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. 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Content last modified 6/05/2009. (CONFIDENTIAL FR) May 7, 1971 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Prepared for the Federal Open Market Committee By the Staff BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM CONFIDENTIAL (FR) May 7, 1971 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) Since the last meeting of the Committee interest rates in domestic securities markets have risen very sharply, with advances ranging to three quarters of a percentage point or more on some long- as well as some short-term instruments. As their short-term borrowing costs rose, major banks raised the prime rate from 5-1/4 to 5-1/2 per cent. The steepness of the general advance in market rates appears to be largely attributable to changed market expectations about the outlook for interest rates and monetary policy; banks, for instance, have become less active buyers of securities. This shift in psychology was prompted initially by a combination of firmer money market conditions and better business news, and was strongly reinforced by deepening market uncertainties arising from the foreign exchange crisis. (2) The rate on the 3-month Treasury bill has been an exception to the general uptrend of rates. Heavy bill demands from foreign central banks and domestic investors seeking liquidity have substantially depleted dealers' bill positions, particularly in shorter maturities. As a result, while the 3-month rate has fluctuated widely over the inter-meeting period, reaching a peak level cf more than 4 per cent, most recently it to about 3.78 per cent, meeting. has declined close to the level prevailing at the time of the last However, the 6-month and 1-year bills are around 40 and 75 basis points, respectively, above their levels at that time. -2(3) Over the four-statement-week period since the last meeting, the Federal funds rate has averaged about 4-1/4 per cent, the upper end of the range specified by the Committee. Since this was 35 basis points above the average for the preceding four statement weeks, it was widely interpreted as evidence of a shift in monetary policy, initiated partly for balance-ofpayments reasons and partly to slow the growth of the money supply. In the Treasury financing week ending May 5, market uncertainties about monetary policy were intensified by the crisis psychology created by foreign developments. In this atmosphere the Federal funds rate rose temporarily to levels as high as 4-7/8 per cent and averaged 4.41 per cent. In the latter part of that statement week, and early in the current week, some banks appeared to be bidding aggressively for Federal funds in anticipation of drains from funds flowing abroad. In addition, the funds rate was affected by a large temporary demand for funds from a key money center bank which apparently substantially miscalculated its weekly reserve position. (4) The Desk moved actively to supply reserves during the Treasury financing week and early in the current week, in an effort to move the Federal funds rate back to the 4-1/4 per cent target. As a result, the net reserve position of all member banks showed average net free reserves of $202 million for the week ending May 5. Over the preceding three weeks the average net reserve position had been close to zero and member bank borrowing had averaged about $140 million. While both of these latter averages were significantly less deep than had been specified, the bulk of the difference reflected a considerable drop in the special borrowing by the bank that has been a necessitous borrower. -3(5) With securities markets generally unsettled, the Treasury elected to limit the new issues in its May refunding to two relatively short maturities--one, a new 15-month, 5 per cent note; and the other, an outstanding 3-1/2 year, 5-3/4 per cent note (reopened at a discount to yield 5.88 per cent). While books on the refunding were still open, rumors of possible revaluations triggered massive speculative dollar flows into some foreign currencies; this ultimately forced the withdrawal of central banks from foreign exchange markets in several countries, Uncertainties regarding this crisis and its implications for domestic interest rates created generally weak conditions in domestic securities markets and led to major concern about the success of the Treasury refunding. In this environment Treasury trust accounts made support purchases of nearly $600 million of U.S. Government securities, and the Federal Reserve purchased $1.3 billion of securities, net,--mainly through repurchase agreements--in the week ending May 5. The results of the Treasury refunding turned out better than might have been expected, with redemption of public holdings kept to about 30 per cent of the $5.8 billion of maturing issues. (6) Immediately following the last meeting of the FOMC the Federal funds target was moved up to the upper part of the 3-3/4--4-1/4 per cent range specified by the Committee. Thereafter as new data suggested that the money supply aggregates were running well in excess of their bluebook paths, the funds rate target was moved up to 4-1/4 per cent. With data for April nearly complete, however, the monetary aggregates now show a mixed performance relative to their bluebook paths. The narrowly defined money supply (M1 ) grew faster than targeted, as the table shows. But the broader money supply (M2) ran about in line with, and the adjusted credit proxy fell substantially behind their respective growth targets. April Growth Rates in Key Monetary Aggregates (Per cent annual rates of changes) Desired at Previous FOMC Meeting Actual 1/ M1 8.0 10.9 M2 12.5 12.9 Adjusted Proxy 11.5 5.6 1/ Because March levels of M 1 and M2 were revised upward after the last bluebook the comparison between actual rates of change and projected bluebook rates somewhat understates the extent of the overshoot. For M1 the degree of understatement is about 2 percentage points. (7) The overshoot of M1 relative to the bluebook path was greatest in the first week of the month, as the following table shows, Thereafter, the level of M 1 receded and by month-end was slightly below the bluebook path. 1/ The overshoot of M2 relative to target was much smaller than for M 1 because the unexpectedly large bulge in private demand deposits early in the month was largely offset by a slowing of the increase in time and savings deposits other than large CD's. Some deceleration in such deposits was expected from the record first quarter rate, but the actual slowing exceeded expectations as the pace of reintermediation at banks apparently dropped off. 1/ This pattern of change was similar to the one in the equivalent period of 1970--even though a postal strike and an air traffic controllers slowdown were also at work last year--suggesting that the existing seasonal adjustment factor for April may be missing a new pattern of money supply change. This may reflect the temporary repatriation of liquid corporate balances held abroad to comply with end-of-quarter OFDI regulations. -5Cut-backs in the use of non-deposit sources of funds were also larger than projected, and large negotiable CD's failed to grow by even the rather modest amount projected. With both time and savings deposits and non-deposit sources of funds performing less strongly than forecast, growth of the adjusted credit proxy was well below the projection and relatively small. Recent Paths of the Key Monetary Aggregates (Seasonally adjusted, billions of dollars) M1 M2 Adjusted Credit Proxy Bluebook Actuals Path Bluebook Path Actuals Bluebook Path Actuals Month March April 220.5 219.4 221.4 441.8 437.6 442.3 343.3 340.2 341.8 Week ending April 7 14 21 28 220.6 221.5 219.4 220.8 223.1 222.6 220.3 219.6 441.0 442.5 441.1 443.0 443.6 443.3 441.2 441.2 342.4 343.3 343.7 343.6 341.6 343.0 342.7 340.2 220.6 221.2 443.6 443.6 343.3 342.3 May 5 (8) The table on the next page summarizes more fully seasonally adjusted annual rates of change in major financial aggregates for selected periods. Six Months Fourth Quarter (Dec. over Sept.) First Quarter (Mar. over Dec.) (Mar. over Sept.) April over March 6.6 11.0 8.9 1.8 11.0 10.3 10.3 Total Reserves Nonborrowed Reserves Concepts of Money M 1 (Currency plus demand deposits 1/) 6.2 M 2 (M1 plus time deposits at commercial banks other than large CD's) 10.9 9.2 17.8 13.7 12.9 9.6 19.0 14.5 16.1 M3 (M2 plus deposits at thrift institutions) Bank Credit Total member bank deposits (Bank credit proxy adj.) 10.9 Loans and investments of commercial banks 2/ 13.8 9.7 10. 5.6 - 2.1 Short-term market paper (actual $ change in billions) Large CD's $ 4.3 $ 1.9 $ 6.1 $ 0.5 Bank-related commercial paper N.S.A. - 2.3 - 0.7 - 2.9 - 0.2 3/ - 1.9 - - 1.4 3/ Nonbank commercial paper 1.5 0.4 Other than interbank and U.S. Government. Based on month-end figures. Includes loans sold to affiliates and branches. March 1971 over February 1971. N.S.A. Not seasonally adjusted. NOTE: All items are based on averages of daily figures, except for data on total loans and investments of commercial banks, commercial paper and thrift institutions--which are either end-of-month or last Wednesday of month figures. -7Prospective developments (9) Although recent foreign exchange market developments heighten all the usual uncertainties in assessing the future, the relationships among money market conditions and monetary aggregates that have evolved since the last meeting of the Committee strongly suggest that the FOMC's desires expressed at the last Committee meeting with respect to aggregates for the second quarter will not be achieved under prevailing money market conditions. Given such money market conditions, the table on the next page compares the Committee's desires for the aggregates with current expectations. (The paths shown as "desired" take the June levels for the aggregates indicated in the previous Blue Book under alternative C as targets. The annual rates of change for April and the second quarter differ in many cases from those shown in the previous Blue Book because the March levels for the aggregates have been revised since the last Committee meeting. For example the March level of M 1 was revised up by $400 million to $219.4 billion. Thus the level of $222.4 billion for M 1 in June represented a 6 per cent annual rate of growth over the second quarter at the time of the last Committee meeting, but it now represents a 5-1/2 per cent rate of growth.) (10) As indicated in the table, the current expectation for growth in M 1 over the second quarter, given a 4-1/4 per cent funds rate, is 9 per cent, well above Committee desires. This partly reflects the more rapid growth that already has occurred in April. But May-June growth--at about a 7-1/2 per cent annual rate--is also expected to be more rapid than earlier Previously Desired and Currently Expected Paths of Key Monetary Aggregates (at 4-1/4% Fed Funds Rate) (Seasonally adjusted, billions of dollars) Desired at previous FOMC meeting March April May June 1 Current Expectation Current Desired at previous Expectation FOMC meeting 437.6 219.4 220.5 221.9 222.4 221.4 223.0 224.2 441.8 445.5 448.0 442.3 445.6 448.4 Per Cent Annual Rates of Growth 11.6 6.0 7.5 2.5 March April May June 1st Q. 1971 2nd Q. 1971 11.6 10.9 8.5 6.5 18.9 11,5 10.0 6.5 18.9 12.9 9.0 7.5 8.9 9.0 17.7 9.5 17.8 10.0 Total Reserves Adjusted Credit Proxy Current Expectation Desired at previous FOMC meeting March April May June Desired at previous FOMC meeting 340.2 343.3 343.8 345.2 Current Expectation 30.7 341.8 341.8 344.2 30.8 31.2 31.0 30.8 31.3 31.1 Per Cent Annual Rates of Growth March April May June 8.9 10.9 1.5 5.0 8.9 5.6 8.5 9.2 2.5 14.0 - 6.5 1st Q. 1971 2nd Q. 1971 10.9 6.0 10.9 4.5 11.0 3.5 9.2 1.8 18.5 - 5.5 11.0 5.0 -9desired by the Committee. The relatively rapid growth expected for May-June reflects in the main the lagged effect of earlier interest rate declines as well as further upward revision made in light of the unexpected strength in April. (11) The future behavior of money supply and U.S. Government deposits is, of course, subject to considerable uncertainty in view of foreign exchange market conditions. We have assumed that about $2-1/2--$3 billion dollars taken in by foreign central banks in recent days will be invested for at least a few weeks in Treasury special issues, with proceeds flowing into Treasury deposits. This could be associated to some extent with a temporary reduction in money growth from what it otherwise would be. On the other hand, money growth could be temporarily stimulated if further sizable reserve supplying operations were to be required in the event, for instance, that the foreign exchange situation is not unwound in such a way as to calm domestic credit market nervousness. (12) While M1 growth seems likely to be more rapid than desired in the second quarter, given a 4-1/4 per cent Federal funds rate, growth in M 2 may turn out quite close to the previously desired path and growth in the adjusted credit proxy may be considerably less than desired. Given recent experience, we are projecting a somewhat greater slowing in net inflows of time deposits other than large CD's than we had earlier; and this offsets, in its effect on M2, the greater than desired growth in M1. As a result, the current expectation for about a 10 per cent M2 growth rate in the second quarter is about the same as that earlier indicated as being acceptable to the Committee. -10- (13) The projected second quarter slowing in growth of time deposits other than large CD's also tends to restrain growth in the adjusted credit proxy. Growth in the proxy is also dampened by the sharp drop in nondeposit sources of funds and by relatively weak behavior of large CD's. There would seem to be little need for aggressive bidding for CD money, at least between now and mid-year, given the comfortable liquidity positions of banks and expectations of only moderate business loan growth. (14) Diverse movements developing in the aggregates, unresolved (as of this writing) exchange market uncertainties, and the recent weakness in bond markets present the Committee with many potentially conflicting objectives. To clarify policy possibilities in view of these conflicts, three distinct policy alternatives--with sharply differing specifications --are presented on the following pages: ing credit market Alternative A aims at stabiliz- conditions; Alternative C aims at pursuit of the Committee's previously expressed desires with respect to M1 growth; and Alternative B aims at a "standard-sized" FOMC tightening of operational targets in the interest of moderating the growth of the aggregates somewhat. Aggregate specifications monthly for these alternatives through the third quarter are shown in the table on the following page. 1/ Alterna- tive A there represents a continuation for the aggregates of the column "current expectations" shown in the table on page 8. represents a continuation from that table of what was Alternative C desired for 1/ Weekly paths between now and the next meeting of the Committee are appended. -11Alternative Monthly and Quarterly Paths of Key Monetary Aggregates (Seasonally adjusted, billions of dollars) M1 M2 C Alt. A Alt. B Alt. Alt. A. Alt. B Alt. 1971 April 221.4 221.4 221.4 442.3 442.3 442.3 May 223.0 223.0 222.9 445.6 445.5 445.4 June July August 224.2 226.1 228.0 224.1 225.8 227.5 222.4 223.5 225.0 448.4 452.1 455.6 447.9 451.3 454.4 446.0 448.7 451.4 September 229.0 228.3 225.7 458.2 456.6 453.6 C Per Cent Annual Rates of Growth April 10.9 10.9 10.9 12.9 12.9 12.9 May June July August September 8.5 6.5 10.0 10.0 5.5 8.5 6.0 9.0 9.0 4.0 8.0 -2.5 6.0 8.0 3.5 9.0 7.5 10.0 9.5 7.0 8.5 6.5 9.0 8.0 6.0 8.5 1.5 7.5 7.0 5.5 9.0 8.5 8.5 7.5 5.5 6.0 10.0 9.0 9.5 8.0 7.5 6.5 2nd Q. 1971 3rd Q. 1971 Adjusted Credit Proxy Total Reserves Alt. A Alt. B Alt. C Alt. A Alt. B Alt. April May June 341.8 341.8 344.2 341.8 341.8 344.1 341.8 341.8 342.5 30.8 31.3 31.1 30.8 31.3 31.1 30.8 31.3 31.1 July August September 344.5 347.7 350.9 344.3 347.3 350.4 342.1 345.2 348.0 31.3 31.6 31.8 31.2 31.5 31.7 31.1 31.3 31.4 1971 Per Cent Annual Rates of Growth April May June July August 5.6 -8.5 1.0 11.0 5.6 -8.0 0.5 10.5 5.6 -2.5 -1.5 11.0 1.8 18.5 -5.5 7.0 12.5 1.8 18.5 -6.0 5.0 10.5 1.8 18.5 -7.0 3.0 9.5 September 11.0 10.5 9.5 5.0 4.5 4.0 4.5 8.0 4.5 7.5 2.5 6.5 5.0 8.0 5.0 6.5 4.5 5.5 2nd Q. 1971 3rd Q. 1971 C -12- M1 at the previous FOMC meeting together with needed modifications of other aggregates for the sake of consistency, given the recent changes that have evolved in relationships among the various aggregates. Alternative B takes a middle course. The text table below shows money market conditions believed consistent with these alternatives. M1 Fed Funds Rate Member Bank Borrowings 2nd Qtr Alternative A 4-1/4 100-200 9% 8-1/2% Alternative B 4-3/4 250-350 8-1/2% 7-1/2% Alternative C 6--8 450-700 5-1/2% 6% (15) 3rd Qtr Under alternative A, with a funds rate around 4-1/4 per cent, M1 is expected to continue growing relatively rapidly through the third quarter, although slowing somewhat on balance from the very rapid pace of recent months. The growth rate in M2 is expected to moderate further to a 9 per cent annual rate by the third quarter. On the other hand, following a sluggish performance in the spring, the adjusted credit proxy may grow more rapidly on balance in June and the third quarter as nondeposit sources of funds stop running off and as modest CD growth is resumed. For the second quarter, growth in the proxy may be at only a 4-1/2 per cent rate, followed by about an 8 per cent growth rate in the third quarter. (16) Between now and the next meeting of the Committee, the 3-month bill rate under alternative A may be in a 3-3/4--4-1/4 per cent range. The rate could temporarily come under downward pressure over the -13- very near-term in view of the relatively small market supply of short bills in a period when customer demands for bills may be sizable, including demands from investors who chose to redeem the mid-May Treasury maturities and from some foreign official accounts who do not place dollars in special Treasury issues. However, in late May the Treasury will be raising a substantial amount of new cash probably in the bill area, with the amount depending on how long foreign funds remain invested in special issues and on whether the Treasury offers another Euro-dollar certificate abroad. With the Federal funds rate returning to around 4-1/4 per cent, bond market pressures are likely to moderate, assuming a reasonable resolution of current exchange market uncertainties. The current Treasury refunding will be settled on May 17; dealer positions in the new issues are very light, as the Treasury has undertaken sizable buying of when-issued securities. (17) Alternative B--which assumes a funds rate centering on 4-3/4 per cent--leads to a somewhat slower growth in monetary aggregates over time. The growth rate in M 1 slows gradually; it is still likely to be growing at around an 8-1/2 per cent annual rate on average in May, but in subsequent months through the summer the growth rate may move down to around 7 per cent on average. Growth in M2 may be affected somewhat sooner by the higher funds rate, and over time the growth rate may diminish by about a percentage point relative to alternative A. Only a minor slow- ing in the credit proxy is projected, as CD growth may be sustained, if not enhanced, as tighter money market conditions lead to anticipatory borrowing by banks. -14(18) The 3- onth bill rate would be likely to rise under alternative B, perhaps to around 4-1/2 per cent, or somewhat higher if expectations of an upward adjustment in the discount rate should develop. Should expectations of a discount rate move become pervasive, it may also tend to keep bond yields under upward pressure. Apart from the effects of such expectations, the recent run-up in bond yields has anticipated a good part of the firming in day-to-day money rates of the magnitude contemplated in this alternative. (19) Alternative C presents the staff's best estimate as of this moment of the money market conditions required to rapidly move M 1 back to the growth path previously desired by the Committee for the second quarter, and assuming M1 growth at a 6 per cent rate in the third quarter. A wide and high range of 6 to 8 per cent for the funds rate is presented, partly to allow for the sharp increase in interest rates that might be required to dampen money demand over a short period of time. For instance in May and June, growth in M1 would have to be reduced to a 2-1/2 per cent annual rate under this alternative. The higher interest rates likely to be associated with this M 1 behavior would have a considerable dampening effect on growth in time deposits other than large CD's, and growth in M2 would be further constrained, with about a 7-1/2 per cent rate expected for the second quarter. Growth in the credit proxy would likely be quite small. Even though banks are assumed to bid more aggressively for large CD's and perhaps non-deposit funds as growth in demand deposits and consumer-type time deposits diminish, bank credit would be expected to rise by only a 2-1/2 per cent annual rate over the second quarter under this alternative. -15(20) Should money market conditions tighten as much as indicated for this alternative between now and the next meeting of the Committee, both short- and long-term rates would likely rise very dramatically, and questions would be raised about the prospects for continued growth in consumer-type time and savings deposits under current interest rate ceilings. The current discount rate would obviously be far out of line with the market conditions associated with this policy alternative. Possible directive language (21) This section presents possible language for the second paragraph of the directive for the three alternative policy courses discussed above. All three alternatives include a reference to the current Treasury financing (for which the payment date is May 17) and to uncertainties in foreign exchange markets. In addition, all three alternatives retain the language of the present directive relating to purchases of coupon issues. (22) Alternative A. This language is proposed for possible use if the Committee decides to call for maintenance of prevailing money market conditions, subject to a proviso clause. "To implement this policy, [DEL: of account taking while be to are which of terms financing Treasury the announced month,] the in late System open market opera- tions until the next meeting of the Committee shall be conducted with a view to[DEL: some temporarily attaining minor in] firming MAINTAINING PREVAILING money market conditions, while continuing to meet some part of reserve needs through purchases of coupon issues in the interest of promoting accommodative conditions in -16- long-term credit markets; provided that SOMEWHAT FIRMER money market conditions shall be SOUGHT modified] if it appears that the monetary and [DEL: credit aggregates are [DEL: deviating] significantly EXCEEDING [DEL: from] the growth paths EXPECTED [DEL: desired], TAKING ACCOUNT OF THE CURRENT TREASURY FINANCING AND UNCERTAINTIES IN FOREIGN EXCHANGE MARKETS." If the Committee adopts this alternative, it may wish to consider the money market conditions noted for alternative A in paragraph (14) as a description of "prevailing" conditions, and for purposes of the proviso clause to adopt the aggregate growth paths discussed earlier in connection with alternative A as the "expected" paths. Use of the word "expected" rather than "desired" is suggested in connection with these growth paths since the rates shown for M 1 are well above those the Committee has previously indicated that it desired. Also, a one-way proviso clause (guarding against significant excesses but not shortfalls) is suggested, on the assumption that the Committee would not want market conditions to be eased on the coming period if the aggregates should fall short of the indicated paths. A directive with this general structure-- putting primary emphasis on money market conditions rather than the aggregates--can, of course, be used in connection with specifications other than those shown for alternative A, with suitable language changes. (23) Alternative B. This language is proposed for possible use if the Committee decides (a) to formulate its primary instruction in terms of desired growth rates for the monetary and credit aggregates -17(subject to the constraints that might be imposed by the Treasury financing and foreign exchange market uncertainties), and (b) to adopt as targets the growth rates (including an 8-1/2 per cent second-quarter rise in M 1 ) discussed earlier in connection with alternative B. "To implement this policy, THE COMMITTEE SEEKS TO MODERATE GROWTH IN MONETARY AND CREDIT AGGREGATES while] taking account of the OVER THE MONTHS AHEAD, [DEL: be to are which of terms the CURRENT Treasury financing [DEL: month,] the in late announced EXCHANGE MARKETS. AND UNCERTAINTIES IN FOREIGN System open market operations until the next meeting of the Committee shall be conducted firming minor some temporarily attaining with a view to [DEL: in]MAINTAINING BANK RESERVES AND money market conditions CONSISTENT WITH THOSE OBJECTIVES, while continuing to meet some part of reserve needs through purchases of coupon issues in the interest of promoting accommodative conditions market money that provided in long-term credit markets; [DEL: monetary the that ifitappears modified be shall conditions and from significantly deviating are aggregates credit desired]." paths growth the The phrase "to moderate growth in monetary and credit aggregates over the months ahead" is suggested as a summary description of the objectives for the aggregates because the paths anticipated for both M 1 and M 2 involve some gradual slowing on average in coming months. -18(24) Alternative C. This language is proposed for possible use if the Committee decides to adopt as targets the growth rates (including a 5-1/2 per cent second quarter rise in M1) discussed earlier in connection with alternative C. "To implement this policy, THE COMMITTEE SEEKS TO PROMOTE MODERATE GROWTH IN MONETARY AND CREDIT AGGREGATES, while taking account of the CURRENT be to are which of terms the Treasury financing [DEL: month,] the in late announced AND UNCERTAINTIES IN FOREIGN EXCHANGE MARKETS. System open market opera- tions until the next meeting of the Committee shall be conducted with a view to [DEL temporarily attaining in] firming minor some MAINTAINING BANK RESERVES AND money market conditions CONSISTENT WITH THOSE OBJECTIVES, while continuing to meet some part of reserve needs through purchases of coupon issues in the interest of promoting accommodative conditions in long-term credit markets; [DEL: market money that provided the that appears it if modified be shall conditions monetary significantly deviating are aggregates credit and desired]." paths growth the from This language differs from that shown under alternative B only in that it describes the objective for the aggregates as that of seeking "to promote moderate growth" (rather than "seeking" to moderate growth')and it omits -19the phrase "over the months ahead." This formulation is suggested since the growth paths associated with this alternative involve a sufficient slowing of the aggregates to bring growth in M1 down to the pace previously desired by the Committee within the present quarter. -20Alternative Weekly Paths of Key Monetary Aggregates (Seasonally adjusted, in billions of dollars) M Alt. A Alt. 219.6 441.2 441.2 441.2 221.2 221.2 443.6 443.6 443.6 222.1 222.1 222.1 444.5 444.5 444.5 19 224.4 224.4 224.3 446.9 446.8 446.7 26 224.1 224.1 224.0 447.0 446.8 446.7 2 222.6 222.5 222.1 446.2 445.8 445.3 9 222.9 222.8 222.3 446.6 446.1 445.4 Alt. A Alt. 219.6 219.6 5 221.2 12 1971 April 28 May June B Adiusted Credit Alt. A Alt. 1971 April 28 340.2 340.2 5 342.3 12 May June B Alt. C Alt. C Total Reserves Proxy Alt. B Alt. A Alt. B Alt. C 340.2 30.9 30.9 30.9 342.3 342.3 31.4 31.4 31.4 343.0 343.0 343.0 31.0 31.0 31.0 19 342.1 342.1 342.0 31.4 31.4 31.4 26 340.3 340.3 340.2 31.3 31.3 31.3 2 341.1 341.0 340.6 31.2 31.2 31.2 9 345.5 345.4 344.9 30.8 30. 8 30.8 C CHART 1 STRICTLY CONFIDENTIAL (FR) 5/7/71 MONETARY AGGREGATES NARROW MONEY SUPPLY M BILLIONS OF DOLLARS - 230 220 210 2I16 L ^ ^ BROADER MONEY SUPPLY M2 I I 1969 1970 1971 F M 1 A '71 I M J CHART 1A STRICTLY CONFIDENTIAL (FR) 5/7/71 MONETARY AGGREGATES ADJUSTED CREDIT PROXY BILLIONS OF DOLLARS 352 340 -348 330 344 320 -340 -310 336 332 I I i I II RESERVES -,1 I 1969 - Actual - Currently Projected 1971 1970 &#45;&#45;&#45; Wkly Path, Indicated at FOMC Meetmg(4/6/71) F M A '71 -Z- M J Longer Run Path 5/7/71 CHART 2 INTEREST BEARING SOURCES OF BANK FUNDS BILLIONS OF DOLLARS <250 230 C- - TOTAL TIME AND 210 - 190 TIME AND SAVINGS DEPOSITS OTHER THAN CD'S 130 NONDEPOSIT SOURCES 10 1969 1970 1971 CHART 3 MONEY MARKET CONDITIONS AND INTEREST RATES MONEY MARKET CONDITIONS 1969 1970 INTEREST RATES Short-term 1971 INTEREST RATES Long-term Table 1 STRICTLY CONFIDENTIAL (FR) PATHS OF KEY MONETARY AGGREGATES Period 1 Narrow Money Supply (M 1 ) 1/ Broad Money Supply (M 2 ) Path as of Path as of 2 Actuals & Actuals & Current Proj April 6 Current Prol April 6 4 g/ May 7, 1971 Adjusted Credit Proxy 5 Path as of 6 April 6 Total Reserves Actuals & Path as of Current Proj April 6 8 Actuals & Current Proj Monthly Pattern in Billions of Dollars 1971: I I 442.3 441.8 445.5 221.4 (223.0) 220.5 221.9 Apr. May I (445.7) 30.2 30.5 30.7 334.1 337.7 340.2 423.0 430.8 437.6 214.8 217.3 219.4 Jan Feb. Mar. 343.3 343.8 30.8 31.2 341.8 (341.8) 30.8 (31.3) I Annual Percentage Rates of Change--Quarterly and Monthly 1st 2nd 3rd 4th 1971: 1st Qtr. 2nd Qtr. 1971: 6.0 8.9 (9.0) Jan. Feb. Mar. 1.1 14.0 11.6 Apr. May 10.9 ( 8.5) 8.0 7.5 10.0 17.8 (10.0) 10.9 (4.1) 6.0 11.5 22.1 18.9 12.9 12.5 10.0 (9.0) 440.4 434.6 435.3 436.3 438.7 441.5 -2.9 2.6 19.1 6.6 0.5 6.5 17.2 8.3 3.4 8.4 11.0 9.2 5.9 5.8 6.1 3.4 Qtr. Qtr. Qtr. Qtr. 1970: 11.0 3.5 10.5 12.9 8.9 (5.0) 12.2 11.4 2.5 14.0 9.2 1.8 (18.5) 340.2 339.6 340.4 340.5 338.9 340.4 31.0 30.7 30.5 31.0 30.6 30. 9 341.6 343.0 342.7 340.2 30.6 30.6 31.0 30.9 30.5 30.5 30.9 30.9 31.2 31.3 31.4 (31.0) 5.6 11.5 1.5 (-- ) Weekly Pattern in Billions of Dollars 1971: Mar. Apr. May NOTES: 3 10 17 24 31 220.5 218.5 218.4 218.6 219.5 221. 1 7 14 21 28 220.6 221.5 219.4 220.8 223.1 222.6 220.3 219.6 441.0 442.5 441.1 443.0 443.6 441.2 441.2 342.4 343.3 343.7 343.6 5 pe 12 220.6 221.3 221.2 (222.1) 443.6 444.5 443.6 444.5) 343.3 343.5 Annual rates of change other than those for the past Data shown in parenthesis are current projections. Currency plus private demand deposits. 1/ M1 plus time deposits other than large CD's. 2/ pe - Partially estimated. 443.3 ____________ are rounded to the nearest half per cent. 342.3 (343.0) I FR712-D Rev 2/16/71 STRICTLY CON FIDENTIAL (FR) Table 1-A PATHS OF KEY MONETARY AGGREGATES May 7, 1971 Monthly Pattern in Billions of Dollars 1971: Jan. Feb. Mar. 6.7 6.2 4.8 Apr. May 5.2 4.0 5.4 (3.0) 235.3 240.9 246.1 249.4 252.3 248.3 (250.5) 221.3 223.6 208.2 213.5 218.3 27.1 27.4 27.8 221.0 (222.7) 27.4 (27.8) 10.1 8.6 7.0 5.1 6.1 5.6 (4.5) 6.6 8.0 7.5 7.0 6.6 6.6 Annual Percentage Rates of Change--Quarterly and Monthly 1970- 1st 2nd 3rd 4th ( ( I ( 1971: 1st ( 2nd ( 1.4 14.1 32.2 21.8 27.3 14.0 (10.0) 14.0 16.5 14.0 Apr. May 10.7 (10.5) 27.2 (11.0) 22.3 30.5 27.0 25.5 28.6 25.9 Jan. Feb. Mar. 1971: 0.9 11.3 16.5 15.4 17.5 12.5 14.8 (9.0) 27.7 27.8 28.5 27.9 27.3 Weekly Pattern in Billions of Dollars 1971: Mar. 3 10 17 24 31 5.0 5.9 6.3 3.5 2.6 247.6 243.7 244.7 246.2 247.1 247.7 219.9 216.1 216.9 217.8 219.2 220.4 Apr. 7 14 21 28 3.3 5.3 7.8 5.4 248.1 248.9 249.7 250.4 247.9 248.1 247.9 249.0 220.3 221.0 221.7 222.2 220.5 220.6 220. 9 221. 6 27.4 27.5 27.0 27.4 6.4 5.9 5.8 5.9 5.1 4.8 4.6 5 12 4.8 (5.2) 251.4 251.7 250.1 (250.2) 223.0 223.2 222.3 (222.4) 27.7 (27.8) 5.8 5.8 4.5 (4.5) May _ NOTES: Annual rates of change other than those for the past Data shown in parenthesis are current projections. pe - Partially estimated. are rounded to the nearest half per cent. 6.6 FR 712-K Rev2/16/71 Table 2 CONFIDENTIAL (FR) May 7, AGGREGATE RESERVES AND MONETARY VARIABLES 1971 RETROSPECTIVE CHANGES, SEASONALLY ADJUSTED _ _(Annual 1 Period rates in percent) Reserve Aggregatesi 2 3 Total Member Nonborrowed Total Nonborrowed Member Reserves Reserves Bank Monetary Variables MoneySupply 4 Adusted Adusted Credit Proxy Total Deposits Annually 1968 1969 1970 + 7.8 - 1.6 + 6.4 + 6.0 - 3.0 + 9.5 + 9.0 Semi-annually Ist Half 1969 2nd Half 1969 + 0.7 - 3.9 - 3.7 - 2.4 - 3.5 1st Half 1970 - 0.2 2nd Half 1970 +13.0 + 7.8 - 4.6 n.a. - 1.2 + 1.9 +17.1 + 3.3 + 3.5 +20.0 +12.9 + 0.6 + 6.0 + 0.5 + 6.5 +24.1 +15.1 +17.2 +17.0 +11.8 Private Demand Currency Time Deposits Adjusted Deposits n.a. n.a. + 8.3 - 4.0 8 + 7.4 + 6.0 + 6.3 + 7.9 + 2.4 + 5.1 +11.1 + 5.1 + 1.2 + 6.5 + 4.7 - 3.5 + 5.4 + 0.1 - 6.6 + 5,9 + 4.8 + 7.8 + 4.6 + 5.3 + 4.7 + 7.8 + 8.3 + + + + + + + + +10.9 + 9.0 4- 3.1 + 5.4 9 Addenda 10 Nonbank Thrift Instit. Commercial Deposits Paper + 6.3 + 3.4 + 7.8 n.a. + 7.3 + 5.3 + 1.6 n.a. +28.3 + 4.7 +10.6 +12.8 + 1.7 + 1.4 +14.1 + 2.5 +32.2 + 9.3 + 21.8 +11.5 +17.8 + 7.5 -16.2 +20.4 + 8.9 +27.3 +23.2 -24 + 3.7 + 1.3 +27.4 - 2.5 - 5.0 +18.4 +27.9 n.a. Quarterly 2nd Qtr. 1970 3rd Qtr. 1970 4th Qtr. 1970 + 6.6 - 0.4 + 4.1 +24.4 + 9.4 1st Qtr. 1971 +11.0 +11.0 - 2.9 + 2.6 1st Qtr. 1970 +19.1 6.1 9.4 3.3 5.8 5.3 5.3 6.7 2.7 + 7.0 7 Monthly 1969: Dec. + 6.3 +12.1 1970: Jan. + 3.1 Feb. Mar. -12.0 + 7.2 -15.6 + 7.5 Apr. +21.3 May -13.9 June + 0.5 July Aug. + 6.0 +23.3 +27.5 Sept. 1971: Oct. Nov. Dec. - 1.9 + 3.6 Jan. Feb. +12.2 +11.4 Mar. + 9.2 n.a. NOTE: +18.4 -- J.......,. I not available. + 0.8 + 0.6 + 2.6 + 0.8 - 4.2 -8.0 -3.5 - 5.5 + 9.4 + 9.9 - 6.8 + 3.1 + 6.7 +12.6 +26.2 +13.8 +34.4 +18.9 -30.0 +14.0 +10.7 +12.3 + 5.2 + 5.2 + 7.8 +12.9 + 1.2 +11.2 +25.4 -19.0 + 6.2 +16.8 +13.7 + 9.9 +10.3 +10.5 +19.7 - 4.5 - 1.2 + 7.0 + 5.2 +15.3 +10.9 + 2.3 + 2.5 + 3.0 + 2.2 +11.4 + 8.1 + 5.3 + 7.3 -16.1 +48.8 +40.1 +22.7 +29.2 +19.0 +18.1 +23.2 + 5.7 + 6.8 + 5.7 + 7.5 + 2.5 + 4.4 + 8.9 +35.6 +11.9 -87.5 +28.8 + 5.9 - 7.2 + 6.6 +29.8 +10.0 +49.6 + 1.1 + 7.0 + 1.1 + 2.8 + 6.2 + 7.5 - 0.7 +32.4 + 4.9 + 4.9 + 2.2 +20.3 +15.1 +10.6 + 4.4 +22.8 +10.1 +13.1 +21.4 + 9.4 -28.7 + 6.6 +28.8 +14.2 +58.1 +16.1 +10.5 +12.9 + +25.5 +24.9 - 9.0 + 8.9 +11.6 +16.0 +12.2 +28.6 +25.9 +18.5 +24.8 -10.9 +14.9 + 7.4 + 9.8 +9.7 - 1.4 +19.3 + 5.8 + 8.8 +15.1 + 8.8 L + 9.7 +16.5 - 4.1 1.1 +14,0 - 8.0 -55.2 aa. m ~fl r Aggregate reserve series have been adjusted to eliminate changes in percentage reserve requirements against deposits, but reserve requirements rrii -' on Eurodollar borrowings are included beginning October 16, 1969, and requirements on bank-related commercial paper are included beginning October 1, 1970. Table 3 CONFIDENTIAL (FR) AGGREGATE RESERVES AND MONETARY VARIABLES May 7, 1971 SEASONALLY ADJUSTED (In billions of dollars) (In millions of dollars) 1969: Oct. Nov. Dec. 27,354 27,783 27,928 26,210 26,538 26,806 27,129 27,548 27,707 283.5 285.8 285.8 203.2 203.5 203.6 45.6 45.9 46.0 157.6 157.6 157.7 194.2 194.0 194.6 11.5 11.1 11.2 182.6 182.9 183.4 302.2 305.5 305.7 28.0 28.4 29.1 1970: Jan. Feb. March 28,001 27,722 27,723 26,966 26,615 26,782 27,823 27,523 27,536 284.8 282.9 286.2 205.2 204.5 206.6 46.2 46.4 46.7 159.0 158.1 159.8 193.3 193.5 195.3 10.6 10.6 11.5 182.7 182.9 183.8 304.8 303.4 306.1 29.4 30.0 30.4 April May June 28,216 27,890 27,902 27,350 26,916 27,056 28,046 27,692 27,713 290.2 289.1 290.5 208.3 209.2 209.6 47.1 47.7 47.8 161.2 161.6 161.9 198.5 200.3 202.2 12.9 13.2 13.2 185.6 187.1 189.0 309.6 309.3 311.1 31.2 31.7 30.9 July Aug. Sept. 28,041 28,585 29,240 26,694 27,780 28,708 27,896 28,408 29,024 296.0 303.2 308.0 210.6 211.8 212.8 48.1 48.2 48.2 162.5 163.7 164.6 208.2 213.2 218.5 16.9 19.0 21.7 191.3 194.2 196.8 315.8 321.9 324.5 28.7 28.5 29.7 Oct. Nov. Dec. 29,385 29,474 29,925 28,928 29,033 29,584 29,134 29,233 29,703 310.6 314.0 319.6 213.0 213.5 214.6 48.5 48.7 48.9 164.5 164.8 165.7 222.2 23.2 225.0 23.9 230.4 26.0 199.1 201.1 204.4 324.8 326.7 331.2 30.5 29.7 31.2 Jan. Feb. March 30,229 30,515 30,748 29,801 30,176 30,398 30,029 30,255 30,534 323.9 329.1 333.2 214.8 217.3 219.4 49.2 49.6 50.0 165.5 167.7 169.4 235.3 240.9 246.1 27.1 208.2 213.5 218.3 334.1 337.7 340.2 31.0 30.7 29.3 30,252 30.068 30,661 30,237 30,689 30,335 30,427 30,681 30,564 30,550 331.6 332.9 17 24 31 30,655 30,539 30,991 30,557 30,946 332.3 333.7 218.5 218.4 218.6 219.5 221.1 168.7 168.5 168.5 169.4 171.0 243.7 244.7 246.2 247.1 247.7 216.1 216.9 217.8 219.2 220.4 339.6 340.4 340.5 338.9 340.4 30.9 31.2 31.1 31.1 29.5 7 14 21 p 28 p 30,508 30,534 30,888 30,934 30,311 36,413 30,749 30,857 30,246 30,406 30,677 30,977 335.7 337.9 337.9 335.6 223.1 222.6 220.3 219.6 172.7 172.1 169.8 169.1 247.9 248.1 247.9 249.0 220.5 220.6 220.9 221.6 341.6 29.8 29.7 30.2 30.0 1971: 1971: March 3 10 April NOTES. 333.5 27.4 27.8 343.6 342.7 340.2 Aggregate reserve series have been adjusted to eliminate changes in percentage reserve requirements against deposits, but reserve requirements on Euro-dollar borrowings are included beginning October 16, 1969, and requirements on bank-related commercial paper are included beginning October 1, 1970. Adjusted credit proxy includes mainly total member bank deposits subject to reserve requirements, bank-related commercial paper, and Eurodollar borrowings of U.S. banks. Weekly data are daily averages for statement weeks. Monthly data are daily averages except for nonbank commercial paper figures which are for last day of month. FR 712 - F Table 4 MARGINAL RESERVE MEASURES (Dollar amounts in millions, based on period averages of daily figures) Member Period Free reserves Excess reserves Banks Re s e r v e Major banks Total ' 8 N.Y. Borrowings C 1 t Other Outside N.Y. Monthly (reser'ves weeks ending in): .5, , ', 02 89 81 83 106 120 268 364 256 222 293 250 220 S 84 928 1,126 880 865 924 907 1,317 881 609 467 409 348 148 106 90 227 165 140 218 143 101 12 42 36 232 289 287 119 228 217 348 273 274 313 294 265 140 - 71 120 378 335 312 45 29 41 262 248 238 24 152 15 120 105 163 166 - 360 423 445 330 436 11 69 311 282 295 287 38 -154 -279 455 290 399 325 270 86 407 277 472 354 71 - 997 744 995 975 849 1970--January February March April May June July August September October November December - 759 916 751 687 765 736 1971--January February March - ,' September October , November December w 1,311 1,211 1,026 1,190 1,213 1,127 -1,045 1969--July August 0- -1,134 - 706 - 374 274 - 199 April p 1970--Nov. Dec. 1971--Jan. Feb. Mar. *pr. May 4 11 18 25 2 9 16 23 30 - - 6 13 20 27 3 10 17 24 3 10 17 24 31 7 14 21 p 28 p 5 p p - Preliminary. 114 164 138 -245 - 380 - 72 S - - 46 42 264 67 - 88 339 25 - 265 119 283 247 561 250 258 421 290 333 257 86 300 263 268 250 245 55 39 82 26 114 108 46 52 zu 121 1 51 250 249 284 266 253 229 280 228 241 249 231 251 217 S 95 197 150 85 177 42 184 127 79 91 202 175 45 66 80 58 51 17 Country Table 5 SOURCE OF FEDERAL RESERVE CREDIT Retrospective Changes (Dollar amounts in millions of dollars, based on weekly averages of daily figures) Total Federal Reserve credit i float) (Excl. Period Year: 1969 (12/25/68 - 12/31/69) 1970 (12/31/69 - 12/30/70) 1970--Nov. Dec Apr. May 1/ Bills l/ . Other +4,279 ( -+3,220 (- 143) 4 11 18 25 + 692 + + - 48 671 141 610 75 + 711 - 93 + + + 241 94 509 273 ( -) (- 214) (+ 214) (- 150) 2 9 16 23 + + - 986 303 697 122 143 + + 853 145 586 - 35 3 + + + - 475 82 328 134 95 (+ ((+ ( (- 150) 244) 244) ) 143) + 41 + 114 + 938 534 64 204 + - 722 308 153 81 + + - 428 19 236 5 (+ 97) (+ 46) (- 159) (+ 85) + 109 + - + 8 236 +1,523 928 61 + 171 +1,082 - 518 + - 26 61 333 218 (+ 74) (- 412) (+ 412) (- 367) + 106 + 209 + + + + 120 407 64 60 5 (+ 367) (- 204) (+ 204) (- 107) (+ 107) + 207 + 97 + 68 + 62 + 153 6 13 3 10 17 24 Mar. | +5,192 +4,276 20 27 Feb. Government securities +5,539 +3,351 30 1971--Jan. U.S. Total holdings - 3 + 279 10 17 24 31 - 275 + - + 761 + 736 + 516 502 + 432 530 7 14 21 p 28 p + - 155 255 349 54 145 86 423 43 + + + + - + + + 128 (+ 12) 360 (+ 70) 30 (-) 5 p + 771 + 712 + 384 ( Figures in parenthesis reflect reserve effect 286 414 4 (- 82) - ) of match sale-purchase agreement. + 707 +1,180 + 134 + 152 + 137 + 124 + 84 + 113 Repurchase agreements + - 206 124 Federal Agency Securities + - 67 63 + 63 6 + 62 - 107 + + 73 30 24 - 7 64 + + 51 59 13 + + - 6 16 85 68 + + 9 7 90 90 36 + - 47 68 11 7 + 50 Bankers' acceptances + - 35 28 Member banks borrwrngs + 243 - 834 Table 6 MAJORSOURCES AND USES OF RESERVES Retrospective and Prospective Changes (Dollar amounts in millions, based on weekly averages of daily figures) F a c t o r s affect Federal Reserve Currency Gold (excl. redct (excl. outside stcredit ock banks 1/ float) Si g n i n Period Year 1969 (12/25/68 1970 (12/31/69 - 1970--Nov. Dec 7 19 1--Jan Feb Mar. Apr. May 12/31/69 12/30/70 +5,539 +3,351 ,150- ng upp 1 y Float operaions oand oper Sc a t es -- e ffect S -2,676 -3,122 - 813 + 773 + 46 -353 545 + 146 + 81 + 88 + 153 + + of r e s e r v es Foreign Other nonmember deposits and deposits F.R. accounts gold loans acut on serves) = Change in total reserves rsre = Bank use of reserves es Required Resure rserves erves rExcess erv +1,340 +1,257 + 108 I.n + + 54 1 - 898 -1,655 382 482 210 275 + + 24 1 17 18 - 271 - 86 + 16 - 397 + + + - 78 109 156 302 + 127 36 + 241 + 667 +1,448 +1,163 4 11 18 25 + + - 692 48 671 141 2 9 16 23 30 + + - 986 303 697 122 143 + 34 + 103 - 107 + 1 - 376 - 349 + 174 85 + 873 + 843 + + - 5 8 3 8 19 - 187 39 + 75 + 206 24 + 161 124 336 169 322 + 341 - 281 16 + 91 + 223 6 13 20 27 + + - 938 534 64 204 + 188 + - 250 673 191 889 + - 8 4 - 50 + 305 26 34 + 657 + 144 + 727 -1,047 + 111 - 513 + 60 + 190 3 10 17 24 + 8 236 +1,523 - 928 - 402 + 542 - 533 + 844 + 16 4 - - 10 2 168 167 350 306 + + - 130 7 + 97 - 515 + 45 32 92 20 3 10 17 24 31 + + + 279 275 761 516 506 + + - 752 185 357 304 371 + + + - 17 2 5 20 41 - 40 37 + 280 + 85 - 9 - 227 50 368 276 150 + + 147 88 183 197 308 7 14 21 28 + + + 12S 255 349 54 - 243 + 249 - 131 - 384 + 295 + 241 + 336 30 + + + 14 14 21 1 - 173 + 217 + 187 23 + + 171 24 434 263 - 99 69 72 54 5 + 771 + 307 - 503 - 14 - + 307 + 295 - 1/ For retrospective details, see Table 5. Includes $400 million in special drawing account. 2/ p - Preliminary. - 63 + 108 - 275 289 - 256 + - 50 + 418 - 99 - 105 + 508 - 186 60 - 72 + + + + - + - + + + - 118 - 88 

Federal Reserve (1971, May 10). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19710511

@misc{wtfs_bluebook_19710511,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1971},
  month = {May},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19710511},
  note = {Retrieved via When the Fed Speaks corpus}
}