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. 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 optimal 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. May 15, Strictly Confidential (FR) 1981 Class I FOMC MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System May 15, 1981 STRICTLY CONFIDENTIAL (FR) CLASS I - FOMC MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) Adjusted for estimated shifts of funds from nontransactions to NOW accounts, growth in M-1B accelerated in April to about a 14 percent annual rate.1/ To some extent, this pick-up in M-l growth may reflect a realignment in the public's stock of money holdings toward more normal relationships with income and interest rates following the nearrecord increase in velocity earlier this year. Growth of M-lB in April was substantially more rapid than the pace implicit in the Committee's 5 percent target for the March to June period. Even so, given the weak performance of M-1B in the winter, the level of M-1B in April was well within the Committee's longer-run range--about at the midpoint. Growth of M-2 remained relatively rapid last month, and its level continued to be above the upper end of its longer-run range. Growth in the nontrans- action component of M-2 slowed markedly, however. The total of savings and small time deposits did not expand in April, and MMMF growth slowed as market rates rose substantially above average MMMF yields around midmonth. M-3 in April expanded at almost a 10 percent rate, and its level remains above the upper end of the Committee's longer-run range. Growth in Monetary Aggregates First Four Months of 1981 Seasonally Adjusted April Dec. to April QIV '80 to April 13.9 6.5 4.5 M-2 11.8 11.7 10.2 M-3 9.8 11.7 11.2 M-1B 1/ (Shift adjusted) All monetary aggregates data reflect revised seasonal factors, as described in Appendix III. (2) Nonborrowed reserves declined sharply in April, as banks were forced to borrow more to meet their reserve needs; they also reduced their excess reserves by a sizable amount. By the statement weeks ending April 29 and May 6 average borrowings had increased to the $2.3 to $2.5 billion area, and the funds rate had moved higher--by late April and early May tending to exceed the upper end of the 13 to 18 percent range for consultation adopted at the March meeting. After consultation in early May, the Committee agreed to adhere to the previously adopted money targets, recognizing that the federal funds rate would probably fluctuate above the upper limit of the funds rate range.1 / has been in the 18 to 19 percent area. Most recently, the rate The basic discount rate and the surcharge were raised 1 percentage point each, effective May 5. Reserve Aggregates and Related Measures Seasonally Adjusted Annual Rates of Growth Dec.-March April Nonborrowed Reserves Total Reserves Monetary Base Week ended -12.1 -1.6 7.1 5.9 -1.3 4.7 Weekly Averages, Not Seasonally Adjusted ($ Billions) Excess Federal funds rate Borrowings Reserves April 8 15 22 29 887 1,142 864 2,278 51 318 -234 105 15.43 15.33 15.55 16.28 May 6 13 2,471 1,734 396 5 18.91 18.21 (3) In response to the strength of money demand relative to the Committee's short-run targets, and to the discount rate action, short- 1/ With total reserves above target, the nonborrowed reserve path was reduced twice in early May. See Appendix I for all adjustments made to the reserve paths during the intermeeting period. term market rates generally rose sharply over the intermeeting period. While still below their December highs, Treasury bill rates have increased 2 3/4 to 4 percentage points since the March FOMC meeting, and rates on private money market obligations have risen by even larger amounts. bank prime rate was raised in steps from 17 to 19 The percent at the end of March percent, but these increases lagged the rising commercial paper and Eurodollar rates, contributing to a shift of credit demands toward U.S. offices of large banks in late April and early May. (4) Treasury and corporate bond yields have risen about 1 percentage point since late March to record levels. Despite the increase in longer-term yields, and an increase in the number of postponements, public offerings of corporate and municipal notes and bonds have remained relatively large. The Treasury has raised about $8 billion in note and bond sales, including around $2 billion in its recently completed quarterly refunding auctions. The average commitment rate on primary conventional mortgages at S&Ls increased to more than 16 percent in the intermeeting period. (5) Since the last FOMC meeting, the dollar has risen against all major currencies, increasing on a weighted-average basis by 9 percent to the highest level since late 1977. U.S. authorities have not been in the market. The dollar's strength over this period primarily reflected the sharp rise in U.S. interest rates. (6) 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. M-1A and M-lB data in parentheses are not adjusted for the estimated impact of nationwide NOW accounts. ' 1980 7.8 Mar. '81 over Dec. '80 5.9 Apr. '81 over Dec. '80 1.3 1978 6.3 1979 0.3 Total reserves 6.2 2.6 7.1 -1.3 -1.4 Monetary base 9.2 7.8 8.8 4.7 5.3 M-IA (Currency plus demand deposits) 2/ 7.4 5.0 5.0 4.0 (-20.2) M-1B (M-1A plus other checkable deposits) 8.1 7.6 7.3 4.0 (11.3) 6.5 (13.3) M-2 (M-1B plus small time and savings deposits, money market mutual fund shares and overnight RPs and Eurodollars) 8.3 8.9 9.9 11.6 11.7 11.2 9.7 10.0 12.2 11.7 13.4 12.6 8.0 11.8 Large time deposits 4.2 1.2 2.5 4.4 Net borrowing from own foreign branches 0.7 1.8 -1.7 -1.5 -2.1 p 1.7 1.1 1.1 1.2 .9 p Nonborrowed reserves Concepts of Money M-3 (M-2 plus large time deposits and term RPs) 5/ 6.6 (-15.1) 5/ Bank Credit Loan and investments of all commercial banks 3/ 6.9 p Managed Liabilities of Banks (Monthly average change in billions) Other borrowings 4/ 4.0 p - Preliminary estimates. 1/ QIV to QIV. Other than interbank and U.S. Government. Includes loans sold to affiliates and branches. Primarily federal funds purchases and securities sold under agreements to repurchase. Adjusted for nationwide NOW accounts. Numbers in parentheses are observed changes unadjusted for shifts. 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/ 3/ 4/ 5/ Prospective developments (7) Shown below for Committee consideration are three alternative policy strategies for the current quarter. The upper panel of the table shows growth rates for the two-month April to June period, and the lower panel gives consistent growth rates for the March to June interval covered by the Committee's short-run target adopted at the last meeting. The M-1B growth targets abstract from the estimated impact of nationwide NOW accounts, as do the Committee's longer-run targets.1/ (More detailed and longer-run data for the aggregates, on both an adjusted and unadjusted basis, including those for M-1A, are shown in the tables on pp. 6 and 7.) The last line of the table indicates federal funds rate ranges thought by the staff to be consistent with the three alternatives. Alt. A Alt. B Alt. C 4¾ 7¾ 3 6½ 1¼ 5¼ 7¾ 6½ 5½ 9 8¼ 7½ 16 to 21 17 to 22 Growth from April to June M-1B M-2 Growth from March to June M-1B M-2 Intermeeting federal funds rate range 1/ 15 to 20 The estimated portion of NOW growth coming from demand deposits is 72.5 percent in March and April. This ratio for April is slightly higher than earlier expected. With no evidence of a drop in the ratio for the past three months, as noted in appendix IV, the staff has assumed that the ratio will remain between 70 and 75 percent over the balance of the year. In addition to more of the increase in NOW accounts coming out of demand deposits, the total increase in NOW accounts thus far this year is proceeding at a faster pace than had been assumed when the Committee set its long-run target for 1981 in February. At that time, the observed increase in M-1B consistent with the shift-adjusted M-1B target for the year of 3 to 6 percent was expected to be 6 to 8½ percent (assuming an increase above trend in NOW related accounts of about $40 billion, close to the increase that has already occurred). We would now estimate that the longer-run range for observed M-1B may have to be increased by about 1 percentage point to 7 to 9½ percent for 1981 (with an increase in NOW and related accounts for the year of about $55 billion). The consistent observed M-1A range will probably be reduced by about 2 percentage points to a range of -7 to -4 percent for 1981. CONFIDENTIAL (FR) Chart 1 Class FOMC II Actual and Targeted M-1B M1-B - Billions of dollars __1460 Observed Level .... Level Adjusted for Impact of Nationwide NOW Accounts S* Short-Run Alternatives -- 440 -- 430 - . 3Y2% ..A B - I 0 1980 I I I N - D J -- 420 I F A I I I M M J I J 1981 I1 A 1 1 S O N 0 - 410 -- 400 CONFIDENTIAL (FR) Class II FOMC Chart 2 Actual and Targeted M-2 M-2 - Billions of dollars 1840 Actual Level - * -Short-Run Alternatives - 1820 -- 1800 -- 1780 1760 -- 1740 -- 1720 -41700 -- 1680 -- 1660 -- 1640 I 0 I N 1 D 1980 I J I F I M I A I M I J 1981 I I J A S I I 0 N D Chart 3 CONFIDENTIAL (FR) Class II FOMC M-3 and Bank Credit M-3 Billions of dollars 12150 Actual Level - 9 '2% ... Short-Run Alternatives -- 2100 -- 2050 6'/2% A^ -- 2000 -- 1950 Note A,B, and C alternatives are indistinguishable on this scale 1 " 1 N 0 I I D I F J I M I I I I M A J J 1980 I I A O S I 1981 BANK CREDIT - 1900 D N Billions of dollars - 1350 Actual Level 9% --11300 -'1250 I/ I O I N 1980 LI I D I J I F I M S I A M I I J J 1981 I A 1 S I O 00 1112 I N D Alternative Levels and Growth Rates for Key Monetary Aggregates M-1B M-1A 1981--March April May June Alt. A Alt. B 388.2 392.8 394.9 395.6 388.2 392.8 394.8 394.4 Alt. C 388.2 392.8 394.6 393.2 Alt. A Alt. B Alt. C 415.4 420.2 422.5 423.5 415.4 420.2 422.4 422.3 415.4 420.2 422.2 421.1 13.9 (18.7) 13.9 (18.7) Growth Rates Monthly 1981--April 14.2 6.4 (3.9) 2.1 (1.3) 14.2 (0.3) 6.1 (3.6) -1.2 (-2.3) 4.3 (2.6) 7.6 (1.9) (0.7) 6.4 (0.4) 0.3 8.1 0.3 7.7 (0.3) May June April '81 - June '81 March '81 - June '81 2.4 14.2 (0.3) 5.5 (3.0) -4.3 (-5.6) 0.6 (-1.3) 5.2 13.9 (18.7) 6.6 (6.4) 2.8 (4.7) 4.7 (-0.8) (5.2) 7.8 (9.7) 0.3 7.2 1.0 8.2 6.3 (5.9) -0.3 (1.7) 3.0 (3.9) 6.6 5.7 (4.7) -3.1 (-1.1) (8.9) 1.3 (2.2) 5.5 (7.8) 1.0 7.8 1.0 7.4 Quarterly Average 1981--QI QII NOTE: Growth rates shown in parentheses are for the observed levels of the aggregates. Alternative Levels and Growth Rates for Key Monetary Aggregates M-2 (cont'd) M-3 Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C 1716.9 1733.8 1743.4 1756.1 1716.9 1733.8 1743.3 1752.6 1716.9 1733.8 1743.1 1749.1 2011.8 2028.3 2042.5 2058.4 2011.8 2028.3 2042.4 2056.7 2011.8 2028.3 2042.2 2054.9 11.8 6.6 8.7 11.8 6.6 6.4 11.8 6.4 4.1 9.8 8.4 9.3 9.8 8.3 8.4 9.8 8.2 7.5 April '81 - June '81 7.7 6.5 5.3 8.9 8.4 7.9 March '81 - June '81 9.1 8.3 7.5 9.3 8.9 8.6 1981--March April May June Growth Rates Monthly 1981--April May June Quarterly Average 1981--QI QII 8.4 10.9 8.4 10.6 8.4 10.4 12.0 9.5 12.0 9.4 12.0 9.3 (8) Alternative C is based on continuation of the 5 percent annual rate of growth for M-1B over the March to June period targeted by the Committee at its last meeting--a growth rate which, as shown in chart 1, would result in a June level about at the lower end of the Committee's longer-run range. To achieve this short-run target would require growth of narrow money at a 1¼ percent annual rate on average in May and June, with June probably needing to show a contraction in the outstanding level of money. (9) Given the sharp rise of M-1B in April the Committee may wish to consider alternatives that in effect avoid squeezing out all of the excess April growth over the balance of the quarter. Alternative A targets M-1B growth in May and June at the 4¾ percent midpoint of its longer-run range, a rate of growth that would keep the level of M-1B just below its midpoint by June. Alternative B calls for a growth rate of 3 percent over the two months, which would bring the level of M-1B well into the lower half of its range by June. (10) All of the alternatives contemplate slower growth in M-2 than expected at the time of the Committee's previous meeting, when a March to June M-2 target of 10 percent was considered acceptable. We would now expect growth of M-2 at about a 7 to 8 percent annual rate over the March-June period for alternative C. Somewhat higher growth rates would be expected under alternatives A and B. The slower March-June growth projected for M-2 essentially reflects the unexpectedly sharp deceleration recently in growth of its nontransactions component, including both small time and savings deposits and money market funds. Money market fund growth is expected to remain weak over the near-term, and particularly so if market interest rates rise and thereby temporarily -9widen their spread over MMMF yields. As shown in chart 2, the level of M-2 in June would be at the upper bound of its longer-run range for the year under alternative C, while it would remain somewhat above the range under the other two alternatives. (11) The projected slowing of real and nominal GNP this quarter, as well as the recent increases in interest rates, should tend to retard narrow money growth from the extremely rapid April pace. However, money demand may remain fairly strong, and interest rates under upward pressure, unless the economy is considerably weaker than the staff now anticipates or unless the current level of interest rates induces another shift to more intensive cash management. Even under alternative A--which involves growth in total reserves from April to June at an 8 percent annual rate-the federal funds rate seems likely to remain in a 17 to 20 percent range over the balance of the quarter.1/ Assuming the present discount rate structure, adjustment borrowing would probably be around $1 to $2 billion. Continued high long-term rates may tend to induce firms to focus their growing credit demands on banks and other sources of short-term credit over the near term--although the limited flexibility of many borrowers and a desire to stem the deterioration of balance sheets likely will maintain bond issuance at a high level. (12) Alternatives B and C would call for a growth in total reserves over the April to June period at annual rates of 6 and 4 percent, respectively. 1/ A federal funds rate around 20 percent or a bit higher is Projections of federal funds rates for the year 1981 under all three alternatives are shown in appendix II. -10likely to emerge over the next few weeks under alternative B, while the funds rate under C could rise further. Given current discount rates, borrowing at the discount window might rise to around the $2 billion area under alternative B and to around $3 billion under alternative C. Of course, any increase in the present discount rate level and structure would work to reduce the demand for borrowing. Other short-term rates would probably rise substantially further under these alternatives, with upward pressures particularly intense under alternative C. Long-term interest rates would also rise further over the weeks ahead, probably inducing a large volume of postponements and cancellations of bond financings. (14) The outlook for interest rates under all three alternatives suggests continued weakness in mortgage demands and also intense earnings pressures on thrift institutions, with alternative C implying a higher probability of a number of failures this summer. Moreover, with their deposit flows weak--and less than they may have anticipated--some institutions may find it necessary to draw down their stock of liquid assets. Although the new mortgage instruments recently approved by the FHLBB are likely to be translated into an increased willingness of thrifts to make mortgage loans, their impact on interest income will be modest for some time. -11- Directive language (15) Given below is a suggested operational paragraph for the directive consistent with the form of the directives adopted at recent meetings. The specifications adopted at the meeting on March 31 are shown in strike-through form. In the short run the Committee seeks behavior of reserve aggregates consistent with A SUBSTANTIAL DECELERATION OF growth in M-1B from[DEL: March] APRIL to June [DEL: at]TO an annual rate of [DEL: 5½]____ percent [DEL: orsomewhat less,]after allowance for the impact of flows into NOW 10½] accounts, and WITH growth in M-2 at an annual rate of about [DEL: percent. ____ It is recognized that shifts into NOW accounts will continue to distort measured growth in M-1B to an unpredictable extent, and operational reserve paths will be developed in the light of evaluation of those distortions. If it appears during the period before the next meeting that fluctuations in the federal 13]____ funds rate, taken over a period of time, within a range of [DEL: percent are likely to be inconsistent with the monetary to [DEL: 18] ____ and related reserve paths, 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 RESERVE TARGETS AND RELATED MEASURES Intermeeting Period ($ millions, not seasonally adjusted) Targets for 4-week Average April 8 to April 29 Nonborrowed Total Reserves Reserves Projection of 4-week Average April 8 to April 20 Total Reserves (4) (3) (2) (1) Required Reserves (5) Adjustment Borrowing (3)-(2) Excess Reserves As of April 1 (FOMC Meeting) 40,006 38,856 40,006 39,706 300 1,150 April 3 40,006 38,856 40,006 39,706 300 1,150 April 10 40, 1 3 2 38,9821/ 40,165 39,926 239 1,183 April 17 40,132 38,982 40,229 39,997 232 1,247 April 24 40,132 38,982 40,122 40,038 84 1,140 Actual 4-week Avg. 40,110 38,817 40,110 40,050 60 1,293 / Targets for 3-week Average May 6 to May 20 Projection of 3-week Average May 6 to May 20 As of May 1 2/ 40,407- May 8 40,362- May 15 40,294- Actual 3-week Avg. 40,683 e 4/ 7/ 2/3/ 39,007- 40,960 40,660 300 1,953 640,735 40,435 300 2,009 38,660- 40,683 40,450 233 2,023 38,660 e 40,683 e 40,450 233 4/5/6/ 38,726 4 7/ e 2, 0 2 3 e Total and nonborrowed reserves paths adjusted upward by $126 million to reflect changing sources of NOW accounts and deposit strength in week of April 8, 1981, that increases the March base level of M-1B and required reserves for the week of April 15. 2/ Total and nonborrowed reserves paths adjusted downward by $345 million on May 1, 1981 due to multiplier changes. 3/ Nonborrowed reserves path adjusted downward by another $250 million on May 1, 1981 because total reserves were running above target. 4/ Total and nonborrowed reserves paths adjusted downward by $45 million on May 8, 1981 due to multiplier changes. 5/ Nonborrowed reserves path adjusted downward by another $120 million on May 8, 1981 because total reserves were continuing to run above target. 6/ Nonborrowed reserves path adjusted downward by another $115 million to prevent shortfall in nonborrowed reserves path in week of May 6 from distorting the subsequent two weekly paths in the same intermeeting period. 7/ Total and nonborrowed reserves path adjusted downward by $67 million on May 15, 1981 due to multiplier changes. e--estimated 1/ Appendix II Federal Fund Rates Under Alternative Short-Run Monetary Targets, Assuming Attainment of Midpoint of 1981 M-1B Range in Fourth Quarter Bluebook Alternative B C 18¾ 19¾ 19 19 18¼ 18 *Alternative A path is that embodied in the Greenbook GNP forecast. APPENDIX III NEW SEASONAL ADJUSTMENT PROCEDURE Seasonal adjustment factors for the monetary aggregates recently In were updated on the basis of data available through 1980. other checkable deposits for the first time.1 (OCD) the process, were put on a seasonally adjusted basis In calculating the new seasonal factors, observa- tions for several components over the spring and summer of 1980 were pre- adjusted by a time series modeling technique to eliminate the effect of the unusual-and likely nonrecurrent--patterns of deposit flows that accompanied the imposition and subsequent removal of the Special Credit Restraint Program.2 Revised seasonally adjusted M1-B in 1981 is constructed by adding currency; the following seasonally adjusted components: mand deposits and of OCD (apart from trend growth) been shifted or diverted from demand deposits; 3 the sum of de- estimated to have OCD (apart from trend growth) estimated to have come from sources other than demand deposits; and a relatively small trend growth in OCD, amounting to an increase of 1. The new seasonal factors were published as appendix tables to the H.6 Federal Reserve statistical release on May 1, 1981. A preadjustment technique also was applied to the demand deposit com2. ponent of M1-A to remove the distortions in early 1979 caused by the introduction of ATS nationwide and NOW accounts in New York State. 3. Based on information currently available from a number of sources-such as samples of depository institutions and households and econometric cross-section analysis--the share of not seasonally adjusted OCD growth apart from trend since the beginning of the year attributable to demand deposits is estimated to be: about 75 to 80 percent in January, and 70 to 75 percent in February, March, and April. III-2 $200 million per month in the first several months of the year. Trend growth represents the expansion in OCD balances associated with accounts in existence prior to the nationwide extension of NOW accounts on Decem- ber 31, 1980 and is reflected in percent differential in the FOMC's the shift adjusted 1981 growth ranges for M1-A and M1-B. M1-B is Shift-adjusted derived by subtracting from seasonally adjusted M1-B an estimate of seasonally adjusted inflows into OCD (apart from trend growth) from non-demand deposit sources. Seasonally adjusted OCD equals seasonally adjusted M1-B less seasonally adjusted M1-A. Table 1 compares seasonally adjusted M1-B on the previous and revised basis. Differences mainly reflect the seasonal adjustment of OCD for the first time, other components. rather than updated seasonal adjustment factors for The December and April levels were both revised down- ward a bit and average growth over this period was only moderately affected. However, nificantly. Growth in while growth in Growth in the monthly growth pattern has been affected more sig- April, January and February of this year has been raised and to a lesser extent March, shift-adjusted M1-B in the first has been lowered. quarter--shown on the right- hand side of the table-was slightly in excess of 1 percent at an annual rate under the new procedure, about 1¾ percentage points more than under the previous one. 1. Such amounts are derived by cumulating monthly inflows from nondemand deposit sources (not seasonally adjusted). These amounts in turn are estimated by multiplying the monthly increase in OCD (not seasonally adjusted) in excess of trend in end-of-year OCD balances (not seasonally adjusted) by the mid-points of the monthly ranges for the share estimated to have come from non-demand deposits. Cumulative amounts are then seasonally adjusted by applying the seasonal factor for commercial bank savings deposits. III-3 Table 2 presents revisions to M-2. Changes in M-2 reflect revi- sions to M1-B as well as changes in seasonal adjustment factors for nontransaction deposits at banks and thrifts. Growth in the first four months of 1981 is smoother under the revised procedure, as relatively slow growth in January and February has been boosted while growth in March and April has been lowered. Table 1 Effects of 1981 Revisions to Seasonal Adjustment Procedure and Factors on M1-B Levels and Growth Rates Revised Procedure ACTUAL Previous Procedure Difference (1) - (2) (1) (2) (3) $411.3 416.0 419.0 422.9 429.5 $411.9 416.0 417.3 421.6 429.8 -$0.6 0.0 +1.7 +1.3 -0.3 7.3 7.3 0.0 quarter quarter quarter quarter 6.8 -2.9 13.9 10.9 5.8 -2.6 14.6 10.8 +1.0 -0.3 -0.7 +0.1 1981--lst quarter 6.6 5.1 +1.5 6.8 12.7 -1.2 4.3 9.6 0.0 +2.5 +3.1 -1.2 Revised Procedure (4) SHIFT ADJUSTED 1/ Previous Difference Procedure (4) - (5) (5) (6) Levels (billions of dollars) 1980--December 1981--January February March April $411.3 412.4 412.9 415.4 420.2 $411.9 412.4 411.6 414.4 420.5 -$0.6 +0.0 +1.3 +1.0 -0.3 1.1 -0.2 +1.3 Percent changes (at annual rates) Annual 1979 4th quarter--1980 4th quarter Quarterly average 1980--lst 2nd 3rd 4th Monthly Average 1980--January February March April May June July August September October November December -16.8 -15.0 -1.8 1.2 12.7 13.5 21.5 13.4 13.6 9.0 -9.8 -0.6 16.2 12.9 21.8 15.8 11.8 8.7 -9.0 +1.8 -3.5 +0.6 -0.3 -2.4 +1.8 +0.3 -0.8 1981--January February March April 13.7 8.7 11.2 18.7 11.9 3.8 12.4 23.3 +1.8 +4.9 -1.2 -4.6 3.2 1.5 7.3 13.9 1.5 -2.3 8.2 17.7 +1.7 +3.8 -0.9 -3.8 December 1980 - April 1981 13.3 13.0 +0.3 6.5 6.3 +0.2 1. Ad3usted for shifts in 1981 into other checkable deposits from savings and other non-demand deposit sources. Table 2 Effects of 1981 Seasonal Adjustment Procedure and Factors on M-2 Levels and Growth Rates Revised procedure Previous procedure Difference (1) - (2) (1) (2) (3) Levels (billions of dollars) 1980--December 1981--January $1,668.7 1,681.7 $1,673.4 1,681.3 February March April 1,695.4 1,716.9 1,733.8 1,692.1 1,714.6 1,734.2 +3.3 +2.3 -0.4 9.9 9.8 +0.1 1980--lst quarter 8.9 7.3 +1.6 2nd quarter 5.4 5.6 -0.2 3rd quarter 15.7 16.0 -0.3 4th quarter 8.1 9.1 -1.0 1981--1st quarter 8.4 7.0 +1.4 10.9 12.3 4.5 -4.2 11.6 16.4 19.3 14.6 8.5 6.8 9.8 1.2 6.8 10.1 5.4 -3.2 10.3 18.3 18.8 14.9 8.7 8.8 10.4 1.9 +4.1 +2.2 -0.9 -1.0 +1.3 -1.9 +0.5 -0.3 -0.2 -2.0 -0.6 -0.7 9.3 5.7 +3.6 9.8 15.2 11.8 7,7 16.0 13.7 +2.1 -0.8 -1.9 10.9 +0.8 -$4.7 +0.4 Percent changes (at annual rates) Annual 1979 4th quarter--1980 4th quarter Quarterly averages Monthly average 1980--January February March April May June July August September October November December 1981--January February March April December 1980 - April 1981 APPENDIX IV ESTIMATES OF THE SOURCES OF GROWTH IN OTHER CHECKABLE DEPOSITS To put recent movements in the transaction component of the narrow money stock in an economically meaningful perspective requires that observed data for M1-A and M1-B be adjusted for the distorting effects of the public's response to the authorization of nationwide NOW accounts. The magnitudes of the adjustments each month are computed on the basis of estimates of the sources of funds deposited in other checkable deposits (OCD). Available evidence suggests the following fractions of net inflows to OCD were shifted or diverted from demand deposits: percent in January and 70 to 75 percent in February, March, 75 to 80 and April. Application of the midpoints of the estimated ranges to observed deposit flows for each month yields an adjusted measure of M-1B in the first quarter of 1981 that rose 1 percent at an annual rate from the observed level of the preceding quarter (Table 1).1 The estimated proportion of growth in OCD coming from demand deposits may be viewed as a weighted average of that fraction applicable to inflows at commercial banks and that applicable at thrifts, with the weights being the institutions' respective shares of growth in OCD. Ta- ble 2 displays key results of sample surveys conducted by the Federal Reserve Banks and the Federal Home Loan Bank Board and results of cross- 1. To derive seasonally adjusted M1-B that abstracts from shifts in 1981 into OCD from non-demand deposit sources, an estimate of seasonally adjusted inflows to OCD from these sources must be subtracted from M1-B. For a description of this procedure, see Appendix III. IV-2 section regression analyses of deposit flows. The figures in the final column provide the primary basis for the range of the estimated proportions of inflows to OCD that originated in demand deposits. Both regression analysis of deposit flows at individual commercial banks and special surveys of commercial banks conducted by the Reserve Banks suggest a slight drop in the proportion of OCD growth at commercial banks coming from demand deposits after January. On the other hand, the FHLBB surveys indicate that the proportion of growth in OCD at thrifts coming from outside such institutions rose somewhat-from 59 percent in January to 66 percent in March. Assuming the composition of these funds from outside thrifts is the same as the overall composition of inflows to OCD at commercial banks, the estimated fraction of OCD at thrifts coming from demand deposits appeared to stay in the vicinity of 50 percent. Consideration was also given to results of three surveys of households conducted by the Survey Research Center of the University of Michigan in February, March, and April. Taking combined results of the three surveys, households estimated on average that about 71 percent of 1. The sample surveys elicited estimates by commercial banks and savings and loan associations of the sources of inflows to their new NOW accounts. Respondents consisted of 9 banks in each Federal Reserve district and 8 S&Ls in each Federal Home Loan Bank district. In the regression analyses, estimates of the proportion of OCD growth coming from demand deposits were obtained by regressing (across commercial banks) changes in demand deposits on changes in OCD, using data from about 9,000 banks that report weekly for reserve requirement purposes. The estimated slope coefficient represents the share of OCD growth accounted for by intrabank shifts from demand deposits. A similar technique was used to estimate intrabank shifts from savings deposits. The regression results were combined with information from the sample surveys to obtain estimates of the proportion from interbank and other sources. IV-3 the funds used to open new interest-bearing transaction accounts in 1981 originated in demand deposits. 1. Although about 700 households were interviewed in each survey, the number of new interest-bearing transaction accounts opened since yearend by the respondents in the three surveys combined was only 170. In light of the small sample size, less weight was given to the household surveys than to other results. Current plans are to conduct an expanded one-time survey in June that will include about 5,000 households, likely providing a sample of about 500 NOW accounts opened this year. Table 1 M1-A AND M1-B ADJUSTED FOR THE IMPACT OF NATIONWIDE NOW ACCOUNTS Assured fraction of new NOW balances shifted from demand deposits Unadjusted Level Mi-A 1981--January February March April May (projected) Q1 Annual growth rate Adjusted using midpoint of range for assumed fraction of new NOW balances shifted from demand deposits Annual growth Level rate $billions) (percent) Range (Midpoint) 373.3 366.6 365.0 365.1 366.3 368.3 -34.7 -21.5 - 5.2 0.3 3.9 -18.6 .750-.800 .700-.750 .700-.750 .700-.750 (.775) (.725) (.7251 (.725 .725 * 385.6 385.9 388.2 392.8 394.9 386.6 3.81 0.9 7.2 14.2 6.4 0.3 416.0 13.7 .750-.800 (.775) 412.4 3.21 419.0 422.9 429.5 431.8 419.3 8.7 11.2 18.7 6.4 6.6 .700-.750 .700-.750 .700-.750 (.725) (.725) (.725 .725 * 412.9 415.4 420.2 422.5 413.6 ($billions) (percent) M1-B 19 8 1--January February March April May (projected) Q1 1.5 7.3 13.9 6.6 1.1 * Not estimated separately. i/ The adjusted growth rates in January reflect changes from the observed Decenber 1980 levels (unadjusted for the impact of shifting to ATS accounts last year) to January levels adjusted to eliminate the estimated effects of shifts to new NOW accounts. Such adjustment facilitates consistent comparison with target ranges for growth in 1981, which are expressed in terms of changes from observed (unadjusted) levels outstanding in the fourth quarter of 1980 to adjusted levels in the fourth quarter of 1981. 2/ Point estimate. Table 2 Various Methods for Estimating the Fraction of Growth in OCD Coming from Demand Deposits (Percent) Fraction Applied to Inflows to OCDs at Commercial Banks Fraction Commercial Bank Applied to Share of Inflows to OCDs 1 Monthly Inflows to OCDs at Thrifts Weighted Average Fraction 2 Reserve Bank and FHLBB Surveys 3 (assuming all funds from other commercial banks are from demand deposits ) 1981--January February March April 82.5 79.0 79.0 79.8 48.7 52.1 52.1 52.5 84.6 84.8 82.8 82.7 77.3 74.9 74.4 75.1 Reserve Bank and FHLBB Surveys (assuming only a portion of funds from other commercial banks are from demand deposits ) 1981--January February March April 82.1 77.6 77.6 78.5 48.4 51.2 51.2 51.8 84.6 84.8 82.8 82.7 76.9 73.6 73.0 73.9 Regression Results for Commercial Banks (coupled with survey data on S&Ls) 1981--January February March April 85.2 72.1 78.3 77.0 50.3 47.6 51.7 50.8 84.6 84.8 82.8 82.7 79.8 68.4 73.7 72.5 S&Ls provided estimates for the proportion of growth in OCDs that 1. came from outside their institutions, but they did not estimate the fracEach method below assumes tion coming specifically from demand deposits. the proportion of these funds from outside thrifts that came from demand deposits to be equal to the overall fraction estimated for commercial banks. For example, in January S&Ls estimated that 59 percent of their new OCDs came from outside their institutions. Thus, the thrift fraction used in the top line of the table-48.7-is the product of 59 percent and the 82.5 percent fraction at commercial banks. 2. Commercial bank surveys were conducted for the January period, for the February to early March period, and for the April period; S&L surveys were conducted for January and for March. 3. For inflows to OCDs at commercial banks estimated to have come from other commercial banks, this method assumes all were shifted or diverted from demand deposits. 4. For inflows to OCDs at commercial banks estimated to have come from other commercial banks, this method assumes the same proportion was shifted or diverted from bank deposits as was the case for shifts within the banks. STRICTLY CONFIDENTIAL CLASS II - FOMC Table 1 SELECTED INTEREST RATES (Percent) Federal fdreasury Period (1) Short-Term Treasury Bills CDs Secondary Comm. Bi Paper Market Auction Market 3-mo. 1-yr. 6-mo. 3-mo. 3-mo. (2) (3) (4) (5) Long-Term U.S Govt. Constant Maturity Yields Bank Prime Rate (7) (6) (FR) 3-yr. 30-yr. New Issue Recently Offered (9) (10) (11) (12) 10-yr. (8) Corp. Aaa Utility MuniHome Mortgages cipal Primary Secondary Market Conv. FNMA Auc. GNMA (13) (14) (15) (16) Bond Buyer Sec. 1980--High Low 19.83 8.68 16.73 6.49 14.39 7.18 15.70 6.66 20.58 8.17 19.74 7.97 21.50 11.00 14.29 8.61 13.36 9.51 12.91 9.54 14.51 10.53 15.03 10.79 10.56 7.11 16.35 12.18 15.93 12.28 14 17 10.73 1981--High Low 20.06 13.48 15.73 12.64 14.03 11.83 15.53 12.08 18.70 13.47 18.04 12.87 20.64 17.00 15.10 12.55 14.38 12.27 13.86 11.81 16.12 14.05 16.26 13.98 10.94 9.49 15.82 14.80 16.61 14.84 15.46 13.18 1980--Apr. May June 17.61 10.98 9.47 13.20 8.58 7.07 11.97 8.66 7.54 13.62 9.15 7.22 16.14 9.79 8.49 15.78 9.49 8.27 19.77 16.57 12.63 12.02 9.44 8.92 11.47 10.18 9.78 11.40 10.36 9.81 12.90 11.53 10.96 12.91 11.64 11.00 8.63 7.59 7.63 16.33 14.26 12.71 14.61 12.88 12.35 12.64 11.30 11.07 July Aug. Sept. 9.03 9.61 10.87 8.06 9.13 10.27 8.00 9.39 10.48 8.10 9.44 10.55 8.65 9.91 11.29 8.41 9.57 10.97 11.48 11.12 12.23 9.27 10.63 11.57 10.25 11.10 11.51 10.24 11.00 11.34 11.60 12.32 12.74 11.41 12.31 12.72 8.12 8.67 8.94 12.19 12.56 13.20 12.66 13.92 14.77 11.53 12.34 12.84 Oct. Nov. Dec. 12.81 15.85 18.90 11.62 13.73 15.49 11.30 12.66 13.23 11.57 13.61 14.77 12.94 15.68 18.65 12.52 15.18 18.07 13.79 16.06 20,35 12.01 13.31 13.65 11.75 12.68 12.84 11.59 12.37 12.40 13.18 13.85 14.51 13.13 13.91 14,38 9.11 9.56 10.11 13.79 14.21 14.79 14.95 15.53 15.21 12.91 13.55 13.62 1981--Jan. Feb. Mar. 19.08 15.93 14.70 15.02 14.79 13.36 12.62 12.99 12.28 13.88 14.13 12.98 17.19 16.14 14.43 16.58 15.49 13.94 20.16 19.43 18.05 13.01 13.65 13.51 12.57 13.19 13.12 12.14 12.80 12.69 14.12 14.90 14.71 14.17 14.58 14.41 9.66 10.10 10.16 14.90 15.13 15.40 14.87 15.24 15.74 13.55 14.13 14.18 Apr. 15.72 13.69 12.79 13.43 15.08 14.56 17.15 14.09 13.68 13.20 15.68 15.48 10.62 15.58 16.54 14.59 1981--Mar. 4 11 18 25 15.73 15.53 14.13 13.48 14.35 14.17 13.06 12.64 13.06 12.76 11.96 11.83 14.13 14.43 12.10 12.27 15.59 15.40 14.10 13.47 15.09 14.89 13.64 12.87 19.00 18.71 17.86 17.50 14.01 13.70 13.24 13.30 13.48 13.18 12.80 15.02 13.03 12.76 12.37 12.59 14.55 14.42 -15.07 14.53 14.18 13.98 14.71 10.40 10.34 9.81 10.09 15.40 15.40 15.40 15.40 15.88 -15.39 -- 14.46 14.17 13.96 14.23 Apr. 1 8 15 22 29 14.93 15.43 15.33 15.55 16.28 12.70 13.37 13.58 13.70 14.16 11.93 12.31 12.67 12.97 13.29 12.08 13.78 13.65 13.62 14.04 13.75 14.35 15.24 15.51 15.48 13.38 13.93 14.66 14.99 14.92 17.50 17.00 17.00 17.00 17.43 13.45 13.75 13.97 14.23 14.49 13.24 13.48 13.61 13.75 13.92 12.79 13.03 13.16 13.24 13.38 14.87 --15.85 16.12 14.89 15.19 15.36 15.78 16.26 10.21 10.45 10.70 10.80 10.94 15.40 15.50 15.65 15.77 15.82 15.74 -16.47 -16.61 14.18 14.69 14.64 14.61r 14.81r May 6 13 20 27 18.91 18.21 15.73 16.72 14.03 14.65 15.10 15.53 17.44 18.70 16.84 18.04 18.43 19.21 15.10 15.36 14.38 14.37 13.86 13.88 15.94 15. 83 p 15.62 15.73p 10.90 10.83 16.12 n.a. -17.21 15.46r 15.37 Daily--May 8 18.14 16.48 14.50 -- 18.73 18.04 19.00 15.21 14.23 13.76 13 18.26 17.01 14.82 18.87 18.19 19.50 15.52 14.49 13.95 14 1 . 16.67 14.65 klv d'l moI l'. wf 8 88 p n for rclo,, I, 9 , 19.01 1and 5 ilrluii'll 18.29 10 19.50 ,.- stalIi 15.35p wee 4 1 .33p av ri)<- 3 1 . 6 of dqhl .... . . 3p v di .i W ( l 1v ditA i (ol lmi /i .11 * ra w W1 tc' - t ial lIhi STRICTLY CONFIDENTIAL CLASS II - FOMC Table 2 1/ NET CHANGES IN SYSTEM HOLDINGS OF SECURITIES(Millions of dollars, not seasonally adjusted) Treasury Coupons Net Purchases 3/ Within Period Treasury Bills Net Change 21 1-year 1 - 5 5 - 10 1976 1977 1978 1979 1980 863 4,361 870 6,243 -3,052 472 517 1,184 603 912 3,025 2,833 4,188 3,456 2,138 1,048 758 1,526 523 703 1980--Qtr. I II III IV -2,945 3,249 -3,298 -58 1981--Qtr. I -2,514 1980--Nov. Dec. -1,100 1,282 1981--Jan. Feb. Mar. -3,764 -357 1,607 Apr. 1,141 1981--Mar. 4 11 18 25 Apr. May 2927/ 110137 100 Federal Agencies Net Purchases 4/ Net RPs Total Net Change Outright Holdings Total 5/ 891 1,433 127 454 668 6,227 10,035 8,724 10,290 2,035 3,607 -2,892 -1,774 -2,597 2,462 -2,114 6,307 -2,157 -1 362 2,373 -1,381 1,107 - -2,555 -1,694 S -1,100 332 -492 Within Over 10 Total 642 553 1,063 454 811 5,187 4,660 7,962 5,035 4,564 3557/ 1,156541 1-year 1 - 5 5 - 10 Over 10 836 2,395 1,234 100 -- 100 -1,360 -- - ',69 164 89 1,592 - 1,399 209 -4 -1,399 115 469 89 12.1 35.0 836 76.4 -1,696 832 -831 -1,019 459 1,892 730 -2,320 1,353 -444 6,191 3,035 241 45.9 6/ - )3, 6 13 LEVEL--May 13 382 836 209 1 8 15 22 29 -3,764 - 115 (FR) 2.4 4.7 1.0 0.6 Change from end-of period to end-of -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 from maturing bills. 8.7 131.0 Exclude 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 the net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowing from the System and redemptions (-) of agency and Treasury coupon issues. Includes changes in RPs (4), matched sale-purchase transactions (-), and matched purchase-sale transactions (+) were exchanged for new 2-year notes At their maturity the hills Maturing 2-year notes were exchanged on June 2, 1980, for special 2-day bills -,73 -6.0 STRICTLY CONFIDENTIAL (FR) CLASS II - FOMC TABLE 3 SECURITY DEALER POSITIONS AND BANK POSITIONS (Millions of dollars) U.S. Govt. Securities Dealer Positions I Futures & Forwards Cash Bills I Coupons Bills I Coupons 8,838 1,972 1980--lligh Low Underwriting Syndicate Positions Corporate Municipal Bonds Bonds Excess Ees1 s Reserves 881 19 2,263 -1,482 Total Member Bank Reserve Positions Borrowing at FRB B ocrwi AatsFRn Seasonal Special 3,438 215 174 5 816 0 3,298 12 2,471p 768p 226p 10 5 p 214p 0 2,273p 581p Adjustment 1981--High Low 15,668 1,132p* 4,633 1,105 -12,865 -5,930* -3,599 -2,560 741p -234p 1980--Apr. May June 7,838 4,008 3,724 167 1,372 1,429 -5,227 -772 3,526 -1,488 -1,563 -1,880 197 178 203 2,455 1,018 379 155 63 12 552 743 307 1,748 212 61 July Aug. Sept. 4,581 5,108 3,681 634 798 -416 2,438 3,081 414 -1,015 -1,974 -1,185 284 302 256 395 658 1,311 6 9 25 253 241 91 136 408 1,196 Oct. Nov. Dec. 2,447 3,047 4,287 143 149 20 -1,556 -7,068 -9,812 -1,685 -2,663 -2,751 206 498p 2 55 p 1,310 2,059p 6 1, 90p 1981--Jan. Feb. Mar. 9,985 13,317 13,579 1,584 1,812 3,415 -11,976 -12,203 -11,561 -2,884 -2,798 -3,251 5 44 1,3 5p 1,303p 1 00 ,0 p Apr. 1981--Mar. 8,518* 4 11 18 25 Apr. 1 8 15 22 29 May 6 13 20 27 3,149* -7,277-" -3,050 p 183p 381p 15 194 9 1,123p 58 3 p 581p 688p -3,599 -3,107 -2,859 -3,022* -3,156* 650p 51p 3 18 p -234p 105p 2,580* -5,930* -2,873* 396p 2,471p 5p 1,734p - , 4p* - ,750p* p 176 p 18 5p 19 3p 2 00p -10,508 -8,809 -6,538 -6,698* -6,504* , 33p* 1 1,299p 768p 774 p 888p 4,633 4,063 2,769 2,390* 2,914* 2 1,226p 6 1,15 p 4 80 p 697p 2 30p 34 3 p 160p 13,177 12,220 9,276 8,280* 4,432* 65 48p 0 0 96 1,17up -2,753 -3,160 -3,387 -3,237 6 120p 148p ] 6 2p -11,203 -12,865 12,436 -10,498 8 1,244 1,963p 4 1,57 p 1,338p 3 2,736 2,878 2,641 4,233 2 0 0 0 9 p 14,314 14,944 13,662 12,183 2,070* 2 1,13 p* 66 97 p 116p 1, 4 64 p 887p 2 1,14 p 864p 2 8 2, 7 p 22 2 44 0p 16 2 p 149 p 149 p 1 75 p p 725p 99 3 p 7 15 p 2,103p 198 p 2, 73p 1, 2 1,508p NOTE: Government securities dealer cash positions consist of securities already delivered, commitments to buy (sell) securities on an outright basis Futures and for immediate delivery (5 business days or less), and certain "when-issued" securities for delayed delivery (more than 5 business days). Underwriting other commitments involving delayed delivery; futures contracts are arranged on organized exchanges. forward positions include all syndicate positions consist of issues in syndicate, excluding trading positions. Monthly Weekly data are daily averages for statement weeks, except for corporate and municipal issues in syndicate, which are Friday figures. Monthly data for dealer futures and forwards are end-ofaverages for excess reserves and borrowing are weighted averages of statement week figures. month figures for 1980. * Strictly confidential. 

Federal Reserve (1981, May 17). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19810518

@misc{wtfs_bluebook_19810518,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1981},
  month = {May},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19810518},
  note = {Retrieved via When the Fed Speaks corpus}
}