves plus RCB (Required Clearing Balance) Contracts equals the amount of deposits at Federal Reserve Banks held by depository institutions but not applied to satisfy statutory reserve requirements. (This measure excludes the vault cash held by depository institutions that is not applied to satisfy statutory reserve requirements.) Consumer credit includes most short- and intermediate-term credit extended to individuals. See Federal Reserve Bulletin, table 1.55. Page 8: Inflation expectations measures include the quarterly Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, the monthly University of Michigan Survey Research Center’s Surveys of Consumers, and the annual Federal Open Market Committee range as reported to the Congress in the February Humphrey-Hawkins Act testimony each year. CPI Inflation is the percentage change from a year ago in the CPI for all urban consumers. Real Interest Rates are ex post measures, equal to nominal rates minus CPI inflation. Page 9: FOMC Expected Federal Funds Rate is the level (or midpoint of the range, if applicable) of the federal funds rate that the staff of the Federal Open Market Committee expected to be consistent with the desired degree of pressure on bank reserve positions. Page 10: Federal Funds Rate and Inflation Targets shows the observed federal funds rate, quarterly, and the level of the funds rate implied by applying Taylor’s (1993) equation ft* = 2.0 + πt-1 + (πt-1 - π*)/2 + 100 × (yt-1 - yt-1P)/2 to five alternative target inflation rates π* = 0, 1, 2, 3, 4 percent, where ft* is the implied federal funds rate, πt-1 is the previous period’s inflation rate (CPI), yt-1 is the log of the previous period’s level of real GDP, and yt-1P is the log of an estimate of the previous period’s level of potential output. Potential real output is as estimated by the Congressional Budget Office. Monetary Base Growth and Inflation Targets shows the quarterly growth of the adjusted monetary base (modified to include an estimate of the effect of sweep programs) implied by applying McCallum’s (1988, 1993) equation ∆MBt* = π* + (10-year moving average growth of real GDP) – (4-year moving average of base velocity growth) to five alternative target inflation rates π* = 0, 1, 2, 3, 4 percent, where ∆MBt* is the implied growth rate of the adjusted monetary base. The 10-year moving average growth of real GDP for a quarter “t” is calculated as the average quarterly growth during the previous 40 quarters, at an annual rate, by the formula ((yt - yt-40)/40) × 4 × 100, where yt is the log of real GDP. The four-year moving average of base velocity growth is calculated similarly. To adjust the monetary base for the effect of retail-deposit sweep programs, we add to the monetary base an amount equal to 10 percent of the total amount swept, as estimated by the Federal Reserve Board staff. These estimates are imprecise, at best. Sweep program data are available at http://www.stls.frb.org/research/swdata.html. Page 11: Implied One–Year Forward Rates are calculated by this Bank from Treasury constant maturity yields. Yields to maturity, R(m), for securities with m = 1,..., 30 years to maturity are obtained by linear interpolation between reported yields. These yields are smoothed by fitting the regression suggested by Nelson and Siegel (1987) R(m) = a0 + (a1 + a2)(1 – e-m/50)/(m/50) – a2 × e-m/50, and forward rates are calculated from these smoothed yields using equation (a) in Table 13.1 of Shiller (1990) f(m) = [D(m)R(m) – D(m-1)] / [D(m) – D(m-1)] where duration is approximated as D(m) = (1 – e–R(m) × m) / R(m). These rates are linear approximations to the true instantaneous forward rates; see Shiller. For a discussion of the use of forward rates as indicators of inflation expectations, see Sharpe (1997). Rates on 3-Month Eurodollar Futures and Rates on Selected Fed Funds Futures Contracts each trace through time the yield on three specific contracts. Implied Yields on Fed Funds Futures displays a single day’s snapshot of yields for contracts expiring in the months shown on the horizontal axis. Inflation-Protected Treasury Yield Spreads equal, for 5, 10, and 30 year maturities, the difference between the Treasury constant maturity yield and the yield on the most recently issued inflation-protected security. Inflation-Indexed Bonds for Canada are the 31-year bond with a maturity date of 12/01/2026; for the U.K., the 37.5-year bond with a maturity date of 07/17/2024 and the 12.1-year bond with a maturity date of 10/21/2004; and, for the U.S., the 30-year bond with a maturity date of 04/15/2028 and the 10-year bond with a maturity date of 01/15/2007. Page 12: Velocity (for MZM and M2) equals the ratio of GDP, measured in current dollars, to the level of the monetary aggregate. MZM and M2 Own Rates are weighted averages of the rates received by households and firms on the assets included in the aggregates. Two alternative opportunity costs are shown, one relative to the 3-month Treasury constant-maturity yield, the other to the 5-year constantmaturity yield. Page 13: Real Gross Domestic Product is GDP as measured in chained 1996 dollars. The Gross Domestic Product Price Index is the implicit price deflator for GDP, which is defined by the Bureau of Economic Analysis, U.S. Department of Commerce, as the ratio of GDP measured in current dollars to GDP measured in chained 1996 dollars. Page 14: Investment Securities are all securities held by commercial banks in both investment and trading accounts. Sources Bank of Canada Canadian inflation-linked bond yields. Bank of England U.K. inflation-linked bond yields. Board of Governors of the Federal Reserve System Monetary aggregates and components, nonfinancial debt: H.6 release; bank credit and components: H.8 release; consumer credit: G.19 release; required reserves, excess reserves, clearing balance contracts and discount window borrowing: H.4.1 and H.3 releases; interest rates: H.15 and G.13 releases; nonfinancial commercial paper: Board of Governors web site; M2 and MZM own rates. Bureau of Economic Analysis Gross domestic product. Bureau of Labor Statistics Consumer price index. Federal Reserve Bank of Philadelphia Survey of Professional Forecasters inflation expectations. Federal Reserve Bank of St. Louis Adjusted monetary base and adjusted total reserves, monetary services index, one-year forward rates. Organization for Economic Cooperation and Development International interest and inflation rates. University of Michigan Survey Research Center Median expected price change. Congressional Budget Office Potential real GDP. Dow Jones and Co. (Wall Street Journal) Federal funds futures contracts, Eurodollar futures. Standard and Poors Inc. Stock price-earnings ratio, stock price composite index. U.S. Department of the Treasury U.S. inflation-protected security yields. References Anderson, Richard G. and Robert H. Rasche (1996a). “A Revised Measure of the St. Louis Adjusted Monetary Base,” Federal Reserve Bank of St. Louis Review, March/April 1996, pp. 3 - 13. and (1996b). “Measuring the Adjusted Monetary Base in an Era of Financial Change,” Federal Reserve Bank of St. Louis Review, November/December 1996, pp. 3 - 37. , Barry E. Jones and Travis D. Nesmith (1997). “Special Report: The Monetary Services Indexes Project of the Federal Reserve Bank of St. Louis,” Federal Reserve Bank of St. Louis Review, January/ February 1997, pp. 31 - 82. McCallum, Bennett T. (1988). “Robustness Properties of a Monetary Policy Rule,” Carnegie-Rochester Conference Series on Public Policy, vol. 29, pp. 173 - 204. (1993). “Specification and Analysis of a Monetary Policy Rule for Japan,” Bank of Japan Monetary and Economic Studies, November, pp. 1 - 45. Motley, Brian (1988). “Should M2 Be Redefined?” Federal Reserve Bank of San Francisco Economic Review, Winter, pp. 33 - 51. Nelson, Charles R. and Andrew F. Siegel (1987). “Parsimonious Modeling of Yield Curves,” Journal of Business, October, pp. 473 - 89. Poole, William (1991). Statement before the Subcommittee on Domestic Monetary Policy of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, November 6, 1991. Government Printing Office, Serial No. 102-82. Sharpe, William F. (1997). Macro-Investment Analysis, on-line textbook available at www-sharpe.stanford.edu/mia.htm. Shiller, Robert (1990). “The Term Structure of Interest Rates,” Handbook of Monetary Economics, vol. 1, B. Friedman and F. Hahn, eds., pp. 627 - 722. Taylor, John B. (1993). “Discretion versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy, vol. 39, pp. 195 - 214. Note: Articles from this Bank’s Review are available on the Internet at www.stls.frb.org/research/reviewdat.html.
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