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 this document may contain occasional gaps in the text. These gaps are the result of a redaction process that removed information obtained on a confidential basis. 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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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. Strictly Confidential (FR) Class I FOMC February 1, 1980 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System STRICTLY CONFIDENTIAL (FR) CLASS I - FOMC February 1, 1980 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) M-1 expanded at about a 1½ percent annual rate in January, well below the lower end of the range of growth targeted by the FOMC for the December to March period. Currency growth rebounded sharply in January, but outstanding demand deposits declined slightly. Reflecting the weak advance of M-1, M-2 increased at only about a 5¼ percent annual rate in January, also well under the December to March growth rate targeted by the FOMC. Deposit growth at thrift institutions dropped off a bit in January, and M-3 increased at only about a 4½ percent annual rate. September to December January December to March Targeted M-1 3.1 1.6 4 to 5 M-2 6.8 5.2 M-3 6.1 4.6 M-1A 4.4 4.8 M-1B 4.7 5.9 M-2 6.5 8.3 M-3 7.8 8.4 Monetary aggregates Old Definitions-1/ 2/ New Definitions- 1/ Based on old seasonal adjustment factors. 2/ Based on revised seasonal adjustment factors. 7 -- -2(2) As can be seen in the lower panel of the table on the previous page, M-1A is estimated to have increased at an annual rate of about 4¾ percent in January, considerably more rapidly than old M-1. This difference is attributable in part to the use of revised seasonal adjustment factors in the calculation of the new measures,1/ and in part to the exclusion of deposits due to foreign commercial banks and official institutions from M-1A (these deposits declined in January). (3) Seasonally adjusted annual growth rates in the family of reserve measures that originally appeared consistent with monetary targets adopted by the FOMC at the January meeting are shown below for the December to March period and for the month of January, along with actual results for As may be seen, growth in nonborrowed reserves--while rapid-- last month. was considerably less than targeted. Banks' demand for borrowing turned Actual Targeted growth rates January December to March January Nonborrowed reserves 6.7 18.4 10.6 Total reserves 2.1 3.8 4.0 Monetary base 8.1 10.8 9.8 out to be much larger than the $1 billion initially assumed following the January Committee meeting, and borrowing averaged $1.4 billion during the three statement weeks ending January 30. As a result, the decline in borrowing from December to January was less than anticipated. total reserves and the monetary base was about on target. Growth in In late January and early February, though, total reserves have tended to fall below target, 1/ The revised seasonals are estimated to have raised January growth of M-1A by about one percentage point. Impacts of the seasonal revision on growth rates for other months are shown in appendix I. despite a higher than anticipated level of excess reserves, reflecting in part a weakening in required reserves (as a result of deposit weakness two weeks earlier) and in part misses in projections of market factors affecting reserves. Comparisons of reserve paths (seasonally unadjusted) for the four-week interval covering the weeks ending January 16 to February 6 with actual developments are shown in appendices IIA and IIB. (4) The federal funds rate has drifted downward since the previous Committee meeting, from a weekly average of 13.94 percent in the week of January 9 to an average of 13.55 percent in the most recent complete statement week. On the other hand, with the Treasury continuing to issue large amounts of bills for cash, Treasury bill rates advanced about ¼ to percentage point since the last Committee meeting. Private short-term rates were unchanged to a bit lower in the 3-month area, but rose 20 to 25 basis points in the 6-month area as market expectations of future declines in interest rates weakened. (5) In longer-term markets, yields on corporate and Treasury bonds remained under upward pressure throughout January--after having increased in December--and are presently about ¾ to 1 percentage point above levels prevailing at the time of the January FOMC meeting. Inflationary expectations have apparently intensified in response to international tensions and the prospects of stronger defense spending. The residential mortgage market remained quite tight in January, although there are a few indications of easing from the exceptionally taut conditions in the latter part of the fourth quarter. For example, reports from some sectors of the country indicate that thrift institutions have liberalized commitment policies. (6) Foreign exchange markets have been quiet since the last Committee meeting, and the dollar has been generally firm. The weighted- average exchange value of the dollar rose a bit over 1 percent, reflecting advances against all major currencies other than sterling and the Canadian dollar. . However, U.S. authorities purchased more than $400 million of DM and used these funds to repay swap drawings. (7) The table on the next page shows seasonally adjusted annual rates of change, in percent, for selected monetary and financial flows over various time periods. Past Six Past Three Months Months Jan. '80 over July '79 Jan. '80 over Oct. '79 Nonborrowed reserves 10.8 16.3 Total reserves 10.8 8.3 4.1 Monetary base 10.2 7.9 9.8 n.a. n.a. n.a. 1977-1 , 1978-1/ 1979-1 Past Month Jan. '80 over Dec. '79 10.6 Redefined Concepts of Money M-1A (Currency plus demand deposits 3/) 7.7 7.1 M-1B (M-1A plus other checkable deposits) 8.1 8.2 M-2 (M-1B plus small time and savings deposits, money market mutual fund shares and overnight RP's and Euro-dollars) 10.9 8.2 M-3 (M-2 plus large time deposits and term RP's) 12.3 11.1 10.9 13.6 Bank Credit Loans and investment of all commercial banks 3/ 11.4 Managed Liabilities of Banks (Monthly average change in billions) Large CD's Eurodollars 41 Other borrowings- 0.9 -0.2 1.0 -0.2 1.9 0.8 1.85/ 0.5 0.05/ o.5 -. 0.0 / 1.4 -2.0 1.0 -2. -6.3 -1.0 n.a. n.a. Memo Nonbank commercial paper n.a. 1/ December to December 2/ Other than interbank and U.S. Government. 3/ Includes loans sold to affiliates and branches. 4/ Primarily federal funds purchases and securities sold under agreements to repurchase. / Latest month December 1979. 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 derived from either end-of-month or Wednesday statement date figures. Growth rates for reserve measures in this and subsequent tables are adjusted to remove the effect of discontinuities from breaks in the series when reserve requirements are changed. 2 / Proposed targets for the year 1980 (8) At the Committee's preliminary discussion in January of targets for the monetary aggregates for the year 1980 (QIV '79 to QIV '80), preferences generally appeared to be encompassed by a narrow range of 4½ to 5½ percent growth for M-1A. Against that background, the three alternative 1980 targets shown below for Committee decision at the February meeting are indexed by M-1A growth rates in ranges centering on 5½ percent (alt. I), 5 percent (alt. II), and 4½ percent (alt. III).1/ Alt. I Alt. II Alt. III M-1A 4 to 7 3½ to 6½ 3 to 6 M-1B 4½ to 7½ 4 to 7 3½ to 6½ 8.0 M-2 6½ to 9½ 6 to 9 5½ to 8½ 8.8 M-3 7 to 10 6½ to 9½ 6 to 9 9.5 Bank Credit 6½ to 9½ 6 to 9 5½ to 8½ (9) The table on p. 7 Growth in 1979 5.5 (6.8)2/ 12.2 shows (in the first line of each panel) key economic variables from the GNP projection in the green book, along with expected changes in income velocity of M-1A and in the federal funds rate, for 1980 and 1981. This projection assumes growth in M-1A at the 5 percent mid-point of the alternative II range. As may be seen, a modest decline in the federal funds rate is expected in the course of 1980, while the velocity of M-1A is projected to increase by about 2 percent. Such an increase, while below the long-run trend, is still more rapid than has generally occurred in past periods of declining interest rates and weakening economic activity. 1/ 2/ Thus, the basic projection assumes For comparative purposes, and in final farewell to the old money measures, the mid-point growth rates for Alt. II are reconciled with prospective growth in the old definitions for 1980 in appendix III. Number in parenthesis represents rate of increase after adding back the amount of demand deposits estimated to have shifted to ATS and New York State NOW accounts. Economic Projections for 5% M-1A Growth Under Alternative Fiscal Assumptions 1980 1981 Nominal GNP (% Change, Q4/Q4) Greenbook 7.0 High Defense 8.0 Tax Cut 7.5 9.5 -2.2 -1.4 -1.7 0.6 1.0 1.7 Greenbook High Defense 9.3 9.5 8.4 9.0 Tax Cut 9.3 7.9 Greenbook High Defense 7.7 7.3 8.7 8.3 Tax Cut 7.6 8.0 2.0 3.0 2.5 4.0 5.0 4.5 Greenbook 12¾ 13 High Defense Tax Cut 13½ 13 14¼ 13¾ 9.0 10.0 Real GNP (% Change, Q4/Q4) Greenbook High Defense Tax Cut Implicit GNP Deflator (% Change, Q4/Q4) Unemployment Rate (%, Q4 Level) M-1A Velocity (% Change, Q4/Q4) Greenbook High Defense Tax Cut Federal funds rate (%, Q4 Level) NOTE: The High Defense projection assumes that defense purchases (NIA basis) exceed those reflected in the greenbook projection by $10 billion in 1980 and $20 billion in 1981. The Tax Cut projection assumes a $10 billion cut in personal taxes in mid-1980; $10 billion cut in corporate taxes in mid-1980; and a $13 billion cut in social security taxes at the beginning of 1981, through rollbacks of scheduled rate and base increases. a greater than usual desire on the part of the public to economize on cash-an assumption that seems reasonable in the current environment of strong inflationary expectations, high nominal interest rates, and growing public awareness of alternatives to cash. (10) in economic The table on the preceding page does not show differences projections resulting from ½ point changes in assumptions about M-1A growth. These differences would be small--e.g. about ¼ percentage point in the price level and just a shade more on the unemployment rate by the end of 1981--and well within our range of projection error. The table does show, however, impacts of alternative fiscal policies, given growth in M-A of around 5 percent. lines of each panel These are summarized in the second and third and will be described in the chart show at the February meeting. (11) All of the alternative monetary growth rates for 1980 would involve a slowing from rates of growth in 1979. measured growth in 1979 was 5 In the case of M-1A percent, but after adding back the estimated amount of outstanding demand deposits transferred into ATS and New York State NOW accounts, growth of M-1A in an economic sense was probably around 6¾ percent last year. Thus, as compared with the latter figure, even the mid-point of the proposed M-1A range for alternative I (the easiest alternative proposed) would involve a substantial decline in growth over the year ahead, though the upper end of that range would be above last year's growth. (12) In this context, it should be noted that the proposed targets assume that further shifts out of existing demand deposits into ATS accounts and New York State NOW accounts will be negligible. Toward the end of last year, such shifts appear to have faded to around .2 of a percentage point (at an annual rate) per month. However, to the extent that significant shifts do tend to occur this year, any growth rate for M-1A adopted by the Committee would be less restraining than would otherwise be the case.1 / The most likely occasion for large-scale shifts out of existing demand deposits into interest-bearing transactions accounts in the year ahead would be early enactment of legislation authorizing nationwide NOW accounts. In that case, M-1A growth would tend to decline as demand deposits around the country shifted into NOW accounts, and M-1B growth would accelerate as savings deposits (not included in M-1B) also shifted into NOW accounts. In developing alternatives for the Committee, we have not assumed nationwide NOW accounts. (13) M-2 targets for 1980 assume the continued rapid expansion of money market mutual funds and money market certificates and also that the new 2 -year floating ceiling certificate captures some funds that would otherwise have been lodged in instruments not included in the aggregate. M-3 is projected to grow only slightly more rapidly than M-2 in 1980, mainly because moderating credit demands are expected to hold down issuance of large time deposits at banks and thrift institutions. Shorter-run targets (14) Shown below are three alternative targets for the monetary aggregates over the December to March period, with suggested continuations through the second quarter. Also shown are proposed intermeeting federal funds rate ranges and implied growth rates for the aggregates in the twomonth January to March period that are consistent with the basic three-month 1/ Any shifts from demand to ATS or other checkable deposits would, of course, be captured in M-1B. -10- December to March objective. Alternative B is indexed by growth in M-A of 4½ percent from December to March, and, for all practical purposes, can be considered to be equivalent to the 4½ percent M-1 target for that period adopted at the last meeting. (Similar data for M-3 are shown, along with more detailed information on all the aggregates, in the tables on pp. 11 and 12.) Alt. A Alt. B Alt. C M-1A Dec./Mar. Mar./June 5 6 4½ 5½ 4 4½ M-1B Dec./Mar. Mar./June 5½ 6½ 5¼ 6 4¾ 5 M-2 Dec./Mar. Mar./June 6¾ 7¼ 6½ 7 6¼ 6¾ Intermeeting federal funds rate range 11 to 15½ 11½ to 15½ 11½ to 16 Memo: Implied growth Jan./Mar. M-A 5 4¼ 3½ M-1B 5½ 4¾ 4¼ M-2 6 5¾ 5¼ (15) If the Committee chose to continue the policy adopted at the previous meeting with respect to M-1, it would imply growth in M-1A from January (as a base) to the end of the quarter of about 4¼ percent at an annual rate--given the 4¾ percent annual rate of growth of M-1A in January (which incorporates revised seasonal factors). The staff expects that a consistent growth in M-1B and M-2 would be 5¼ and 6½ percent, respectively, over the first quarter as a whole, and 4¾ and 5¾ percent for the remaining two months of the quarter. This assumes: (a) that interest-bearing checkable deposits expand at about the pace of the previous three months; (b) that a substantial outflow of savings deposits -11- Alternative Levels and Growth Rates for Key Monetary Aggregates M-1A 1979 1980 M-1B Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 371.5 373.0 374.6 376.1 371.5 373.0 374.4 375.7 371.5 373.0 374.2 375.3 387.7 389.6 391.4 393.1 387.7 389.6 391.2 392.7 387.7 389.6 391.0 392.3 4.8 5.1 4.8 4.8 4.5 4.2 4.8 3.9 3.5 5.9 5.5 5.2 5.9 4.9 4.6 5.9 4.3 4.0 5.0 6.0 4.5 5.5 4.0 4.5 5.6 6.4 5.2 5.9 4.7 4.9 QI QII 5 4% 5 44 5 4k 6 54 5i 5 5% 4t QIII QIV 4% 4% 5 5 5k 5 5 5 5% 5% 5% 5% 5 5 5 December January February March Growth Rates Monthly 1980 January February March Dec. '79-Mar. '80 Mar. '80-Jan. '80 Quarterly Average 1980 Annual 1979 QIV to 1980 QIV -12- Alternative Levels and Growth Rates for Key Monetary Aggregates (cont'd) M-3 M-2 1979 1980 December January February March Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 1523.9 1534.4 1540.7 1549.8 1523.9 1534.4 1540.4 1549.2 1523.9 1534.4 1539.8 1548.0 1772.1 1784.5 1795.0 1806.4 1772.1 1784.5 1794.2 1804.8 1772.1 1784.5 1793.7 1803.8 8.3 4.9 7.1 8.3 4.7 6.9 8.3 4.2 6.4 8.4 7.1 7.6 8.4 6.5 7.1 8.4 6.2 6.8 6.8 7.3 6.6 7.1 6.3 6.8 7.7 9.0 7.4 8.8 7.2 8.5 7 7 7k 8h 7 6 7% 8% 6% 6% 7% 8 7k 8k 7% 7% 7% 8% 8 7% 7k 8 8k 8 8 8 8 Growth Rates Monthly 1980 January February March Dec. '79-Mar. '80 Mar. '80-June '80 Quarterly Average 1980 QI QII QIII QIV Annual 1979 QIV to 1980 QIV -13continues at banks and thrift institutions; (c) that growth in small time deposits speeds up from the pace of recent weeks; and (d) that growth in money market funds slows from the very rapid rate of January, reverting to the pace of late last year. The monetary base might be expected to grow at an annual rate of 5¾ from January to March, but total reserves may show little change (assuming some decline in excess reserves and relatively little expansion in member bank deposits). (16) Given a GNP projection in which the economy is not as weak as earlier anticipated, alternative B may be accompanied by little change in the funds rate over the next few weeks. Under such circumstances, there may be little if any reduction in the demand for borrowing under alternative B from around the $1¼ billion average level of January. On that assumption, nonborrowed reserves, like total reserves, would change little from January to March. (17) The easing of money and credit demands in the second quarter, when the economy is projected to weaken more substantially than in the first, enhances the probability of some decline of interest rates at that time, particularly if the Committee were to opt for the slight acceleration in M-1A growth over the March to June period to the 5½ percent annual rate proposed in alternative B. Such growth would bring M-1A by June to around the mid-point of a 3½ to 6½ percent target band for 1980. The charts on the next two pages show actual growth rates in all of the monetary aggregates through January, and projected growth rates based on the proposed short-run alternatives, in relation to longer-run targets for Chart 1 Actual and Targeted M-1A and M-1B M-1A Billions of dollars 400 SLonger-Run Range **** Short-Run Alternatives - 395 - 390 - 385 - 380 - 375 - 370 - 365 * 6%% * 3%% L I I O I N D i J I M F I I I I I I I I I M A I I I I i J A I I I S 1 I O /360 D N 1980 1979 Billions of cotlars V-1 B 420 Longer-Run Range ..... Short-Run Alternatives 415 7% 410 405 A 4% 400 tilll 395 390 385 -- - - * II I O - N 1979 I I I F M i { A M J l~ J 1980 380 375 A S O N D Chart 2 CONFIDENTIAL (FA) Clau "- FOMC Actual and Targeted M-2 and M-3 M-2 - Billions of dollars - 1680 Longer-Run Range *** Short-Run Alternatives - 1660 - 1640 - 1620 -- 1600 - 1580 9% 6% .ool _0 - 1560 1540 1520 - 1500 I , S N O I J 1 I I F M I A I M I 1979 I I I J J A I S S 0 1980 M-3 *** 1430 I N 0 Billions of dollars 1930 9%% Longer-Run Range Short-Run Alternatives 1 - 1910 - 1890 S%% 1870 S-- - 1850 . 1830 '.> / - 1 1790 *" / - 1770 SI O 1750 I 1[ N O J F M A M 1979 *Note: A.B. and C altnative are indistingushble on tfhe J 1980 ascls. I J A I S I O 1730 I N D 1980. These longer-run targets are taken for these purposes to be those of longer-run alternative II.1/ (18) Unusually large personal income tax refunds projected to begin late this winter may pose a special problem for setting monetary targets over the next few months. 2/ In the past, these refunds have often added temporarily to growth in monetary aggregates, and to the volatility of transactions balances. Impacts are quite uncertain, however, depending on how quickly returns are filed and processed and also on the nature of the public's response to receipt of the funds. If the flow of refunds turns out as projected, it is possible that growth of M-1A in the months from February to April could be 1 to 3 percentage points higher, with offsetting effects in the ensuing three months. But given the uncertainty of impacts on the aggregates, no special adjustment was made to the money supply objectives presented in this blue book. However, in framing its policy and in guiding the Manager, the Committee may wish to recognize that M-1A and other aggregates might tend to expand more than targeted over the next few months because of a transitory factor whose impact cannot be readily quantified in advance. (19) Alternative A would call for a more rapid increase in money targets for the current and next quarter, implying a step-up in M-1A growth from January to March to about a 5½ percent rate, with more rapid expansion in the second quarter. The monetary base and total reserves over the next two months might be expected to grow at annual rates of 6 and 1 percent 1/ 2/ The longer-run targets are shown in the usual cone shape and also as channels of constant width equal to the dollar range in the fourth quarter of 1980. Such refunds expanded by about $2 billion per year during the previous four years, but are expected to rise by as much as $12 billion more in 1980 as compared with the previous year. -15respectively under such a policy. This somewhat greater reserve supply would tend to be associated with some downward pressure on money market rates, with the federal funds rate possibly declining to the 13 percent area over the next few weeks. With an unchanged discount rate, the lower funds rate might be consistent with member bank borrowing of around $1 billion. about a 2 On that assumption nonborrowed reserves would expand at percent annual rate over the last two months of the current quarter. (20) The more rapid rate of growth in money of alternative A would, as shown in the charts following page 13, cause aggregates growth to rise by March to levels above the mid-point paths of alternative II; by June the aggregates would be further above mid-point paths. Thus, if monetary growth over 1980 is to be kept around the mid-point of the alternative II range, reserve supply would have to be more restrained in the second half of the year--with the federal funds rate probably rising at a time when the economy is projected to be weakening even further. (21) Alternative C contemplates a reduction in money targets for the current quarter to a 4 percent annual rate, as indexed by M-1A. This would probably lead to some rise in the funds rate over the next few weeks unless the economy weakens more than projected. Growth of the monetary base would probably be at an annual rate of 5 percent, while total reserves are likely to decline slightly. Initially assuming a level of borrowing of about $1.5 billion, nonborrowed reserves would decline at about a 6 percent annual rate over the January to March period. As shown in the charts, alternative C implies that the money stock will be below mid-point paths in March and further below them in June. Consequently, -16in order to achieve longer-run targets, policy would have to be more expansive in the second half of the year, leading to more substantial downward pressures on short rates at that time than under alternative B. (22) A rise or fall in short-term rates could prompt some sympathetic movement in bond yields, but developments in the bond market are likely to be more influenced by incoming evidence on inflation prospects and by international events. Even if bond yields were to move somewhat higher, mortgage rates would be unlikely to rise significantly, given the already slack demand for residential mortgage loans at current rate levels; a retracing of recent bond rate increases would reinforce the tendency apparent in the mortgage market of late toward some easing of lending terms. (23) Under any of the alternatives, bank credit growth is likely to be stronger over the first quarter than the unusually low 3 percent rate of the final quarter of 1979. Business loan growth appears to have picked up recently at large banks. And over the first quarter as a whole, the external needs for funds by businesses are expected to rise, including the need to finance enlarged tax payments. Thus, banks over the next few months may become more active in issuing managed liabilities than they were in the fourth quarter. -17Directive language (24) Given below are suggested operational paragraphs for the directive consistent with the form of the directive adopted at recent meetings. It calls for expansion of reserve aggregates at a pace consistent with the desired rates of growth in M-1A and M-1B over the first quarter of 1980, provided that the federal funds rate on a weekly average basis remains within a specified range. The specifications adopted at the last meeting are shown in strike-through form. In the short run, the Committee seeks expansion of reserve aggregates consistent with growth over the first quarter of 1980 at an annual rate OF ABOUT ____ and [DEL: on-the-order of 7] ____ [DEL: between 4 and 5] percent for[DEL: M-1]M-1A percent for [DEL: M-2,]M-1B, provided that in the period before the next regular meeting the weekly average federal funds rate remains within a range of [DEL: 11½ to15½] ____ TO ____ percent. If it appears during the period before the next meeting that the constraint on the federal funds rate is inconsistent with the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman who will then decide whether the situation calls for supplementary instructions from the Committee. Appendix I Impact of Seasonal Factor Changes and Redefinition on Growth Rates of Narrow Money Stock Measures (percent annual rate) 1979 Estimated difference due to: Changes in Seasonal Factors Redefinition Old New M-1 M-1A -1.7 11.4 9.6 3.1 0.3 9.5 8.0 4.4 2.0 -1.9 -1.6 1.3 January February March -4.3 -2.7 2.0 -5.1 -0.3 6.5 -0.8 2.4 4.5 April May 18.3 0.7 14.7 -0.3 June 15.1 14.1 -3.6 -1.0 -1.0 -5.5 2.1 -0.5 1.9 -3.1 -0.5 9.7 7.3 6.9 -0.7 0.6 -4.6 -0.9 -1.2 -4.1 0.2 1.8 -0.5 2.0 5.2 6.2 -0.5 3.9 0.8 -0.5 4.3 4.0 0.0 -0.4 -3.2 Quarterly QuarterlyQI QII QIII QIV Difference M-1A less M-1 1.1 -1.3 -2.1 2.6 0.9 -0.6 0.5 -1.3 Monthly July August September October November December - 10.4 6.7 11.5 1980 January 1/ Last month of quarter to last month of quarter. -2.5 1.5 3.8 February 1, 1980 Appendix II-A Comparison of Actual Level of Reserves to Their Path (Millions of dollars, not seasonally adjusted) Average Level January 16 to February 6 1/ (inclusive) Monetary Base Original path Actual Deviation 155,655 155,313 -342 Total Reserves Original path Actual Deviation 45,155 45,071 -84 Nonborrowed Reserves Original Path Actual Deviation 44,155 43,835 -320 Member Bank Borrowings Original path Actual Deviation Excess Reserves Original path Actual Deviation 1,000 1,236 236 250 367 117 1/ Week of February 6 is estimated, of course, and assumes the following: excess reserves of $300 million, borrowing $700 million and nonborrowed reserves of 42,958 million. February 1, 1980 Appendix II-B Deviations in Uses of Total Reserves from Expectations (Millions of dollars, not seasonally adjusted) January 16 to February 6 (inclusive) A. B. C. D. Deviation of total reserves from original path -84 Deviation of excess reserves from original path 117 Deviation of required reserves from original path Member bank required reserves by type: M-1 type deposits1/ Time and savings deposits included in M-2 Large negotiable CDs Domestic net interbank demand deposits U.S. Government demand deposits Marginal reserves E. 1/ -201 -157 7 26 -84 8 -1 Implied effect on reserves of deviations in nonreservable money components from expectations. Nonmember bank demand deposits 0 Nonmember bank time and savings deposits -5 Currency 13 Derived as residual. Appendix III RECONCILIATION TABLE (billions of dollars) Alt. II Average Level QIV 1979 Dollar Change in 1980 Less Foreign Deposits 380.8 19.2 5.0 Equals New M-1A Plus Other Checkable Deposits 269.7 15.9 18.5 2.5 5.0 Equals New M-1B 385.6 21.0 5.4 948.2 59.8 6.3 667.9 45.2 1616.1 105.0 153.1 29.2 Less foreign demand deposits in old M-3 11.1 0.7 Plus overnight RP's and Eurodollars 24.5 4.0 Plus money market mutual fund shares 40.3 34.7 Plus demand deposits at MSB's 1.2 0.1 Less new M-2 consolidation 2.7 0.3 1515.2 113.6 Plus large time deposits at banks and thrift institutions 1/ 216.6 27.5 Plus term RP's at banks and S&L's 30.2 0.9 1762.1 142.0 Growth Rate Old M-1 Old M-2 Plus Deposits at Thrifts Equals Old M-3 Less large time deposits at all institutions in old M-3 Equals New M-2 Equals New M-3 1/ Excluding large time deposits held by money market mutual funds. 6.5 7.5 8.0 TABLE 1 STRICTLY CONFIDENTIAL (FR) CLASS II - FOMC FEBRUARY 1, 1980 SELECTED INTEREST RATES (percent) Short-Term Federal funds CDs Treasury Bills Secondary Market 3-mo-m-yr 3-mo 1-yr (3) (2) 9.30 9.62 6.16 6.55 3-mo (5) 9.58 6.42 10.96 6.76 8.64 12.65 8.87 14.53 9.R4 9.08 9.44 9.40 10.72 9.35 9.32 9.48 9.54 9.50 9.35 9.46 10.51 10.19 10.13 9.28 9.27 9,50 9.53 9.06 10,06 10.47 10.94 11.43 9.46 9.61 9.06 9.24 9.52 10.26 9.19 9.45 10.13 13.77 13.18 13.78 11.70 11.79 12.04 11.23 7 14 21 28 13.77 13.30 13.10 12.46 12.16 12.11 11.87 11.22 11.74 5 12 19 26 13.77 13.79 13.90 13.49 11.58 12.11 12.21 12.01 10.88 10.97 2 9 16 23 30 14.04 13.94 13.91 13.77 13.54 13.89 13.40p 12.60 8.85 11.89 1978--Dec. 10.03 1979--Jan. Feb. Mar. 10.07 10.06 10.09 Apr. May June 10.01 10.24 10.29 July Aug. Sept. 1979--High Low Oct. Nov. Dec. 1980--Jan. Market (4) 1978-High Low Dec. Auction 6-mo (1) 10.25 6.58 15.61 9.93 1979--Nov. Long-Term Treasury Bills Daily--Jan. 24 31 Bank omi Bank Paper __ (6) 10.52 6.68 14.26 9.66 Pime Rate (7) U.S. Govt. Constant Maturity Yields 3-yr (8) 9.58 (10) Corp.-Aaa Muni- Utility cipal New Issue su Recently Offered (12) 9.54 8.48 11.45 9.39 Bond Buyer (13) 6.67 5.58 7.38 6.08 (11) Home Mortgages Primary Secondary Market P y FNMA GNMA (14) Auc. (15) Sec. (16) 10.38 8.98 10.60 9.13 9.68 8.43 12.90 10.38 13.29 10.42 11.77 9.51 v 15.75 11.68 11.50 8.76 (9) 9.13 7.81 10.87 8.79 10.37 11.55 9.33 9.01 8.88 9.28 9.41 6.51 10.35 10.50 9.38 10.25 9.95 9.90 11.75 11.75 11.75 9.50 9.29 9.38 9.10 9.10 9.12 8.94 9.00 9.03 9.54 9.53 9.62 9.51 9.56 9.62 6.47 6.31 6.33 10.39 10.41 10.43 10.70 10.54 10.43 9.67 9.67 9.70 11.75 11.75 9.43 9.42 11.65 8.95 9.18 9.25 8.91 9.09 9.19 8.92 9.70 9.83 9.50 9.74 9.84 9.50 6.29 6.25 6.13 10.50 10.69 11.04 10.59 10.84 10.77 9.78 9.89 9.75 10.11 10.71 11.89 9.85 9.95 9.76 9.87 10.43 11.63 11.54 11.91 12.90 8.94 9.14 9.69 8.95 9.03 9.33 8.93 9.53 9.49 9.87 10.66 10.67 11.09 9.77 9.90 10.31 13.66 13.90 13.43 13.23 13.57 13.24 14.39 15.55 10,95 10.30 10.65 10.39 10.30 10.12 10.91 11.36 11.33 6.13 6.20 6.52 7.08 7.30 7.22 11.09 11.09 11.30 11.34 11.86 11.85 9.58 9.48 9.93 10.97 11.42 11.25 11.64 12.83 12.90 12.52 12.75 12.49 11.25 11.57 11.35 12.09 11.95 12.04 11.02 14.53 14.28 14.06 13.14 14.26 14.09 13.58 12.90 15.25 10.76 10.87 10.76 10.74 10.37 10.42 10.39 10.38 10.11 11. 5' 11.50 11.45 11.20 11.45 11.41 11.38 11.17 7.27 7.31 7.38 7.26 12.85 12.80 12.80 12.90 -12.93 -12.57 11.73 11.51 11.69 11.36 13.06 13.26 13.82 13.36 12.70 12.96 13.69 13.35 15.54 15.29 10.66 10.71 10.76 10.69 10.35 10.35 10.41 10.43 10.06 10.09 10.15 10.17 11.22 11.28 10.86 11.77 11.77 12.00 11.85 11.16 11.37 11.35 11.39 7.17 7.26 7.22 7.23 12.90 12.90 12.90 12.90 -12.42 -12.55 11.29 11.18 11.49 11.39 12.03 11.92 11.75 12.08 12.21 10.88 10.91 10.76 10.94 11.19 11.88 11.86 11.78 11.89 11.85 13.42 13.47 13.35 13.36 15.25 15.25 10.70 10.73 10.74 13.40 13.20 13.10 12.95 13.02 13.06 15.25 15.25 10.86 11.14 10.43 10.61 10.64 10.83 11.13 10.17 10.31 10.37 10.64 11.03 11.42 11.54 11.69 12.11 2 2 1 . 9p 7.32 7.30 7.28 7.33 7.52 12.85 12.90 12.87 12.89 n.a. -12.70 -13.11 -- 11.39 11.63 11.51 11.92 12.10 12.17 12.00 11.11 11.17 13.37 13.29 13,01 13,04 15.25 15.25 10.97 11.17p 11.01 3 ll.1 p 10.87 9 ll.0 p 9.39 9.38 8.81 8.87 9.16 9.89 11.22 10.92 11.31 11.27 10.75 10.95 10.16 9.95 - 11.57 7.75 15.30 15.46 15.71 15.75 15.25 15.25 15.25 7.38 11.18 10.71 11.66 11.28 11.28 8.95 8.06 10.42 8.82 9.30 8.61 11.50 9.40 8.98 9.17 9.85 11.51 11.61 12.08 NOTE: Weekly data for columns 1, 2, 3, and 5 through 10 are statement week averages of daily data. Weekly data in column 4 are average rates set in the auctions of 6-month bills that will be issued on the Thursday following the end of the statement week. For column 11, the weekly date is the mid-point of the calendar week over wnich data are averaged. Columns 12 and 13 are 1-day quotes for Friday and Thursday, respectively, following the end of the statement week. Column 14 is an average of contract interest rates on commitments for conventional first mortgages with 80 percent loan-to-value ratios made by a sample of insured savings and loan associations on the Friday following the end of the statement week. Column 15 gives FNMA auction data for Monday preceding the end of the statement week. Column 16 is a 1-day quote for Monday preceding the end of the statement week. The FNMA auction yield is the average yield in a bi-weekly auction for short-term forward commitments for government underwritten mortgages. GNMA yields are average net yields to investors on mortgage-backed securities for immediate delivery, assuming prepayment in 12 years on pools of 30-year FHA/VA mortgages carrying the coupon rate 50 basis points below the current FHA/VA ceiling. * 90-119 day maturity prior to November 1979 STRICTLY CONFIDENTIAL (FR) TABLE 2 NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES 1/ (millions of dollars, not seasonally adjusted) Treasury Bills Net e Change / 1975 1976 1977 1978 1979 1978--Qtr. IV 1979--Qtr. Qtr. Qtr. Qtr. I II III IV 1979--July Aug. Sept. Oct. Nov. Dec. 1979--Nov. Dec. 1980--Jan. ithi 1 year Treasury Coupons Net Purchases 3/ 1 - 5 55 - 10 Over Over 10 10 10 5 Total Total -468 863 4,361 870 6,243 337 472 517 1,184 603 3,284 3,025 2,833 4,188 3,456 1,510 1,048 758 1,526 523 1,070 642 553 1,063 454 6,202 5,187 4,660 7,962 5,035 -5,072 212 1,135 250 247 1,844 -3,750 465 5,363 4,164 48 42 395 118 426 640 1,289 1,101 134 93 700 309 81 310 51 2,302 1,351 2,252 1,712 1,399 218 57 120 237 699 354 96 140 73 142 81 87 693 976 634 -219 2,297 2,086 28 703 90 398 - --- 7 14 21 28 -198 1,937 5 12 19 26 122 301 1,379 2 9 16 23 30 484 -200 -1,272 -639 -400 S- --- 682 1 1 Within 1 year - CLASS II Federal Agencies Net Purchases 4/ 55 - 10 10 OveHoldings Total Over 10 55 1,613 891 1,433 127 454 -2 3 --- S - - - S S - - -229 258 288 L70 L10 L91 L91 - FOMC FEBRUARY 1, 1980 288 3 -- -399 371 482 482 - Net Change Outright Total 5/ 7,267 6,227 10,035 8,724 10,290 1,272 3,607 -2,892 -1,774 -2,597 -3,283 -882 -1,795' 8,129 4,839 -2,130 3,427 2,687 2,015 -1,665 -1599 2,297 2,701 -2,499 2,078 -3,380 -198 -2,903 -643 1,667 1,066 --- -- -- ---- -- -- -- -- 1,937 -- -- -- -- -- -- -- -- 359 -- -- -- -- -- -- -- -- -- -- 122 90 - 398 -- 81 -- 51 - 620 - --- --- --- --- -.--- - -- - - -- --- --- --- ------ ---- ----- ----- ----- 359 S-S - -- et RPs 6 615 301 1,379 484 -200 -1,272 -639 -400 680 2,542 -2,019 -3,801 -2,279 1,922 -1,125 455 -1,426 -2,978 7,200 -3,432 -1,593 5,709 -6,966 1.9 4.2 1.4 71.0 .7 -6.1 8.2 12.7 126.8 12.8 27.9 17.7 LEVEL--Jan. 30 47.5 (in billions) Change from end-of-period to end-ot-period. Outright transactions in market and with foreign accounts, and redemptions (-) in bill auctions. Outright transactions in market and with foreign accounts, and short-term notes acquired in exchange for maturing bills. Excludes redemptions, maturity shifts, rollovers of maturing coupon issues, and direct Treasury borrowing from the System. Outright transactions in market and with foreign accounts only. Excludes redemptions and maturity shifts. In addition to net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowings from the System and redemptions (-) of agency and Treasury coupon issues. Includes changes in both RPs (+) and matched sale-purchase transactions (-). The Treasury sold $2,600 million of special certificates to the Federal Reserve on March 31, 1979 and redeemed the last of them on April 4, 1979. $640 million of 2-year notes were exchanged for a like amount of cash management bills on April 3, 1979. On April 9, 1979, the bills were exchanged for new 2-year notes. On October 1, 1979, $668 million of maturing 2- and 4-year notes were exchanged for a like amount of short-term bills, because the note auctions were delayed. On October 9 and 10, the bills were exchanged for new 2- and 4-year notes, respectively. Corrected 2/4/80 Appendix III RECONCILIATION TABLE (billions of dollars) Average Level QIV 1979 Old M-1 Alt. Dollar Change in 1980 II Growth Rate 380.8 19.2 11.1 0.7 Equals New M-1A Plus Other Checkable Deposits 369.7 15.9 18.5 2.5 5.0 Equals New M-1B 385.6 21.0 5.4 948.2 59.8 6.3 667.9 45.2 1616.1 105.0 Less large time deposits at all institutions in old M-3 153.1 29.2 Less foreign demand deposits in old M-3 11.1 0.7 Plus overnight RP's and Eurodollars 24.5 4.0 Plus money market mutual fund shares 40.3 34.7 Plus demand deposits at MSB's 1.2 0.1 Less new M-2 consolidation 2.7 0.3 1515.2 113.6 Plus large time deposits at banks and thrift institutions 1/ 216.6 27.5 Plus term RP's at banks and S&L's 30.2 Less Foreign Deposits Old M-2 Plus Deposits at Thrifts Equals Old M-3 Equals New M-2 Equals New M-3 1/ 1762.1 0.9 142.0 Excluding large time deposits held by money market mutual funds. 5.0 6.5 

Federal Reserve (1980, February 4). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19800205

@misc{wtfs_bluebook_19800205,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1980},
  month = {Feb},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19800205},
  note = {Retrieved via When the Fed Speaks corpus}
}