Bluebook

Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act. 1 In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing). 2 A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. Content last modified 6/05/2009. CONFIDENTIAL (FR) September 11, 1970. MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) Published data show that the money stock and the adjusted credit proxy both grew rapidly on average during August, at annual rates of about 11 per cent and 24 per cent, respectively. For both aggregates, much of the greater-than-anticipated August strength reflected an unusually rapid rise in private demand deposits, as security and business loans at banks expanded sharply. Most recently, however, partial data for the statement week ending September 9 indicate that the level of the money stock has probably fallen sharply relative to its expected path and would, unless revised substantially, lead to a considerably weaker-than-anticipated September performance. (2) The rapid August growth rate for the published money stock also reflected a marked reduction in the importance of several types of international transfers at major banks; these transfers had the effect on the published figures of understating the growth rate of the money supply earlier in 1970. Because the sources of bias became less important in August than in earlier months, once the published data are roughly adJusted to eliminate the effect of these biases (as explained in the appendix), the August change in the money stock adjusts downward to an -2annual rate of around 9 per cent. Since only one of the sources of bias in the money supply data affects the bank credit proxy, adjustments to eliminate bias produce only very minor changes in the proxy series. Recent Paths of Key Monetary Aggregates (Seasonally adjusted, billions of dollars) Adjusted Credit Proxy Indicated at Last Meeting/ Money Supply Actual Results Indicated at Last Meeting Actual Results 1970 Month July 315.8 315.8 204.3 204.3 (209.0)2 August 321.0 322.0 205.4 206.2 (210.6/ (210.6)- 12 320.6 320.3 206.4 206.1 19 321.3 321.1 206.2 206.6 26 321.8 324.2 204.8 206.2 2 322.1 325.1 204.8 206.1 9e 322-4 323.7 206,2 204.2 Rates of Change I~ % An-ual Week August Sept. niing % Annual Rates of Change Month August over July 20.0 23.6 11.2 (9.2) partly estimated. e/ 1/ Alternative A path of previous Blue Book consistent wich a 5 per cent annual rate of growth in money stock for third quarter. 2/ Figures in parentheses reflect estimated money supply levels and per cent annual rates of growth after correction for bias. 2/ -3(3) Total time and savings deposits grew less rapidly in August than in July, partly as CD expansion dropped to a little less than half of the $5 billion July pace. A part of this CD growth was offset by shrinkage of bank-related commercial paper, amounting to about $500 million over the month. As major banks have approached the statement week beginning September 17 to which the new reserve requirement on bank-related commercial paper will first apply, the run-off of such paper has accelerated. The rate of growth of time and savings deposits other than large CD's also slowed in August from the unusually rapid July pace. (4) Conditions in the money market were easier on average during the three statement weeks that followed the last meeting of the Committee, with the rate on Federal funds averaging just under 6-1/2 per cent. While Federal funds traded generally in a 6-1/8--6-3/8 per cent rate range during the week immediately following the last Committee meeting, inthe statement week just past the funds rate averaged 6.64 per cent, the same as in the week of the Committee meeting, but still about 25 basis points below the average level of the previous three statement weeks. The drop in the funds rate just after the Committee meeting reflected a marked shift in reserve distribution favoring the money center banks. has been a reversal of this flow. Since then, there As a result, the average basic reserve deficit at the 46 major reporting banks rose $1.2 billion from the state- ment week ending August 26 to that ending September 9. -4(5) Net borrowed reserves averaged $500 million, and member bank borrowing $700 million in the three statement weeks following the Committee meeting, some $250--$300 million below the comparable averages for the three preceding weeks. However, these earlier higher numbers still included about $250 million of special member bank borrowing related to loans generated by churning in the market for non-bank-related commercial paper. (6) The drop in the Federal funds rate immediately following the announced reduction of reserve requirements and the August meeting of the Committee led security market participants to anticipate a significant further near-term easing of monetary policy and a consequent cut in the prime rate at banks. interest rates. These changed expectations were quickly reflected in Bond yields in late August were down about a quarter of a percentage point from levels prevailing just before the last Committee meeting, and the average rate for new three-month bills reached a low of 6.20 per cent in the August 24 auction. Since then, however, the combination of a heavy and growing calendar of corporate and municipal issues and uncertainty about the course of monetary policy in light of the August bulge in monetary aggregates and the recent upward drift in day-today money market rates have contributed to a general backing up of interest rates. The three-month bill rate has most recently been around 6.40 per cent, still around 15 basis points below the level prevailing just before the last FOMC meeting. (7) The following table summarizes seasonally adjusted annual rates of change in major financial aggregates Past Year (Aug. over Aug.) for selected periods: First Half of 1970 (June over December) Latest two months (Aug. over June) Total reserves 2.7 - 0.2 14.8 Nonborrowed reserves 4.3 1.9 16.1 Money supply 3.6 (4.7)1 4.0 (5.5)1/ 7. 7 (6.9)1/ Time and savings deposits 8.8 7,1 Savings accounts at nonbank thrift institutions n.a. 4.5 Total member bank deposits (Bank credit proxy) 6.3 3.3 26.2 Proxy plus Euro-dollars 4.8 1.9 22.0 Proxy plus Euro-dollars and other nondeposit sources 6.0 3.5 21.0 Total loans and investments of all commercial banks 4.7 1.9 16,6 L&I plus loans sold outright 'to affiliates and foreign branches 5.8 3.9 16.1 Non-bank commercial paper 7.0 14.2 -50.8 31.9 n.a. Member bank deposits and related sources of funds Commercial bank credit (Month end) All items are averages of daily figures (with "other nondeposit sources" based on an average for the month of Wednesday data), except the commercial bank credit series, which are based on total outstanding on last Wednesday of month, and the non-bank commercial paper and thrift institutions series, which are end-of-month data. All additions to the total member bank deposit series are seasonally unadjusted numbers, since data have not been available for a long enough time to make seasonal adjustments. Figures in parentheses reflect estimated percentage annual rates of growth in money supply after correction of levels for bias. NOTE: 1/ Prospective developments (8) If the Committee wishes to continue with a policy that encompasses financial flows and credit conditions consistent with a 5 per cent rate of growth for the money supply, the following language for the second paragraph of the directive might be considered (alternative A): To implement this policy, the Committee seeks to promote [DEL:some easing of markets credit in conditions and somewhat greater MODERATE growth in money over the months ahead than occurred the in second quarter, while taking account of possible liquidity problems and allowing bank credit growth to reflect BANK EFFORTS TO REBUILD LIQUIDITY AND any continued shift of credit flows from market to banking channels. System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining bank reserves and money market conditions consistent with that objective, taking account the of effects other of monetary actions.] policy (9) Specification of monthly and weekly target paths for the monetary aggregates is complicated insofar as the money supply is concerned by the need to adjust, for purposes of monetary policy formulation, for the known amount of bias in the published figures (the sources of bias and their effect are detailed in the appendix). The following table presents target paths for the money stock that would be consistent with a 5 per cent target growth rate in the fourth quarter for the unbiased, or adjusted, money supply -7series. To provide a link with published data on the money supply and with weekly data (for which bias estimates are not yet available), the table also shows monthly target paths for the existing series through October. In the third quarter, growth of the money supply is expected to be below a 5 per cent growth trend--4-1/2 per cent in the published series and 3-1/2 per cent in the adjusted series. that over the last half This develops because it seems unlikely of September the money supply could be expanded sharply enough through open market operations to achieve the desired 5 per cent growth rate for the quarter as a whole, barring a drastic easing of money market conditions. However, revisions in data, particularly for the week ending September 9, not to mention errors in projection for the latter half of September, would of course strongly influence the actual third quarter results as compared with currently expected results. Money Supply--Monthly and Quarterly (Daily averages, seasonally adjusted) Published Series Month August Adjusted Series Levels Annual Rate Levels Annual Rate ($ bills.) of change ($ bills.) of change 206.2 11.2 210.6 9.2 Sept. (proj.) 205.9 - 1.5 209.9 -4.0 Oct. (proj.) 207.2 7.5 211,2 7.5 Nov. (proj.) (1/) 212.2 5.5 (proj.) 2/ Quarters3rd. (Sept. over June) (1/) 2.2.5 1.5 Dec. 4.5 3.5 4th. (Dec. over Sept.) (1/) 5.0 1/ After October, we expect to be publishing the unbiased series. 2/ The annual rates of change on a quarterly-average over quarterly-average basis for the money stock in the adjusted series are 4 per cent in each quarter. -8(10) Target paths for the reserve and the adjusted bank credit proxy that are consistent with the 5 per cent target growth rate for money supply in the fourth quarter are shown in the following table: Other Monetary Aggregates--Monthly and Quarterly (Daily averages, seasonally adjusted Total Reserves Adjusted Credit Proxy Month Levels Annual rate ($ mills.) of change Levels ( bills.) Annual rate of change 322.0 23.6 28.6 23.4 Sept. 324.6 9.5 29.2 23.5 Oct. 327.4 10.5 29.6!/ 7.0 Nov. 330.1 10.5 29.8 8.5 Dec. 332.9 10.0 30.1 12.5 Aug. (Actual) Quarter 3rd (Sept. over June) 17.5 18.0 4th (Dec. over Sept.) 10.0 9.5 1/ Beginning October 1, the level of total reserves includes a $300 million estimated increase in reserves required against bank-related paper. The annual rates of change have been calculated excluding the effects on reserves of both the increased requirement on commercial paper and the reduction on time deposits so as to maintain continuity of the reserve series. (11) The third quarter growth rate in money supply of 3-1/2 per cent is substantially short of policy goals and a money growth rate around 3--3-1/2 per cent would be anticipated for the fourth quarter under money market conditions recently prevailing. As a result some easing of money -9market conditions would seem to be needed to attain a 5 per cent growth target in the fourth quarter. Achievement of this objective might require a Federal funds rate averaging down in a 6-1/8--6-1/2 per cent range and member bank borrowings averaging a little below $500 million. Net borrowed reserves might be expected to average around $350 million, with the volume of needed open market operations in the week ending October 7 reduced by an estimated $450 million of reserves released by the net effect of the recent reserve requirement changes. These money market conditions would be likely to contribute to renewed general declines of interest rates. Over the near-term, with major Treasury cash borrowing deferred until the latter part of October, the 3-month bill would probably move down into a 6--6-3/8 per cent range. As short-term market rates decline generally, expectations of a prime rate cut would be heightened, and bond yields would probably drift lower, although the heavy calendar of new offerings might tend to limit the size of such declines. (12) Even with some easing of money market conditions, time deposit growth is likely to slow somewhat further over the months ahead from the unusually rapid rate that followed the late June suspension of rate ceilings on short-term CD's. During September and early October, CD expansion may be sustained at the pace of recent weeks as banks continue to adjust to the commercial paper reserve requirement, but over the rest of the quarter CD growth seems likely to slacken further. (13) A weekly path for monetary aggregates consistent with the published monthly series in paragraph 9 is shown below for the period until the next FOMC meeting. -10Monetary Aggregates--Weekly (Seasonally adjusted, billions of dollars) Adjusted Credit Proxy Money Supply Total Reserves 323.7 204.2 29.2 16 323.5 205.9 29.3 23 325.4 205.9 29.0 30 325.7 2c7.5 29.1 7 326.2 2. 6.8 29. - 14 326.1 206.9 29.7 21 326.7 208.3 29.6 Week ending September October 9 e/ e/ Estimated. 1/ Beginning October 1, the level of total reserves includes a $300 million estimated increase in reserves required against bank related paper. -11Alternative B (14) Should the Committee desire to seek a 6 per cent growth rate for the money supply over the fourth quarter and a significant easing in credit market conditions, it may wish to consider the following language for the second paragraph of the directive (alternative B): To implement this policy, the Committee seeks to promote some FURTHER easing of conditions in credit markets and somewhat greater growth in money over the months ahead than occurred in the first half of the year, while taking account of possible liquidity problems and allowing bank credit growth to reflect BANK EFFORTS TO REBUILD LIQUIDITY AND any continued shift of credit flows from market to banking channels. System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining bank reserves and money market conditions consistent with that objective, effects the of account [DEL: (15) of monetary other taking actions.] policy The following table presents monthly target paths for a 6 per cent fourth quarter growth rate in the money supply. -12Money Supply--Monthly and Quarterly (Daily averages, seasonally adjusted) Published ISeries Levels Annual Rate of Change ($ bills.) Month Adjusted Series Annual Rate LeveLs ($ bills.) of Change August 206.2 11.2 210.6 Sept. (proj.) 205.9 -1.5 209.9 Oct. (proj.) 207.4 8.5 211.4 Nov. (proj.) (1I/) 212.6 7.0 Dec. (proj.) (1/) 213.0 2.5 (I) 9.2 -4.0 Quarters3rd (Sept. over June) 4.5 3.5 4th (Dec. over Sept.) (1/) 6.0 1/ After October we expect to be publishing the unbiased series. 2/ The annual rate of change on a quarterly-average over quarterly-average basis for the money stock in the adjusted series are 4.0 and 4.5 per cent, respectively. (16) Paths for other monetary aggregates as they are likely to develop under this alternative are shown below: -13Other Monetary Aggregates--Monthly and Quarterly (Daily averages, seasonally adjusted) Adjusted Credit Proxy Leve Is Annual Rate ($ bills.) of Change Month August 23.6 322.0 Total Reserves Levels Annual Rate ($ bills.) of Change 28.6 23.4 29.2 23.5 Sept. (proj.) 324.6 Oct. (proj.) 327.6 11.0 29.61/ Nov. (proj.) 330.5 10.5 29.9 10.0 Dec. (proj.) 333.4 10.5 30.2 13.5 9.5 7.0 Quarter 3rd (Sept. over June) 17.5 18.0 4th (Dec. over Sept.) 11.0 10.5 1/ See footnote of table in paragraph (10). (17) Attainment of the more rapid growth in the money supply indicated in the above tables would require a more pronounced easing of money market conditions than under Alternative A. These easier conditions might include a Federal funds rate fluctuating in a 5-3/4--6-1/4 per cent range, member bank borrowings around $300-$400 million and net borrowed reserves in a $100-$250 million range. Such conditions could well trigger an immediate cut in the prime rate and reduce the 3-month Treasury bill rate to 6 per cent or below. Such a development might also create expectations of a reduction in the Federal Reserve discount rate, contributing to general downward pressures on interest rates, in both short- and long-term markets. On the other hand, some partly offsetting -14upward interest rate pressure, chiefly in longer maturity ranges, might develop if there were a heightening of expectations that significantly easier credit availability would lead to intensification of inflationary conditions later on. (18) The adjusted credit proxy is expected to grow some- what more rapidly, along with the more rapid growth in money supply, as compared with alternative A. become more rapid until October, Money supply growth is not expected to although the exact lags over the near- term in public and bank responses to monetary policy changes are conjectural. Net inflows of time deposits to banks are likely to become larger as market interest rates decline--making CD's viable throughout the maturity range. However, since business loan demands are expected to be moderate, we would expect banks to drop their CD offering rates in line with declines in other market interest rates. As CD's become a more certain source of funds, banks may become more willing to let commercial paper run off and to reduce Euro-dollar borrowings. Thus, the upward effect on the adjusted bank credit proxy of the rather marked lowering of market interest rates expected under this alternative might not be extremely sharp, and will likely depend in part on the extent to which businesses switch from open market to bank borrowing and on the extent to which banks and dealers take speculative positions in securities. (19) Weekly figures for monetary aggregates over the period between now and the next meeting are shown in the table below (with the money supply figures linked to the published series as under alternative A). -15Monetary Aggregates--Weekly (Seasonally adjusted, billions of dollars) Adjusted Credit Proxy Money Supply Total Reserves 323.7 204.2 29.2 16 323.5 205.9 29.3 23 325.4 205.9 29.0 30 325.7 207.5 29.1 7 326.3 206.9 1/ 29.6- 14 326.2 207.1 29.7 21 326.9 208.5 29.6 Week ending September October I/ 9 e/ See footnote of table in paragraph (13). Table 1 MARGINAL RESERVE MEASURES (Dollar amounts in millions, based on period averages of daily figures) Banks Member Excess reserves-- PerFree reserves Total s Borrowin Re s r e C Major banks Outside N.Y. 8 N.Y. t y Country Oer _____ Monthly (reserves weeks ending in): 106Q--anar\ February March April Mav June July August September October November December 47' 580 635 844 -1,116 -1,078 -1,045 997 744 995 975 849 350 256 202 187 243 277 266 214 282 195 238 278 836 836 837 1,031 1,359 1,355 1,311 1,211 1,026 1,190 1,213 1,127 131 62 58 85 123 57 89 81 83 106 120 268 302 255 233 411 346 459 250 253 236 327 387 310 149 215 254 260 397 288 364 256 222 293 250 220 253 304 293 275 493 550 608 621 485 464 456 329 1970--January February - 759 916 169 210 928 1,126 148 106 287 317 232 289 261 414 - 751 687 129 178 880 865 90 227 225 331 287 119 278 188 159 924 165 241 228 290 171 907 140 289 217 261 March April May - 765 June - 736 July -1,133 183 1,316 218 460 347 291 August p - 712 169 881 157 213 :2" 196 I 8 15 - 610 317 915 339 179 102 949 496 1,017 232 -322 264 269 509 161 49 292 178 47 139 22 29 - 811 783 158 111 969 894 517 63 252 361 81 259 119 211 1970--.Apr. May June 6 - 424 350 774 93 248 220 213 13 - 782 28 810 150 254 202 204 20 27 - 965 889 214 44 1,179 933 332 86 310 150 243 247 7 4 450 -1,029 195 1,224 269 354 262 - 721 390 799 136 268 88 857 658 887 195 -97 238 251 313 169 188 248 1 8 - 718 -1,219 273 75 991 1,294 93 360 260 412 304 283 333 240 15 22 29 -1,451 -1,201 -1,078 230 185 153 1,681 1,386 1,231 467 139 29 569 531 528 371 395 388 274 321 286 5 12 - 822 894 188 280 1,010 1,174 114 382 362 362 303 300 231 130 3 10 17 24 July Aug. Sept. p - I 339 1 255 219 229 19 p - 598 82 680 55 100 337 188 26 p - 535 125 660 77 14 372 197 2 p - 415 246 661 79 -- 401 181 9p - 498 264 762 160 162 326 114 Preliminary. Table 2 (In Reserve Ag AGGREGATE RESERVES AND MONETARY VARIABLES Retrospective Changes, Seasonally Adjusted per cent, annual rates based on monthly averages of daily figures) SM______onet re ga t e s try Total Reserves Period Anuallv 1968 1969 + - fimi-annually Ist eHlf 1969 2nd Hlf 1969 7.8 1.6 Nonborrowed Reserves + - 6.0 3,0 Credit Proxy + Addendum: Euro-dollars + Nunbank + 7.1 + 1.5 +11.5 - 5.3 n,a. n.a. + 6.5 + 4.9 + 3.7 - 0.6 - + 4.0 + 8.3 + 2.9 + 7.1 + 4.1 + 4.5 + 6.5 + 6.3 + 3.2 + 4.2 - 5.1 - 3.0 - 1.2 + 3.6 + 6.2 -13.3 -- Member Bank + 7.9 - 1.2 + 9.0 - 4.0 + 7.2 + 2.5 + 7.4 + 5.8 - 3.5 4.6 + 4.3 + 0.6 + 3.3 - 3 7 + 1.0 - 3.9 0.2 - 2.4 + 1.9 - + 0.1 + 1.2 - 2,8 - 4.7 + 1.7 + 0.2 - 4.8 - 2.2 3rd Quarter 1969 - - - 4th Quarter 1969 + 1.4 1st Half 1970 Quarterly lst Quarter 1969 2nd Quarter 1969 1st Quarter 1970 2nd Quarter 1970 9.3 3.3 - 0.1 + 2.0 - 9,4 + 0.1 - - 4.8 8.6 ab les bdpostme S u Required Reserves + 0.7 Var CJmmercial Mo n e y Toal p Iy Private -+ Demand 1.3 -- 4.0 6.7 n.a, 1.2 +27.6 + 3.5 +14.0 - n.a. - 4.3 + 2.0 +31.0 +22.4 2.5 + 0.6 + 3.8 + 7.0 + 2.9 + 0.4 + 0.5 +13.2 + 2.6 + 4.1 + 2.6 + 6.0 + 4,2 + 9.4 + 2.8 +13,8 + 6.5 +14.3 - 3.2 1.2 + 6.2 + 3.1 + 2.8 + 8.3 + + 7.1 1.6 -10.0 - 4.7 -10.1 + 4.9 + 3.1 + 7.9 + 8.2 + 2.7 + 0.8 +11.0 - 0.6 - 2.9 0.4 Monthly 1969--January + 7.5 + 4.5 +12.7 February March April - 3 4 3.8 8.5 - 4.9 - 8.0 -12.0 - Hay +19.9 + 6.0 +14.3 - 1.2 + 1.2 + 8.1 - 1.6 - 3.6 - - -10.2 + 4.2 + 8.1 + 3.1 - 5.4 -18.9 -11.3 + 1.7 - 9.2 + 9.7 + 1.8 - 1.8 -+ 0.6 + 1,2 + 5.4 + 8 0 - 26 +10.6 4 7.9 + - 1.6 4.7 0.8 0.8 1.6 L8.5 -19.4 - 2.5 - 3.7 - 0.O - 7.0 - 7.5 + 1.6 - 7.9 +13.1 +26.4 +23.8 +40.7 +20.0 +11,7 June - July -22.5 -19.3 -17.6 August September - 5.6 - 2.8 + 7.7 - October November December -11.7 + 9.7 + 6.3 -17,9 + 5,5 +12.1 -10.4 + 9,3 + 6.9 + 2.3 + 4.3 + 0.8 +14.2 1970--January February + 3.1 -12.0 + 7.2 -15.6 + 5.0 -12.9 - 4.2 + 9.0 + 5.2 +10.1 -12.4 - 3.5 + 3.6 - 8.0 -10.7 + 7.8 -15.5 - - +35.7 + 7.5 + 0.6 +25.4 -19,0 + 6.2 -16.1 +49.0 +22.2 -15.1 + 0,9 + 7.9 +21.9 +14.0 +16.8 +13.2 +10.7 + 7,8 + 7.7 +14.1 +10.9 +14.4 +22.2 - 4.5 + 3.5 +15.3 + 5.8 +22.7 +29.2 - 1.8 + 4.1 +11.2 + 5.0 + 7.5 + 9.5 March April May June July August p p - Preliminary. 7.6 -- -- +21.3 -13.9 + 0 5 + 6.0 +23 4 8.2 3.0 4.4 5.0 8.6 7.6 0.8 -- + 1.8 -- -- - 2.3 + 2,3 +13.8 - 0.6 5.5 +10.7 +13.7 + 0.4 +71,3 +10.3 - +10.7 + 8.4 +15.2 +27.8 + 7.0 +18.1 +23.6 ---- 1.2 -37.3 -88.-14,1 Table 3 AGGREGATE RESERVES AND MONETARY VARIAIBLES Seasonally Adjusted (Bastd on monthly averages ot daily I igurcs) Su 9, Per)io I. ,,l rd v ' (In hly - ary 281,31 Nary 28, nil onal) 27 ,'72 27,775 2,.2 15 March April May June luly August 27 27, 10In .II Sept-l t lb r 0 t oh( r November December 27,781 27,928 )--January 2 8,00 1 '7,722 Ft brudry Mar .h April May June July August p '/,7.' 21,12 28, 1l( 27, 890 2/,902 28,041 28,588 d Illi ions ol 27,318 27,206 27,024 26,754 26,888 26,705 .'6 7/3 2) ,214 6 .'10l 26,5 18 26,806 26,966 26,615 26,78? 27, 150 26,916 27,056 26,694 27,783 'rlo ROll'I( li. ltmint r 11 nk Ii pr a( it s sei rvb til l t Ipot tI l Iy Kn ad d m i i.S. (i iv' J, iniii a Pr vat iil s it., h ' s) it s d'I I n b ( n h a / 1 'lioai'.s ionsb I 0 I d I incl des inrcases .and Ll b i (I,-vI lllKl Ii I ,t 297.0 296.7 294.2 295.4 295.1 292.6 288. 1 285. 1 28).7 283. 5' 285.8 285.8 163.2 161.0 160.5 160.1 159.3 158.1 155.1 152 5 152. I r 1 31 . ) 151.1 151.5 128.4 129.1 128.9 129.4 130.0 130.5 1301.5 129.9 1?9.2 178.9 129.1 129.4 5.4 6.7 4.8 5.9 5.9 4.0 2.4 2.9 4.4 3.1 5.6 4.9 ') 199 19).0 * ).6 199 199 . 27,823 284.8 282.9 286.2 290.2 289.1 290.5 296.0 303.2 149.4 148.8 150.6 153.5 154.6 155.7 160.7 164.8 130.1 128.5 129.8 131.4 111.4 130.0 130.9 132.0 5.3 5.6 5.9 5.2 3.0 4.8 4.4 6.3 201 1 199.1 201.5 203. i 203,9 203.6 20. 6 204.3 206.2 I de.pos its .d ju Itd 3J Addendti, Nonbank commerc i Paper un- ) W,5.9 45.9 '05.5 305.7 25.5 26.1 26.6 27.5 27.9 28.2 29.0 4b . 1 46.1 46.4 4b.7 #47.0 47.6 47.8 48.1 48.2 155.0 153.0 154.8 156.2 156.2 155.9 156.2 158.0 192.1 192.0 194.3 197.9 199.6 201.0 206.9 211.7 304.8 303.4 306.1 309.6 309.3 311.1 315.8 322.0 29.1 30.0 30.0 31.8 32.0 31.0 28.8 28,4 64.1 44/ . 1 44.2 4 '.5 .4.8 deposits. S. Government, 1 ess cash items in ineC deposits. ,it / Cr, dit Pr y 4 + '111 >-, l-dllars i Lit r nondep. slrc es of J30.5 4 1.8 reoauired reserces due to changes in Regulations M and D of approximately $400 millwin iil 203.2 202.4 202.3 2u2.3 201.7 200.8 197.7 194.5 194.1 193.; 193.4 194.1 41.5 1 9b,. 3 196 . 198.1 198.3 199.10 199 I t t. 152.3 152.5 152.6 154.0 153.8 154.2 154.4 153.8 153.7 151. 6 15).4 153.7 195.8 include demanddeposits of individuals, partnerships and corporations and interbank Includes currency outside the Treasury the Federal Reserve,and the vaults on all commercial banks Includes (I) t aijnd ui sit , il I aa ,i t I I Iadl sb, otli r than thoe die o Jion me, t ic tomnmercial hanks jnd tilt, process of col tlioi, .ad It'Jd,. ,I ' .- iv( lloat, and (2 loreIl demand b, lances at Fede.al Reserve banks. interbdlnk lr 1l It de, l i 27,902 27,812 27,729 27,614 27,942 27,742 27.334 27,161 77,164 27, 129 27,548 27,707 27,523 27,536 28,046 27,692 27,713 27,896 28,405 III i Idepo lts Private demand deposits Excludes 'l OLtober 16, 1969. 305.7 303.8 302:2 ) Table 4 AGGREGATE RESERVES AND MONETARY VARIABLES Seasonally Adjusted RKsieve Period I oliI (In ni 21.)54 27.1 #4 27 . /, 28, 90 June July Aug. 'pt. ons of Required reserves S Member Bank Deposits Supported by Required Reserves # Total membeh bank depositss Time depo9 Privite d ema nd Ideposits In U.S. Gov't dcpmad 1/ depos tta 27,605 27,566 28,290 28,330 28,051 290.5 291.6 289.9 290.7 288.4 152.0 152.9 153.2 15J.8 154.2 132.6 132.8 132.1 130.3 129.8 i o n s 5.9 5.9 4.6 6.6 4.4 dolldlb) h i II . i.,i I1 I d , lIp y 1 I I r, iI .ncy f 2, 20,.8 P Ival d m nd [d( iuo t i T+" Prox 1 tat i tLlt ( ,,U It, ink t mIL 1. -dollar + Addi ndim 5/ ther nondep. I Nou.biink d. posit 1 erl c nrr U, LeS of .i djust d paper l unds 4/ 159. 9 157.8 156.0 155.4 154.5 16b.0 156.4 155.9 157.5 156.2 199,1 199.2 199.7 199.9 309.0 307.9 109.5 310.6 3t.7 32.1 32.0 32.3 47.7 47.8 47.8 156.4 155.7 156.0 154.3 200.0 200.5 200.7 201.0 310.8 310.6 311.1 310.5 32.1 ?2.4 31.7 32.0 218, 2182 6 13 20 27 28.4H1 27,66h 27, 1065 27, '04 27,710 26.876 26,754 26,559 28,101 27,652 27,702 27,424 288.9 287.8 289.3 290.2 154.3 154.3 154.7 154.7 131.4 131.2 132.4 131.3 3.2 2.3 2.2 4.2 2(1 201I..9 3 10 17 24 27,888 27,917 28.002 27,645 26,702 27,028 27,419 26,870 27,602 27,714 27,744 27,659 290.1 289.9 290.3 289.9 155.0 155.3 155.4 155.6 132.1 130.5 129.8 128.8 3.0 4.1 5.1 5.5 204.0 201.4 203.1 202.1 1 8 15 22 29 28,077 27,698 27,)85 28, 121 28,151 97,061 26,415 26,414 26,850 26,941 77.794 27,664 27,907 28,059 27,973 291.5 294.3 294.3 294.9 299.3 156.7 158.6 159.8 161.3 162.7 129.5 131.8 130.6 130.3 131.0 %.3 4.0 3.9 3.4 5.6 20/,.5 205.6 204. 202.8 204. i 47.8 48.1 48.0 48.1 48.0 156.6 157.5 156.2 154.8 156.2 202.3 204.5 206.0 207.6 209.1 312.7 314.2 314.2 315.0 318.9 29.7 29.8 29.0 29.3 29.8 5 12 19 p 26 p 28,0'52 28. 684 28,602 28,676 27,052 27,610 27,907 28,051 27,879 28,440 28,510 28,502 300.6 301.4 302.2 305.5 163.7 164.1 164.5 165.7 131.4 131.6 132.1 132.4 5.6 5.7 5.6 7.4 204.5 206.1 206.6 206.2 48.1 48.2 48.2 48.1 156.4 157.9 158.4 158.1 210.2 210.9 211.5 212.6 319.4 320.3 29.5 29.6 29.6 30.0 2 p 9 p 28 848 29,250 28,206 28,590 28,602 29,067 306.8 306.5 166.7 168.1 132.7 130.8 7.4 7.6 206.1 204.2 48.1 48,3 158.0 155.9 213.7 215.5 325.1 323.7 28,548 I I I [ ________ I ±________ L________ )i 7 201./ 2U >. 1 203.8 .)....-. i . <1 S46.9 310.1 111.0 309.4 309.9 308.0 27,005 27,229 27,363 27,516 27,288 1 8 15 22 29 Kay I _ A)gregatis R~I~eA~ea Nonborrowrd rtseives 41.3 4 7. 1 47. 3 17.1 47.6 47.6 47.6 _______ ______ Private demand deposits incllude demand deposits of individuals, partnerships, and corporations and net inter ink deposits. Includes currency outside the Treasury, the Federal Reserve, and the vaults of all commercial banks. oid hw |II S Government, Includes (1) demand deposits .ct all commercial banks, other than those due to domestic commercial banks and (2) foreign demand balances at Federal Reserve Banks. process of collection dnd Federal Reserve float; 5xcludes interbank ai,dU S. Government time deposits. paper are not seasonally adjusted. leekly nonhank tonmleri tl - Not available. 197.2 197.5 I 98.2 198.8 _________________ lesb cash item-, in 321.1 324.2 29.5 n.a. .1_______ APPENDIX Preliminary Corrections for Money Supply Bias in For some time it has been apparent that current 1970 of measure monetary growth were being distorted, as bank float increased more than, In 1969, the money supply s-rLes was, redeposits at large banks.l/ vised upward to take account of bills payable and London checks, but this revision only partially corrected the series for the downward bias To attempt to measure the remainarising from international transfers. ing bias, the staff has obtained additional information from several sources in preparation for a revision of the money supply series this fall. While this information is not yet complete, some rough estimates have been made of monthly average corrections that may be appropriate for 1970. Effects on growth rates as currently measured measured and Table 1 compares growth rates in M as current The corrected growth rate. indicate as corrected for the estimated bias. expansion over the first half of 1970 at a 5-1/2 per cent annual rate, compared to 4 per cent for the published series, and for the first eight months of the year at 5.9 per cent, as compared with 5 per cent for the published series. As had been anticipated, the largest adjustment is for the second quarter. However, the second quarter adjustment will be larger than the 1 percentage point previously indicated in the Blue Book of June 19. In the third quarter the growth rate will probably be lower by about 1 percentage point after correction for bias. This level of the money supply in the third quarter will be higher than published aft But the effect of tne sources of bias on the rate of bias correction. growth depends on how the amount of bias is changing relative to the f ~L. :o 'e biased change in private demand deposits; for the rate downward, the amount of bias would have to be e pu:lng a- a faster rate than private demand deposits. In fact, during the third quarter the amount of bias in the published figures is expected to decline, thus leading to a fairly significant overstatement in the actual rate of growth The expected decline when measured by the figures as presently published. in bias in the published figures is in large part attributable to termination of use of "guerilla" drafts at three major New York City banks, as explained below. 1/ Bank float, or cash items in process of collection, traditionally have been deducted iron the money supply to avei I .oble outtir.g of deposits that occurs in tne check clearing process. However, available statistics do not provide breakdowns of cash items associated with the deposit component of the money supply. Appendix Estimates of bias Table 2 provides monthly average estimates of four sources of bias. Edge Act Corporations and agencies of foreign banks are not represented in commercial banking statistics from which the money supply series is constituted, so their demand deposits are not included at present. Yet these institutions are responsible for a very large daily volume of Eurodollar and foreign exchange transactions which clear through their major New York City correspondents. New York banks account for these transactions by crediting cash items in process of collection and debiting due to banks. Deduction of these cash items from the money supply is inappropriate so long as the demand deposits of Edge Corporations (which to a great extent represent official checks written in repayment of Eurodollar borrowings by their parent) and agencies are excluded. Edge Corporations submit daily deposit reports to the New York FRB in the same form as those provided by member banks. Hence, their demand deposits other than interbank can be added to the money supply as an offset to the cash items generated by these institutions. Such deposits consist mainly of checks written but not yet cleared, judging from their parallel movement with New York City bank cash items over European holiday periods. Transactions of Edge Corporations are responsible for the largest portion of the estimated current bias in money supply statistics. This source of bias increased in the first half of 1970, but it has declined slightly since mid-year. The basis for correcting bias associated with the foreign agencies is much less satisfactory, although it is known that the effect of agency transactions is similar to that for Edge Corporations. The only information available from agencies currently is in month-end condition reports to the New York State Banking Commisioner. These single-date reports lack standardized depcsit figures, making it difficult to estimate their contribution to money supply bias directly from the deposits that give rise to it. However, our investigation suggests that figures on "due from U.S. banks and trust companies", as reported by the agencies, is a suitable proxy for the agency cash items submitted to New York City banks for collection. Table 1 reflects totals for 25 foreign agencies operating in New York. This single-date, indirect measure of agency activity leaves considerable room for error in the bias correction, but it. appears to he the best retrospective information available. It is estimated that agency quarter, but rose above transactions declined in importance in the first As explained below, it is planned to obtain year-end levels by mid-year. more representative data directly from the agencies to carry the money supply series forward after revision. The other major component of bias included in these estimates This accounting device was utilized is the so-called "guerilla draft". by a few large banks from late 1969 until recently to obtain reserve benefits under both Regulations D and M. Such transfers involved "guerilla" or clearing house checks drawn by foreign agencies at the request of a U.S. bank but which do not appear on the books of a foreign agency. Appendix They had the effect of generating cash items at New York banks which collected the drafts without any corresponding debits to demand deposits included in the money supply. This practice resulted in downward bias in both levels and rates of growth of the money supply throughout the first half of 1970, but its termination recently will reduce the amount of bias in third quarter estimates significantly. The smallest component of measurable bias, as indicated by figures on Table 2, is the net effect of transactions through the relatively new Clearing House International Payments System (CHIPS). A large volume of international transactions are now cleared by major New York banks through CHIPS by means of electronic equipment tied into a clearing house computer. Until recently it was by no means certain that these clearings were introducing only small errors into money supply measurement. The problem for money supply statistics evolved from changes in statistical reporting with the advent of this computer clearing system. Some banks, but not all, began reporting payments and receipts through CHIPS as due to and due from banks, respectively, where Other banks main formerly they reported officers checks and cash items. Depending on the pairing of tained their former reporting practice. banks with mixed reporting methods, money supply data could be overstated or understated by such transactions. CHIPS began operation in April, with the volume of payments increasing to several billion dollars currently. The clearing house has provided daily data on these transactions which indicate very little net effect up to now. The staff is currently negotiating with other regulatory agencies to achieve standardized reporting. This will eliminate distortions from this source. On balance, the total measurable downward bias in the level of the money supply is estimated to have increased from about $3 billion at the end of 1969 to about $4-1/2 billion at mid-year. Since June, the total bias has been reduced about $500 million, reflecting mainly termination of the use of guerilla drafts in response to Mr. Hayes' August 13 letter to New York City banks. No information is yet available for banks outside New York on the possible use--if any--of this or similar devices that might affect the money supply. Plans for money supply revision The bias corrections discussed above are still too rough to publish. Moreover, it would be desirable to extend these corrections back as far as the adjustments appear significant to avoid a break in series. It would also be desirable to obtain better information on foreign agency transactions for purposes of carrying the corrected series forward. These tasks, as well as the annual benchmark and seasonal factor revision, have been given a high priority by the staff, and a major revision incorporating all of these elements will be published this fall, probably around the end of October. Appendix -4- It should be noted that the proposed corrections for transactions of Edge Act Corporations and foreign agencies will require continued attention as the money supply series is carried forward. This situation will change when Euro-dollar and foreign exchange transactions are converted from clearing house to Federal funds settlement. Such Federal funds settlement will eliminate the cash items bias discussed above. However, implementation of such a system will require close cooperation between the Federal Reserve, commercial banks, and other institutions involved in international transactions. Table 1 Preliminary Corrections of Money Supply Growth Rates in 1970 (Seasonally adjusted annual rates of change, in per cent) Currently published Monthly 1970--Jan. 9.0 Feb. Mar. -10.7 13.2 + 2.3 8.8 12.4 + 1.9 - 0.8 10.7 3.5 11.1 5.8 + 0.4 + 2.3 1.8 4.1 11.2 - 1.5 1.2 4.6 9.2 - 4.0 + 3.0 - 0.5 - 2.0 - 2.5 3.8 4.2 4.9 6.0 + 1.1 + 1.8 4.5 3.5 - 2.6 6.0 3.5 3.6 6.9 4.0 - proj. Quarterly Based on last month of quarter I II III proj. Average of months in quarter I II III proj. Amount of correction 11.3 April May June July Aug. Sept. Corrected for cash items bias - 1.0 + 1.0 + 0.9 + 0.5 Table 2 Preliminary Adjustments for Downward Bias in Money Supply (Monthly averages in millions of dollars) New York City cash items bias from Foreign Edge Act Corp. agency "Guerilla transactions transactions drafts" Net effect of CHIPS transactions Total adjustment to MI Month 1969--Oct. Nov. Dec. 2,044 2,287 1,997 867 717 784 100e 189 215 3,011 3,193 2,996 1970--Jan. Feb. Mar. Apr. May June July Aug. Sept. proj. 2,239 2.634 2.597 2,460 2,673 2,979 2,917 2,852 2,929 806 712 521 747 801 844 968 1,078 1,078 376 332 462 523 618 779 755 507 14e 3,421 3,678 3,580 3,730 4,097 4,550 4,737 4,464 4,021 Quarterly change: 1970--1 II III proj. 600 382 -50 -263 323 234 247 317 -765 5 -52 97 27 --e -52 52 584 970 -529 e - Estimated. NOTE: Figures for Edge Act Corporations were derived from daily average deposit reports submitted to New York FRB; foreign agencies from endof-month condition reports submitted to the New York Banking Commissioner; "guerilla drafts" from special reports by 3 New York City banks; and effects of CHIPS (Clearing House International Payments System) from special reports by the New York Clearing House. 

Federal Reserve (1970, September 14). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19700915

@misc{wtfs_bluebook_19700915,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1970},
  month = {Sep},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19700915},
  note = {Retrieved via When the Fed Speaks corpus}
}