Full text of Monetary Trends : February 2000
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February 2000 MonetaryTrends An Experiment Is Underway The United States is now issuing a new golden dollar coin (the coin is gold in color, but has no gold content) with the image of Sacagawea—the only woman on the Lewis and Clark expedition.1 This is the latest in a series of dollar coin designs. Over the years, many countries have replaced their low-denomination paper currency with metal coins. Indeed, when the Euro begins circulation in 2002 the smallest denomination banknote will be =C5—worth approximately $5 at the current exchange rate. Governments prefer low-denomination coins to lowdenomination notes because, in the long run, coins are less expensive. On average, coins have a projected life of 30 years while dollar bills are replaced about every 18 months. Hence, while the dollar bill costs about 3.5 cents to produce, compared to 12 cents for the dollar coin, the relatively short life of bills makes them more expensive over the long run. There are currently about seven billion one-dollar bills in circulation; hence, the federal government will realize considerable savings if the public were to use dollar coins instead of dollar bills. Unlike other countries that removed the corresponding notes when lowdenomination coins were introduced, in the legislation that authorized the golden dollar, Congress expressly stated that the dollar bill would not be removed from circulation. Therefore, the public may continue to use the dollar bill rather than the new coin. None of the previous dollar coins found widespread use. The last attempt was the Susan B Anthony (SBA) dollar, which was introduced in 1979. While most of the nearly 890 million SBAs produced are now in circulation, only about half were in circulation by 1993.2 Two reasons for the lack of widespread use of the SBA have been offered. One is that they are too difficult to distinguish from the quarter. The other is that people find coins inconvenient to use, relative to bills, and most people prefer to use bills if they are available. Advocates of the latter explanation note that countries that have successfully replaced small-denomination bills with coins have removed the bills from circulation. The extent to which the golden dollar is used will indicate which of these reasons is the most valid. If the first reason accounts for the relative failure of the SBA, the golden dollar will be much more successful. The golden dollar is the same size as the SBA, but has smooth edges and is bright gold in color. Tests show that the golden dollar is easily distinguished from the quarter by touch alone. If the second reason accounts for the lack of widespread use of the SBA, however, past experience here and elsewhere in the world suggests the golden dollar might not displace dollar bills significantly in daily transactions. The Canadian experience may be suggestive. The Royal Canadian Mint introduced its dollar coin, the “loonie” on July 1, 1987. Despite its distinctive eleven-sided outer edge and gold color, the loonie did not circulate widely until the Bank of Canada began to withdraw the $1 bill from circulation in June of 1989.3 —Daniel L. Thornton 1 More information about the golden dollar can be found at www.usmint.gov. 2 About 41 million SBAs were minted in 1999. As of December 31, 1999, 22.7 million were in Federal Reserve Bank vaults. 3 For more details, see Caskey, John P. and Simon St. Laurent. “The Susan B. Anthony Dollar and the Theory of Coin/Note Substitution,” Journal of Money, Credit and Banking (August 1994), pp. 495-510. 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 01/18/00 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 60 Percent 7.4 Week ending: 01/08/99 7.0 12/10/99 01/07/00 50 6.6 40 6.2 30 5.8 20 5.4 10 5.0 0 4.6 -10 4.2 1996 1997 1998 1999 3m1y 2y 3y 5y 7y 10y 20y 30y Total Bank Credit Interest Rates Percent change at an annual rate 30 Federal Funds Rate 5.20 5.42 5.30 Discount Rate 4.75 4.86 5.00 Prime Rate 8.25 8.37 8.50 Conventional Mortgage Rate 7.85 7.74 Oct 99 20 . Treasury Yields Treasury Yields: 10 0 -10 1996 1997 1998 Nov 99 . . Dec 99 7.91 . . . 3-month constant maturity 5.02 5.23 5.36 6-month constant maturity 5.20 5.43 5.68 1-year constant maturity 5.43 5.55 5.84 3-year constant maturity 5.94 5.92 6.14 5-year constant maturity 6.03 5.97 6.19 10-year constant maturity 6.11 6.03 6.28 30-year constant maturity 6.26 6.15 6.35 1999 Federal Reserve Bank of St. Louis MonetaryTrends 01/18/00 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 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 87 Federal Reserve Bank of St. Louis MonetaryTrends 01/18/00 Adjusted Monetary Base Percent change from year ago 18 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 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 Billions of dollars 360 40 35 270 320 Institutional funds 30 230 Repos (left) 280 190 25 240 20 150 Eurodollars (right) 15 200 Retail funds 10 110 160 1996 1997 1998 1999 70 1996 Federal Reserve Bank of St. Louis 1997 1998 1999 MonetaryTrends 01/18/00 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 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 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 85 M2 Percent change at an annual rate 35 30 25 20 15 10 5 0 -5 82 83 84 85 M3 Percent change at an annual rate 20 15 10 5 0 -5 82 83 84 85 Federal Reserve Bank of St. Louis MonetaryTrends 01/18/00 Adjusted and Required Reserves Billions of $ 100 80 Adjusted 60 40 Required 20 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 01/18/00 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 01/18/00 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 01/18/00 Federal Funds Rate and Inflation Targets Percent 12 4% 3% 2% 1% 0% Target Inflation Rates This chart, including the two immediately below, reflects data through the second quarter of 1999. 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 1999 1990 1991 1992 1993 1994 1995 1996 1997 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 -4 10-year moving average 3 0 4-year moving average Actual -8 -3 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Federal Reserve Bank of St. Louis MonetaryTrends 01/18/00 Implied One-Year Forward Rates Rates on 3-Month Eurodollar Futures Percent Percent, daily data 10 6.3 9 8 Week ending: 01/08/99 12/10/99 01/07/00 Mar 2000 6.2 6.1 7 Feb 2000 6.0 6 Jan 2000 5.9 5 5.8 4 3 2y3y 5y 7y 10y 20y 30y 5.7 11/15 11/22 11/29 12/06 12/13 12/20 12/27 01/03 01/10 01/17 Rates on Selected Fed Funds Futures Contracts Implied Yields on Fed Funds Futures Percent, daily data Percent 5.9 6.2 Mar 2000 5.8 01/14/2000 Feb 2000 5.7 5.9 12/17/1999 5.6 5.5 5.6 11/15/1999 5.4 Jan 2000 5.3 5.3 11/15 11/22 11/29 12/06 12/13 12/20 12/27 01/03 01/10 01/17 Inflation-Protected Treasury Yields Jan Mar Apr May Jun Inflation-Protected Treasury Yield Spreads Percent, weekly data Percent, weekly data 4.50 3.5 4.25 3.0 5-year 4.00 Feb 10-year 2.5 30-year 2.0 3.75 3.50 3.25 1.5 30-year 10-year 5-year 1.0 0.5 1997 1998 1999 2000 Inflation-Indexed 30-Year Bonds 1997 1998 1999 2000 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 1996 1997 1998 1999 2000 1996 Federal Reserve Bank of St. Louis 1997 1998 1999 2000 MonetaryTrends 01/18/00 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 01/18/00 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 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 86 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 01/18/00 Bank Credit Percent change from year ago 12 10 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 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 1996 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 01/18/00 Standard and Poor’s 500 1600 48 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 1999Q1 1999Q2 1999Q3 Percent 1999Q4 Sep99 Oct99 Nov99 Dec99 6.43 6.60 6.42 6.63 United States 1.73 2.09 2.32 Canada 0.80 1.59 2.18 . 5.88 6.26 6.15 6.22 France 0.26 0.36 0.53 0.97 5.35 5.67 5.66 5.81 Germany 0.26 0.48 0.64 0.96 5.04 5.29 5.04 5.15 Italy 1.39 1.44 1.72 2.06 5.32 5.56 5.29 5.40 -0.10 -0.25 0.03 . 1.76 1.79 1.81 1.74 2.20 1.42 1.17 . 5.65 5.83 5.28 5.38 Japan United Kingdom 2.62 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 01/18/00 Money Stock M1 Bank MZM M2 M3 Credit Monetary Base Reserves MSI M2 1995 . 1143.019 2905.586 3572.576 4499.820 3501.096 443.511 76.849 210.318 1996 . 1106.383 3095.731 3745.859 4796.310 3684.031 455.586 73.415 217.754 1997 . 1069.906 3317.813 3931.627 5176.509 3952.234 478.753 68.918 227.017 1998 . 1079.864 3702.546 4221.546 5700.815 4324.920 508.978 66.952 242.122 1999 . 1102.720 4152.698 4536.855 6197.580 4583.589 557.852 71.250 258.214 1997 1 1076.664 3221.986 3850.129 5012.818 3830.534 470.027 70.409 222.803 . 2 1066.034 3274.537 3895.825 5110.248 3911.281 473.896 68.177 225.113 . 3 1068.452 3347.329 3957.232 5229.041 3991.693 480.945 68.565 228.303 . 4 1068.474 3427.399 4023.324 5353.928 4075.427 490.144 68.519 231.847 1998 1 1077.176 3521.816 4099.386 5490.879 4188.648 498.387 67.711 235.880 . 2 1079.774 3635.858 4175.811 5628.222 4244.225 502.060 66.084 239.820 . 3 1074.554 3741.543 4247.085 5749.300 4343.720 511.592 66.951 243.507 . 4 1087.952 3910.968 4363.903 5934.859 4523.088 523.871 67.063 249.280 1999 1 1095.623 4025.823 4442.424 6047.390 4519.557 536.301 67.557 253.027 . 2 1105.165 4119.896 4506.496 6134.792 4526.103 545.930 66.311 256.510 . 3 1098.949 4190.250 4566.239 6218.821 4580.654 558.018 68.128 259.817 . 4 1111.142 4274.824 4632.259 6389.319 4708.043 591.160 83.002 263.503 1997 Dec 1075.206 3457.332 4046.717 5403.387 4104.806 493.756 69.076 233.180 1998 Jan 1074.163 3486.484 4071.429 5448.166 4159.658 496.198 68.918 234.460 . Feb 1076.373 3522.058 4100.802 5483.147 4188.152 499.555 67.414 235.920 . Mar 1080.992 3556.907 4125.927 5541.325 4218.133 499.408 66.801 237.260 . Apr 1082.435 3601.620 4154.867 5586.180 4221.247 499.601 66.000 238.890 . May 1078.527 3635.198 4174.291 5627.880 4243.351 502.385 66.134 239.680 . Jun 1078.359 3670.756 4198.274 5670.606 4268.077 504.193 66.117 240.890 . Jul 1075.991 3695.161 4215.724 5691.051 4287.996 507.677 66.366 242.010 . Aug 1072.625 3735.720 4240.969 5746.763 4347.744 511.093 67.434 243.200 . Sep 1075.046 3793.748 4284.561 5810.087 4395.419 516.006 67.052 245.310 . Oct 1080.787 3854.736 4325.929 5872.044 4490.606 520.803 67.055 247.360 . Nov 1089.326 3912.516 4364.406 5936.880 4529.770 524.379 67.183 249.330 . Dec 1093.742 3965.652 4401.374 5995.653 4548.888 526.432 66.952 251.150 1999 Jan 1091.402 3993.906 4425.361 6017.356 4539.489 531.713 68.375 252.260 . Feb 1093.055 4035.140 4445.978 6065.135 4524.314 538.145 67.918 253.090 . Mar 1102.412 4048.424 4455.933 6059.680 4494.868 539.045 66.379 253.730 . Apr 1108.792 4093.607 4488.901 6104.453 4507.791 539.623 63.827 255.600 . May 1105.163 4120.700 4506.892 6133.497 4517.102 548.349 68.239 256.520 . Jun 1101.541 4145.380 4523.696 6166.425 4553.417 549.818 66.868 257.410 . Jul 1100.002 4164.821 4545.134 6192.482 4550.644 553.082 66.902 258.640 . Aug 1102.865 4194.463 4567.156 6216.514 4583.263 556.746 67.283 259.820 . Sep 1093.981 4211.466 4586.426 6247.466 4608.055 564.226 70.198 260.990 . Oct 1099.122 4237.881 4606.385 6296.701 4636.830 573.011 72.729 262.080 . Nov 1108.568 4269.304 4627.562 6385.480 4704.476 588.594 82.541 263.250 . Dec 1125.735 4317.286 4662.831 6485.775 4782.823 611.876 93.737 265.180 *All values are given in billions of dollars Federal Reserve Bank of St. Louis MonetaryTrends 01/18/00 Federal Discount Prime Funds Rate Rate 1995 . 5.84 5.21 8.83 1996 . 5.30 5.02 8.27 1997 . 5.46 5.00 1998 . 5.35 1999 . 3-mo CDs Treasury Yields Corporate S&L Conventional 3 mo 3 yr 30 yr Aaa Bonds Aaa Bonds Mortgage 5.92 5.66 6.26 6.88 7.59 5.80 7.95 5.39 5.15 5.99 6.70 7.37 5.52 7.80 8.44 5.62 5.20 6.10 6.61 7.26 5.32 7.60 4.92 8.35 5.47 4.91 5.14 5.58 6.53 4.93 6.94 4.97 4.62 7.99 5.33 4.78 5.49 5.87 7.04 5.28 7.43 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 . 4 5.31 4.87 8.37 6.06 5.20 6.00 6.25 7.49 5.79 7.83 1997 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 . Nov 5.42 4.86 8.37 6.00 5.23 5.92 6.15 7.36 5.77 7.74 . Dec 5.30 5.00 8.50 6.05 5.36 6.14 6.35 7.55 5.82 7.91 *All values are given as a percent at an annual rate Federal Reserve Bank of St. Louis MonetaryTrends M1 MZM 01/18/00 M2 M3 Percent change from previous period 1995 . -0.21 -0.47 2.07 4.55 1996 . -3.21 6.54 4.85 6.59 1997 . -3.30 7.17 4.96 7.93 1998 . 0.93 11.60 7.37 10.13 1999 . 2.12 12.16 7.47 8.71 1997 1 -0.47 1.77 1.19 1.87 . 2 -0.99 1.63 1.19 1.94 . 3 0.23 2.22 1.58 2.32 . 4 0.00 2.39 1.67 2.39 1998 1 0.81 2.75 1.89 2.56 . 2 0.24 3.24 1.86 2.50 . 3 -0.48 2.91 1.71 2.15 . 4 1.25 4.53 2.75 3.23 1999 1 0.71 2.94 1.80 1.90 . 2 0.87 2.34 1.44 1.45 . 3 -0.56 1.71 1.33 1.37 . 4 1.11 2.02 1.45 2.74 1997 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 -0.02 0.98 0.57 0.76 . Jul -0.22 0.66 0.42 0.36 . Aug -0.31 1.10 0.60 0.98 . Sep 0.23 1.55 1.03 1.10 . Oct 0.53 1.61 0.97 1.07 . Nov 0.79 1.50 0.89 1.10 . Dec 0.41 1.36 0.85 0.99 1999 Jan -0.21 0.71 0.54 0.36 . 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 0.40 0.48 . Jun -0.33 0.60 0.37 0.54 . Jul -0.14 0.47 0.47 0.42 . Aug 0.26 0.71 0.48 0.39 . Sep -0.81 0.41 0.42 0.50 . Oct 0.47 0.63 0.44 0.79 . Nov 0.86 0.74 0.46 1.41 . Dec 1.55 1.12 0.76 1.57 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 was 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 01/15/2008. 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.