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. October 30, Strictly Confidential (FR) 1987 Class I FOMC MONETARY POLICY ALTERNATIVES Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System STRICTLY CONFIDENTIAL (FR) October 30, 1987 CLASS I - FOMC MONETARY POLICY ALTERNATIVES Recent Developments (1) Immediately following the September 22 FOMC meeting, non- borrowed reserve paths continued to be constructed assuming $600 million of adjustment plus seasonal borrowing. Actual borrowing in the first complete maintenance period, ending October 7, averaged somewhat above the assumed level, owing in part to unusual borrowing related mostly to Reserve Bank computer problems. Apart from higher levels around quarter-end, federal funds traded mainly in a 7-1/4 to 7-1/2 percent range during that maintenance period, about 1/4 of a percentage point higher than just before the September meeting. Federal funds and other interest rates subsequently rose further through mid-October as market participants appeared to anticipate another monetary tightening in an environment of firmer policy abroad, concerns about the dollar, and pessimism about U.S. inflation prospects. (2) Stock prices declined appreciably in the first half of Octo- ber and, on October 19, share prices plunged in chaotic trading. Investors attempted to shift large amounts of funds into fixed-income assets, especially Treasury securities, driving down interest rates sharply. The Federal Reserve pledged to provide liquidity to the economic and financial system, and injected reserves aggressively on the following days, amid continuing volatile market conditions. Federal funds dropped from above 7-1/2 percent to 7 percent and below immediately following the stock market collapse. During those days, late in the reserve maintenance period ending October 21, the Desk sought to avoid the surge in borrowing implied by the formal reserve path. Actual borrowing rose substantially on the final day of the period, however, owing to sizable misses in estimates of market factors and required reserves, boosting borrowing for the two weeks to $525 million. Reflecting cautious reserve management by depository institutions, excess reserves increased to $1.0 billion. (3) In the current maintenance period the borrowing assumption has been reduced to $500 million and then to $450 million, consistent with a more generous provision of liquidity and easier money market conditions in the unsettled market environment. The Desk has continued to provide reserves each day through System repurchase agreements, frequently underscoring its intentions by entering the market at an early hour. Federal funds traded mostly in a 7 to 7-1/4 percent range over the early part of the current maintenance period, but more recently have moved below 7 percent following massive injections of reserves by the Desk. Total reserve growth in October accelerated appreciably to a 12 percent annual rate, reflecting the large increase in required reserves associated with a surge in transactions deposits, as well as greater demand for excess reserves. (4) Equity prices have fluctuated sharply over an extraordinar- ily wide range following their collapse on October 19; with some recovery in recent days, most major stock indices are now around 10 to 15 percent above their October lows. Even so, these indices are about 25 to 35 percent below their peaks of late August, which had implied price-earnings ratios and dividend yields around record levels. Although prices of fixed-income securities generally rose substantially in the aftermath of the stock market collapse, these markets also were quite volatile as investor sentiment shifted rapidly and market-makers were reluctant to take positions. Yields on long-term Treasury and high-grade corporate bonds have fallen around one percentage point since stock prices collapsed, reversing much of the run-up since August. However, with concerns about credit quality accentuated, yields on some lowrated corporate issues have risen on balance since October 16. With market participants apparently reassessing the outlook for the economy, inflation, and monetary policy, bond markets generally have retained their earlier gains despite some stock market recovery and a sharp drop in the dollar in recent days. In short-term markets, Treasury bill rates have shown net declines of 1-1/2 to 1-3/4 percentage points since October 16, in association with actual and anticipated easing of monetary policy as well as increased demands for safe and liquid instruments, while rates on many private money market instruments have fallen somewhat less. Although securities markets have been less volatile in recent days, the uncertain effects of previous developments apparently have led some market participants to limit exposure to some nonbank dealers by exercising greater caution in lending securities or funds or in when-issued trading. (5) The dollar edged lower during the first half of October, especially after the release of U.S. trade data intensified market concern over the failure of the U.S. current account balance to improve. Doubts over the status of the Louvre accord were heightened by Secretary Baker's public criticisms of German monetary tightening. Though the dollar firmed somewhat during the worldwide stock market collapse, by the end of that week the dollar again came under downward pressure amid widespread rumors that dollar exchange rates under the Louvre accord would be allowed to adjust downward. In addition, interest rates in the United States had dropped substantially relative to those in other major industrial countries. As the dollar con- tinued to fall, U.S. monetary authorities intervened in size. Over the entire intermeeting period, the dollar declined by about 4 percent on a weighted average basis. U.S. intervention came to $460 million, ; the Bank of England also reduced its official lending rates by 1/2 percentage point, and U.K. short-term market rates dropped by about 1-1/8 percentage points from mid-October. Money market rates in Japan were little changed during the period, while those in Germany declined substantially very late in the period. by 70, Long-term bond rates dropped 110, and 90 basis points in Germany, Japan, and the United Kingdom, respectively. (6) Preliminary data indicate an acceleration in the growth of all the monetary aggregates in October, associated in large measure with massive portfolio adjustments in the wake of the collapse in equity prices. Demand deposits rose sharply after midmonth as financial transactions volumes surged. In addition, there were strong flows into currency, and money market funds jumped reflecting shifts to more liquid assets. Managed liabilities of banks also increased, partly to finance a sharp rise in security loans. These loans picked up appreciably right after midmonth, perhaps to fund enlarged stock inventories in the hands of specialists and temporary liquidity needs of mutual funds as well as to substitute for dealer RP borrowing when that market turned less hospitable; in addition, banks reported that some dealers were taking down loans to test existing credit arrangements. Ml is estimated to have increased at around a 15 percent rate in October, while M2 -5and M3 picked up to 6-3/4 and 7-1/4 percent rates, respectively. Growth of the broader aggregates over September and October averaged about 6 percent, as compared with the Committee's short-run paths of 4 percent and 6 percent for M2 and M3, respectively. By October, M2 had increased at a 4-1/2 percent rate from the fourth-quarter 1986 base of its longer-run range and M3 at a 5-1/2 percent rate. (7) Growth of the aggregates had slackened in September from their relatively strong August pace. Flows into liquid deposits generally were subdued, extending the pattern since this spring of substitution into higher yielding instruments as market rates rose and the bank deposit yield curve steepened. Reflecting the effects of the uptrend in interest rates earlier in the year, the velocities of the broader aggregates rose in the third quarter at a pace close to their increases over the first half of the year. M1 velocity turned up sharply in the third quarter, to a 6 percent rate, following its 2-1/2 year drop. (8) Growth of nonfinancial debt picked up a bit in September to a 7-3/4 percent pace, owing in part to an increase in financial restructuring activity by businesses and some strengthening of consumer credit. September's growth left the debt aggregate near the middle of its 8 to 11 percent annual range. In October, bond offerings by well-rated firms had been very light over the first half of the month but burgeoned following the drop in interest rates, and hundreds of firms have announced stock repurchase programs in light of lower share prices. Tax-exempt bond issuance, on the other hand, had not yet picked up by month-end despite the decline in municipal bond yields. Federal borrowing ballooned in October as the Treasury made up for offerings that had earlier been deferred owing to debt-ceiling constraints. KEY MONETARY AGGREGATES (Seasonally adjusted annual rates of growth) QIV'86 to OctoberP OctoberP August September Ml 5.3 0.5 15-1/4 7 M2 6.1 5.2 6-3/4 4-1/2 M3 7.3 5.5 7-1/4 5-1/2 Domestic nonfinancial debt 7.4 7.8 n.a. 91 10.8 9.7 n.a. 81 Nonborrowed reserves 3 5.0 -1.3 12 7-1/4 Total reserves 5.7 -1.0 12-1/4 7-1/2 Monetary base 6.5 5.1 11 8 515 531 546 1032 795 1035 Money and credit aggregates Bank credit Reserve measures2 Memo: (Millions of dollars) Adjustment plus seasonal borrowing Excess reserves 1. Q4:1986 to September 1987. 2. The October figures assume a level of adjustment plus seasonal borrowing of $450 million over the reserve period ending November 4 and excess reserves of $1,200 million. 3. Includes "other extended credit" from the Federal Reserve. p - Preliminary. NOTE: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for two-week reserve maintenance periods that overlap months. Reserve data incorporate adjustments for discontinuities associated with implementation of the Monetary Control Act and other regulatory changes to reserve requirements. Policy alternatives (9) days, Securities markets have been somewhat less volatile in recent but investor psychology remains unsettled and financial markets are likely to stay skittish for quite awhile. Moreover, the effects of the stock market crash on financial institutions and nonfinancial sectors are uncertain, and are likely to surface only gradually. In these circumstances, a greater element of flexibility in the conduct of monetary policy would seem appropriate, at least over the near term. In addition to standing ready to provide liquidity should it be required in the event of particular financial strains, the Federal Reserve also may need to be more prepared than usual to adjust the basic stance of monetary policy as emerging economic trends become more apparent. (10) The three policy options presented in this bluebook embody the staff's working assumption that conditions in financial markets will gradually return more to normal, as the fears and dislocations that accompanied the plunge in stock prices subside further. Thus, as usual, the options are keyed to the various borrowing assumptions, though, as noted above and embodied in Variant I of the draft directive discussed in paragraph (19), policy may well have to be implemented with greater flexibility than under less uncertain conditions. One additional source of uncertainty is the relationship between a given borrowing assumption and the associated pressures in money markets. An increased reluctance by depository institu- tions to be seen at the discount window would lead to more vigorous bidding for funds in the market and higher federal funds rates for any particular borrowing level. In the discussion, the staff has assumed that the return to less turbulent conditions will be consistent with no more than a slight drawing back from the discount window. If market conditions remain un- settled or depository institutions are concerned about perceptions of their safety and soundness, the assumed borrowing levels would be associated with higher federal funds rates; alternatively in such conditions, the federal funds and money market rates discussed under each alternative would require, at least temporarily, somewhat lower borrowing objectives. With markets particularly sensitive to incoming information, shifting expectations about the course of monetary policy could also affect the federal funds rate for a time. In these circumstances the borrowing-funds rate relationships given in paragraph (11) are subject to considerable uncertainties. (11) Alternative B would maintain the easier reserve conditions that have come to prevail recently; the assumption for adjustment and seasonal borrowing would remain at $450 million, with federal funds trading expected to center at 7 percent or a bit below. Additional easing would be sought under alternative A, either through a further reduction in the borrowing assumption to $250 million or a 1/2 point cut in the discount rate; the funds rate would be likely to fall to, or a little percent area. conditions, below, the 6-1/2 Alternative C would involve some slight firming of reserve with borrowing being increased to $550 million and the funds rate probably moving back to around 7-1/4 percent. (12) The table below presents outcomes for money growth from September to December that might be expected to accompany each of these alternatives.1/ The margin of uncertainty surrounding these point estimates 1. The current directive references FOMC expectations for money growth from August to December. However, with monetary data for September now essentially complete, the usual practice of using the last month of the previous quarter as the base has been followed in specifying the alternatives in this bluebook. Implied growth rates under each alternative from August to December, and from the fourth quarter of 1986 to the fourth quarter of 1987, can be found on the detailed table on page 10. is considerably larger than usual. The extent to which heightened liquidity preferences together with substantial variations in the volumes of financial transactions could affect future demands for the monetary aggregates is difficult to gauge at present. How quickly money markets and depositories will re-establish a more normal structure of short-term market and deposit interest rates--and therefore the movement of opportunity costs--under each alternative also is hard to assess. Alt. A Alt. B Alt. C 6-1/2 7-1/4 9 6 7 8 5-3/4 6-3/4 7-1/2 4 to 8 5 to 9 5 to 9 Growth from September to December M2 M3 M1 Associated federal funds rate range (13) Under alternative B, persistence of the federal funds rate near 7 percent implies that a substantial rise of Treasury bill rates would accompany a partial restoration of normal interest rate relationships. As exceptional demands for short-term Treasuries unwind, the 3-month bill rate could move from the current 5-1/4 percent level to perhaps around 6 percent, while private rates might rise relatively little. Even with a rate backup, short-term rates would be 1/2 to 1 full percentage point below their average levels prior to the stock market crash. costs of liquid deposits would still As a consequence, opportunity be appreciably below early fall peaks. Interest rate incentives could thus begin to reinforce the impact of any Alternative Levels and Growth Rates for Key Monetary Aggregates Alt. A M2 Alt. B Alt. C Alt. A M3 Alt. B Alt. C Alt. A M1 Alt. B Alt. C 2847.7 2862.1 2874.5 2847.7 2862.1 2874.5 2847.7 2862.1 2874.5 3583.5 3605.2 3621.7 3583.5 3605.2 3621.7 3583.5 3605.2 3621.7 747.6 750.9 751.2 747.6 750.9 751.2 747.6 750.9 751.2 2890.6 2908.4 2921.8 2890.6 2906.7 2917.6 2890.6 2905.8 2915.5 3643.3 3668.2 3687.8 3643.3 3667.6 3685.1 3643.3 3667.3 3683.7 760.7 767.0 768.1 760.7 766.2 766.2 760.7 765.8 765.3 2.6 6.1 5.2 2.6 6.1 5.2 2.6 6.1 5.2 2.3 7.3 5.5 2.3 7.3 5.5 2.3 7.3 5.5 1.6 5.3 0.5 1.6 5.3 0.5 1.6 5.3 0.5 6.7 6.7 4.5 6.7 6.3 4.0 7.2 8.2 6.4 7.2 8.0 5.7 7.2 7.9 5.4 15.2 10.0 1.7 15.2 8.7 0.0 15.2 8.1 -0.9 Quarterly Ave. Growth Rates 1986 Q4 1987 Q1 Q2 Q3 Q4 9.3 6.4 2.3 2.9 6.1 9.3 6.4 2.3 2.9 5.9 8.3 6.5 4.2 4.9 7.0 8.3 6.5 4.2 4.9 6.9 8.3 6.5 4.2 4.9 6.8 17.0 13.1 6.4 -0.1 8.2 17.0 13.1 6.4 -0.1 7.7 17.0 13.1 6.4 -0.1 7.5 Aug. 87 to Dec. 87 Sep. 87 to Dec. 87 5.8 6.0 5.6 5.7 6.6 7.0 6.9 9.0 6.1 8.0 5.7 7.5 4.1 4.4 4.6 4.5 4.1 4.4 4.5 4.5 5.4 5.6 5.8 5.7 6.1 7.0 6.9 7.1 6.1 7.0 6.6 6.9 6.1 7.0 6.5 6.9 Levels in billions 1987 July August September October November December Monthly Growth Rates 1987 July August September October November December Sep. 87 Oct. 87 Dec. 87 Q4 87 1987 Target Ranges: 5.5 to 8.5 5.5 to 8.5 1 ACTUAL AND TARGETED M2 Chart Billions of dollars 3100 - Actual Level Estimted Level -- * Short-Run Alternatives 4 3050 -4 3000 8.5 -4 2950 .1 2900 - 2900 - 2880 -- 2800 2750 i 0 N 1986 I I D I J I F i I M A I M I J J 1987 I I A I I 8 0 I N D 2700 Chart 2 ACTUAL AND TARGETED M3 Billions of dollars i - Actual Level --Estimated Level * Short-Run Alternatives - 3850 3800 -- 3750 6.5X 3700 -4 3650 5.5 -1 3600 -13550 ..3500 -- 3480 -43400 - I O I I N 1986 D I J I F M I A I M I J J 1987 I i A I 8 I 0 I N D I 3350 Chart 3 M1 Billions of dollars 840 --- Actual Letvl 830 Estimated Level --- ------- Growth From Fourth Quarter * Short-Run Alternatives p V 15Z 820 S- 810 CI p 800 p p p p p I p 790 p p p p p p p p 780 770 So c 5 1SX - S - 760 _-x 750 740 730 720 - OX 01 - 710 700 690 I 0 I N D 1986 I I J I F M I I I I I I I I I I I I I I A M J J 1987 A S I II i 0 N L D 680 Chart 4 DEBT Billions of dollars 8600 S- Actual Level Estimated Level - 8500 8400 8300 8200 8100 8000 7900 7800 7700 S I 7600 7500 7400 7300 0 I I I N 1986 D I J I F I M I A I M I J 1987 I J I A I 8 I O I N D 7200 -11- added liquidity preference in bolstering inflows to the liquid deposit and money market fund components of the aggregates. At the same time, however, a return toward more normal volumes of financial transactions would tend to depress demand deposits from recently elevated levels. Under these condi- tions, M2 might expand from September to December at around a 6 percent annual rate. This outcome would bring M2 growth for the year to 4-1/2 per- cent, compared with its 5-1/2 to 8-1/2 percent long-run range. Growth of its M1 component would be expected to slow substantially following its October bulge, with growth at 8 percent over the September to December period and about 7 percent for the year. (14) M3 growth over the fourth quarter at around 7 percent is expected under alternative B, bringing growth for the year to 5-3/4 percent, just within its annual range. to grow at a moderate pace. Bank and thrift assets are expected The recent bulge in security loans at banks is likely to be at least partly reversed; business loans might be fairly strong, however, despite somewhat greater issuance of investment-grade bonds, as inventory accumulation boosts financing needs and planned funding with junk bonds of loans for leveraged buyouts is postponed. Overall, the debt of domestic nonfinancial sectors is projected to grow at around an 8 percent rate from September to December, implying growth of 9 percent from the fourth quarter of 1986 to the fourth quarter of 1987. (15) Under the reserve market conditions of alternative B, most bond yields might edge higher as the increased preference for fixed-income securities subsides and the possibility of further near-term monetary ease is seen as diminishing. However, market concerns about potential softness -12- in economic activity and the associated scaling back of inflation expectations could keep long-term rates below their levels at the time of the last FOMC meeting. Downward pressures on the value of the dollar in foreign ex- change markets could continue as market attention focuses on U.S. external imbalances, and would be accentuated by any perceptions that foreign monetary authorities were unwilling to adopt more expansionary policies. If dollar weakness occurred in the context of subdued growth in the U.S. economy and, particularly around the time of the Treasury's midquarter refunding, of continued foreign participation in U.S. securities markets, bond prices might be little affected. But if pressures on the dollar are accentuated by disappointing progress in federal deficit reduction or if U.S. economic activity remains robust, an inverse relationship between the dollar and bond yields could reemerge. (16) Under alternative A, the further easing of the funds rate could help allay investor concerns about immediate financial strains. Other private rates in money markets would slip off further, although the 3-month bill rate might rise into the 5-1/2 percent area. Precautionary demands for liquid monetary assets might unwind more rapidly under this alternative. But the sharply narrower spreads of market over deposit rates would seem likely to encourage large inflows into liquid accounts. Growth in OCDs would be especially affected, with expansion in M1 likely to average 9 percent over September to December. M2 would be expected to increase at a 6-1/2 percent rate over this interval as its nontransaction components picked up noticeably from September when inflows had been damped by previous increases in interest rates. -13(17) Under alternative A, long-term bond yields would likely continue to decline as market perceptions of impending weakness in the economy tended to work against a revival of inflation concerns. However, should the dollar fall precipitously on foreign exchange markets or the further easing of policy be seen at some point as imparting substantial strength to the outlook for the economy or prices, any drop in long-term yields might be quite limited. While downward pressure on the dollar could well intensify under this alternative, foreign central banks might be more likely to ease monetary policies as the outlook for their export industries weakens further. (18) Alternative C calls for a slight firming of reserve pres- sures, indexed by an increase in borrowing of only $100 million, and a rise in the federal funds rate to 7-1/4 percent. The small increase in reserve pressures under this alternative would better guard against substantial further weakness in the exchange value of the dollar, but would leave borrowing and the federal funds rate a bit below levels prior to the stock market crash. Even so, the choice of alternative C before any dollar decline were generally linked with renewed inflation concerns would risk further disquieting domestic financial markets. A downward movement of prices in private credit and equity markets would be likely, although if the tightening were seen as contributing to economic weakness or damping any incipient inflation, the rally in the Treasury bond market could be extended. The 3-month Treasury bill rate could move into the 6-1/2 per- cent area, with private short-term rates also rising appreciably. in the aggregates under alternative C would be retarded a little Growth over the rest of the quarter by the renewed upward movement in opportunity costs -14- on monetary assets. M2 growth would be expected to be around a 5-3/4 percent rate over September to December, though its M1 component still would register growth around 7-1/2 percent given its October bulge. Both aggregates would be entering the new year on fairly slow underlying growth paths. The restraining effect on M3 would be muted as business credit demands shifted more to banks and other short-term sources in response to less attractive long-term financing. -15Directive language (19) Draft language for the operational paragraph is shown below, with two variants proposed for Committee consideration. Variant I takes account explicitly in several ways of the possible need to continue to implement policy with special flexibility over the coming intermeeting period, given unusual uncertainties about conditions in financial markets and the economy. It also addresses the potential for exceptional demands for liquidity. Variant II follows the language of the current directive much more closely, with relatively minor modifications to take account of heightened market and economic uncertainties. This variant is shown with proposed changes and additions in the usual strike-through and capitalized form. In keeping with the asymmetric specifications in the bluebook, alternative A calls for decreasing "somewhat" and alternative C for increasing "slightly" the degree of pressure on reserve positions. OPERATIONAL PARAGRAPH Variant I In the implementation of policy for the immediate future, the Committee seeks to [decrease somewhat (Alt. A)] [maintain (Alt. B)] [increase slightly (Alt.C)] the existing degree of pressure on reserves positions; the Committee anticipates that this approach to operations will prove consistent with its desire to ensure the provision of adequate liquidity in the present economic and financial environment. The Committee recognizes that the volatile conditions in financial -16markets and uncertainties in the economic outlook may call for a special degree of flexibility in open market operations. Somewhat/slightly lesser reserve restraint would/might, or somewhat/slightly greater reserve restraint would/might, be acceptable depending on conditions in financial markets, the strength of the business expansion, indications of inflation- ary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. The outlook for monetary growth over the months ahead is subject to unusual uncertainty. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from September through December at annual rates of around ____ percent and around____ percent, respectively, but more rapid growth is possible should preferences for liquidity be particularly strong. Over the same period, growth in M1 is expected to be well above its average pace in the previous several months. The Committee anticipates that relatively frequent consultations might have to be called by the Chairman over the coming intermeeting period, particularly if unsettled market conditions imply the need for unusual flexibility in the implementation of policy. The Chairman may also call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of ____to ____ percent. Variant II In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT (Alt. A)/maintain (Alt. B)/ INCREASE SLIGHTLY (Alt. C) the EXISTING degree of pressure on reserve -17positions [DEL: sought in recent weeks]. Somewhat (slightly) greater reserve restraint or somewhat (slightly) lesser reserve restraint would (might) be acceptable depending on CONDITIONS IN FINANCIAL MARKETS, indications of inflationary pressures, the strength of the business expansion, develop- ments in foreign exchange markets, as well as the behavior of the MONETARY aggregates. This approach is expected to be consistent with growth in M2 and M3 over the period from [DEL: August] SEPTEMBER through December at annual rates of around [DEL: 4] ____ percent and around [DEL: 6]____ percent, respectively. OVER continue to grow relatively THE SAME PERIOD, GROWTH IN M1 is expected to [DEL: slowly] BE WELL ABOVE ITS AVERAGE PACE OF THE PREVIOUS SEVERAL MONTHS. Chairman may call for Committee consultation if The it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate 5 to 9]___ to___ percent. persistently outside a range of[DEL: SELECTED INTEREST RATES (percent) November Short-Term __ -W --- Treasury bills--secondary market-- federal funds 3 month 6 month 12 month paper 1-month coim. money market mutual fund bank prime loan 3-year 10-year 30-year corp. A utility rec off 1987 conventional homem-or tgagessec mkt primary market -- -U.S. Gov't. constant---- maturity yields-cds sec mkt 3-month 2, muni. Bond Buyer fixedrate fixedrate ARM 9.55 5.75 7.21 5.09 5.16 7.35 5.32 7.94 5.47 7.91 5.60 7.21 5.17 9.50 7.50 8.60 6.24 9.38 7.02 9.52 7.16 10.83 9.03 8.72 7.15 10.97 9.31 10.99 9.29 9.09 7.62 87--High Low 7.62 5.95 6.84 5.24 7.36 5.36 7.64 5.40 8.49 5.83 7.69 5.88 6.70 5.28 9.25 7.50 9.29 6.37 9.96 7.03 9.97 7.34 11.50 8.79 9.59 6.92 11.98 8.97 11.58 9.03 8.45 7.47 Monthly OCT 86 NOV 86 DEC 86 JAN 87 FEB 87 MAR 87 APR 87 MAY 87 JUN 87 JUL 87 AUG 87 SEP 87 5.85 6.04 6.91 6.43 6.10 6.13 6.37 6.85 6.73 6.58 6.73 7.22 5.18 5.35 5.53 5.43 5.59 5.59 5.64 5.66 5.67 5.69 6.04 6.40 5.26 5.41 5.55 5.44 5.59 5.60 5.90 6.05 5.99 5.76 6.15 6.64 5.41 5.48 5.55 5.46 5.63 5.68 6.09 6.52 6.35 6.24 6.54 7.11 5.69 5.76 6.04 5.87 6.10 6.17 6.52 6.99 6.94 6.70 6.75 7.37 5.74 5.84 6.63 5.95 6.12 6.22 6.39 6.83 6.86 6.57 6.62 7.26 5.22 5.21 5.45 5.50 5.32 5.32 5.49 5.79 6.01 6.02 6.00 6.22 7.50 7.50 7.50 7.50 7.50 7.50 7.75 8.14 8.25 8.25 8.25 8.70 6.56 6.46 6.43 6.41 6.56 6.58 7.32 8.02 7.82 7.74 8.03 8.67 7.43 7.25 7.11 7.08 7.25 7.25 8.02 8.61 8.40 8.45 8.76 9.42 7.70 7.52 7.37 7.39 7.54 7.55 8.25 8.78 8.57 8.64 8.97 9.59 9.48 9.31 9.08 8.92 8.82 8.84 9.51 10.05 10.05 10.17 10.37 10.84 7.47 7.23 7.23 6.99 7.03 7.03 7.87 8.35 8.13 8.09 8.11 8.61 9.82 9.56 9.34 9.15 9.04 9.01 10.05 10.58 10.38 10.20 10.39 11.01 9.97 9.70 9.31 9.20 9.08 9.04 9.83 10.60 10.54 10.28 10.33 10.89 8.06 7.90 7.68 7.62 7.56 7.54 7.58 7.88 7.93 7.81 7.76 7.95 Heekly JUL 1 87 JUL 8 87 JUL 15 87 JUL 22 87 JUL 29 87 6.61 6.64 6.52 6.57 6.63 5.73 5.63 5.59 5.61 5.79 5.99 5.65 5.52 5.69 6.01 6.29 6.22 6.13 6.18 6.37 6.92 6.76 6.68 6.63 6.70 6.86 6.69 6.58 6.49 6.53 6.04 6.06 6.05 6.01 5.95 8.25 8.25 8.25 8.25 8.25 7.76 7.65 7.65 7.70 7.86 8.34 8.30 8.37 8.44 8.59 8.48 8.43 8.53 8.65 8.84 10.01 10.07 10.12 10.34 10.44 8.16 8.05 8.03 8.08 8.14 10.20 10.18 10.13 10.23 10.28 10.36 10.30 10.23 10.23 10.27 7.86 7.86 7.81 7.77 7.75 5 87 12 87 19 87 26 87 6.75 6.58 6.74 6.76 5.98 5.88 5.99 6.16 6.13 6.07 6.09 6.23 6.46 6.48 6.48 6.58 6.76 6.72 6.71 6.74 6.62 6.60 6.61 6.59 5.99 6.00 6.00 5.99 8.25 8.25 8.25 8.25 8.01 7.98 7.92 8.05 8.72 8.72 8.65 8.76 8.95 8.95 8.86 8.97 10.45 10.24 10.34 10.44 8.20 8.04 8.12 8.09 10.36 10.27 10.36 10.56 10.35 10.34 10.30 10.33 7.73 7.78 7.77 7.77 2 87 9 87 16 87 23 87 30 87 6.85 6.95 7.21 7.26 7.56 6.21 6.36 6.34 6.45 6.55 6.31 6.52 6.55 6.72 6.87 6.76 7.12 7.11 7.10 7.23 6.92 7.20 7.39 7.43 7.59 6.78 7.09 7.35 7.33 7.41 6.03 6.04 6.21 6.25 6.34 8.25 8.68 8.75 8.75 8.75 8.30 8.63 8.64 8.66 8.84 9.05 9.39 9.41 9.42 9.57 9.23 9.56 9.59 9.58 9.72 10.60 10.86 10.93 11.00 11.08 8.47 8.67 8.65 8.65 8.88 10.92 10.96 11.03 11.13 11.43 10.63 10.91 10.99 11.02 11.18 7.84 7.96 7.99 7.99 8.08 7 87 14 87 21 87 28 87 7.43 7.59 7.37 7.03 6.62 6.84 6.37 5.24 6.89 7.36 6.98 5.97 7.39 7.64 7.22 6.40 8.03 8.47 8.49 7.43 7.47 7.69 7.66 6.96 6.45 6.56 6.70 6.53 8.82 9.25 9.25 9.00 8.97 9.29 9.07 8.10 9.68 9.96 9.85 8.94 9.78 9.97 9.93 9.08 11.24 11.50 10.75 10.60 9.03 9.59 9.01 8.78 11.65 11.98 11.08 10.98 11.21 11.58 11.36 10.97 8.15 8.45 8.37 8.20 7.00 6.76 6.93p 5.29 5.03 5.27 6.00 5.80 5.98 6.49 6.24 6.32 7.27 7.39 7.40 6.87 6.94 6.93 9.00 9.00 9.00 8.20 7.95 8.01p 8.98 8.89 8.87p 9.11 9.08 2 9.0 p AUG AUG AUG AUG OCT OCT OCT OCT Daily OCT 23 87 OCT 29 87 OCT 30 87 7.30 NOTE: Weekly data for columns 1 through 11 are statement week averages. Data in column 7 are taken from Donoghue's Honey Fund Report. Columns 12, 13 and 14 are 1-day quotes for Friday, Thursday or Friday, respectively, following the end of the statement week. Column 13 is the Bond Buyer revenue index. Column 14 is the FNHA purchase yield, plus loan servicing fee, on 30-day mandatory delivery commitments. Column 15 is the average contract rate on new commitments for fixed-rate mortgagestFRMs) with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial contract rate on new ortgages(ARMs) at S&Ls offering both FRMs and ARHs with the same number of discount points. commitments for 1-year, adjustable-rate Strictly Confidential (FR)II Class FOMC Money and Credit Aggregate Measures Seasonally adjusted Period PEBCINT AIONAL GROIIT ANIUALLI (UIZ TO QUl) 1984 M1 M2 1 2 NOV. 2, Domestic nonfinancial debt2 Money stock measures and liquid assets Bank credit nontransactions total loans U.S and Investments' 7 government other 8 9 components in M2 In M3 only 3 4 M3 L 5 8 1987 total2 10 5.4 7.9 8.6 23.2 10.7 12.2 11.2 15.9 13.4 13.9 1985 12.1 8.0 7.8 3.3 7.7 8.5 10.2 15.2 12.6 13.2 1986 15.3 9.0 6.9 8.7 8. 8.1 9.8 14.6 12.7 13.2 17.0 13.1 9.3 6.4 6.7 4.1 4.3 6.9 8.3 6.5 8.4 6.3 8.8 10.1 13.0 9.9 12.6 10.5 6.4 3.2 7.0 8.1 8.3 5.6 11.7 12.2 8.4 5.9 8.3 7.7 QUARBTELI ATERAG 4TR IST 2ND 380 QTB. OQT. QTR. O . 1986 1987 2.3 0.0 12.1 4.2 -0.1 2.9 4.0 12.6 4.9 IONTL 1986-OCT. NOV. 14.4 18.8 10.8 6.5 9.6 2.3 -6.5 6.7 7.4 6.5 7.7 7.6 3.6 6.4 7.4 12.6 10.4 12.3 9.7 12.3 DEC. 30.5 10.8 4.0 8.7 10.4 9.5 15.0 19.1 15.4 16.3 1987 1987 11.8 9.6 8.7 6.8 9.0 9.5 16.1 9.4 10.5 10.3 -0.5 -0.2 -0.1 7.4 1.3 2.2 0.9 9.4 3.6 5.0 Ia. 3.4 1.5 0.9 2.4 1.7 3.8 11.2 6.8 7.8 APL. IAI 17.5 4.5 5.7 0.2 1.4 -1.3 5.7 26.4 5.6 5.4 3.4 9.5 11.9 7.7 8.3 9.5 9.2 9. 9.0 0.5 4.4 25.7 5.6 3.9 1.6 5.3 0.5 15 2.6 6.1 5.2 7 2.9 6.3 6.9 4 1.6 11.7 6.8 9 2.3 7.3 5.5 7 -1.9 7.6 1987--JAI. Ir1. JOU -10.4 JOLT AUG. SIPT. OCT. PR HOITELI LuEVLS 7.5 8.0 7.9 1.3 10.8 9.7 1.9 8.8 6.6 8.2 8.2 6.2 6.7 6.3 7.8 753.1 2640.4 2087.3 719.5 3559.9 4214.6 2160.6 1873.9 5991.4 7865.3 JUgn JOL AUGO 746.6 747.6 750.9 2841.5 2847.7 2862.1 2095.0 2100.1 2311.2 734.9 735.9 743.1 3576.5 3583.5 3605.2 4228.4 4221.7 4248.3 2167.) 2169.5 2189.0 1885.6 1808.6 1902.5 6031.4 6072.6 6113.9 7917.0 7961.2 8016.4 SEiT. 751.2 2874.5 2123.3 747.3 3621.7 2206.7 1912.9 6155.7 8068.7 IERKLI LEULS ($SILLIONS) 1987-SPt. 7 746.4 14 750.3 21 28 755.1 751.4 5 757.5 OCT. 12 P 19 P 2/ 7.4 3.6 (8sILuO10S) 1987-MAI 1/ -3.1 753.9 759.5 o08 COIIZINETAL ILLINOIS JIATIOAL BANx TOo TriE rIC ANNUAL SATES FOR BAfN CREDIT AiS ADJUSTED FOR A TRANSFER OF LOANS BBGIMNING SEPTEIBBU 26, 1984. DEBT DATA ARE 0 A BONTBLI AVERAGE BASIS. DERIVED BI AVERAGING EID-OPF-HOTH LEVELS OF ADJACENT MOUTHS. AND HAVE 8BE TO REOVf0 DISCONTINUITIES. P-PRBLIINA I PB-PRBLIMLART ESTIMATE ADJUSTED Components of Money Stock and Related Measures Billions of dollars, seasonally adjusted unless otherwise noted NOV. Period Currency Other Overnight Demand checkable RPs and deposits deposits Eurodollara NSA 4 Small denomination time 1 deposits Money market mutual funds, NSA general Instlitupurpose, lions nd broker/ only dealer MMDAs NSA Savings deposits 5 6 7 8 9 Large denomination time 3 deposits 10 2, Term RPs NSA Term Eurodollars NSA Savings bonds 11 12 13 14 1987 Shortterm CommerTreasury clal paper securities Bankers acceplances 1 2 3 15 t6 157.8 169.7 182.4 246.6 268.6 299.8 143.9 175.9 226.1 56.1 67.2 78.0 405.4 509.2 568.2 290.5 301.9 358.4 880.0 880.3 858.4 161.7 176.6 207.2 57.7 64.7 84.3 413.6 433.3 446.1 65.3 62.7 82.2 81.7 77.6 80.1 73.9 78.9 89.7 266.8 294.7 287.0 161.2 201.7 229.0 45.7 43.2 37.7 179.7 292.2 214.7 73.2 558.8 341.4 872.2 202.2 84.4 448.4 78.1 81.4 86.4 285.7 223.9 36.9 OCT. NOV. DBC. 181.2 182.4 183.5 293.4 297.8 308.3 220.3 225.8 232.3 78.1 77.6 78.4 564.4 568.7 571.4 350.5 358.5 366.3 864.7 857.1 853.5 206.9 207.1 207.6 84.5 84.4 84.1 445.5 445.8 447.1 78.8 83.8 84.0 78.0 79.3 83.0 87.7 89.8 91.7 284.2 288.8 288.1 228.4 228.4 230.2 37.7 38.0 37.5 1987-JAI. lAB. 186.0 187.2 187.7 305.1 300.8 299.3 240.1 242.9 245.7 84.7 80.1 76.9 574.3 570.8 570.6 376.7 387.2 396.3 851.6 848.5 846.1 209.0 210.7 211.6 84.0 84.7 84.9 449.7 488.2 450.1 83.6 87.2 87.2 84.8 87.6 88.2 92.7 93.5 94.3 284.1 285.6 269.2 239.7 239.8 239.1 37.8 39.3 39.8 API. HAI JU11 188.9 190.2 191.1 303.9 303.9 297.4 250.7 252.2 251.2 76.8 75.9 74.5 565.5 557.1 553.5 406.1 411.7 415.2 843.9 843.2 850.1 211.0 208.9 209.6 83.1 81.8 81.3 454.6 459.7 465.1 94.3 102.3 107.0 83.9 87.0 89.6 95.1 95.9 96.5 256.3 262.2 259.8 244.9 254.3 252.1 41.2 42.4 43.5 J9LT AM. SL.. 192.1 193.2 194.5 296.2 296.4 294.1 252.5 254.5 255.5 74.7 77.7 79.6 548.0 543.5 539.0 416.8 420.0 419.4 858.7 865.8 872.4 209.8 212.8 216.5 83.4 83.4 80.7 465.0 466.7 469.4 106.5 106.6 108.1 86.3 93.0 98.1 97.3 97.8 249.1 252.2 248.4 250.2 43.4 42.8 AlOUALLI (4T11QTR): 1984 1985 1986 HOTHL.I 1986-SEPT. fPa. 1/ 2/ 3/ 9 INCLUDES lETAIL REBBPCBASE AGEBBIlTS. ALL IRA AID KEOGr ACCOUNTS AT COIEiBCIAL BANKS AND TH1IFT INSTITUTIONS ABR Rnon SBAL.L t8 DEPOSITS. BICLODBS IRA AND KIOGH ACCOUNTS. UOTUAL FUNDS AND THRIFT INSTITSTIONS. lBT OF LARBG DBMOIIATION TIEf DEPOSITS HELD B1 ROBI lABRKBT l P-PBRLINllAB SBTBACTED Net Changes STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC System Holdings of Securities1 in November 2, Million of dollars,not seasonally adjusted _ 1981 _ I 1983 1984 1985 1986 5,337 5,698 13,068 3,779 14,596 19,099 1986--Q1 Q2 Q3 04 -2,821 7,585 4,668 9,668 1987--01 02 Q3 -2,714 5,823 -3,539 1987--Apr. May June July Aug. Sept. 3,573 1,697 553 -4,909 499 871 1982 July 1 8 15 22 29 -268 -306 -246 -714 -3,512 Aug. 5 12 19 26 176 Sept. 2 9 16 23 30 Oct. 7 "14 21 28 LEVEL-Oct.28. Federal agencies net purchases' Treasury coupons nol purchases' Treasury bills net change' Period within 1 ear I 1-5 1,702 1,794 1,896 1,938 2,185 893 294 312 484 826 1,349 190 0 _5-10 o. 0 I total 2,768 393 388 890 236 358 236 236 1,476 1,226 619 8,948 3,610 1,232 3,642 914 6,457 1,394 -200 312 2,491 619 -200 5 3,805 -- 2,551 1-5 5-10 over 10 360 total 494 -252 5 143 133 1 3,653 3,440 4,185 1,476 -252 5,036 2,356 535 1-year 2,803 1,767 143 - within -- - -75 -75 -125 -125 Net change outright holdings total* 684 1,461 -5,445 6,964 1,450 18,619 20,178 3,001 10,033 -2,861 7,535 4,577 10,927 -3,580 -356 4,044 9,925 -3,075 14,735 -14,254 2,121 12 -1,433 9,993 1,697 3,044 15,801 -16,634 2,954 -5,168 504 906 -2,365 4,676 26,295 -268 -7,511 -381 -371 857 -2,269 -773 -3,512 2,484 578 - 804 2,994 309 245 -3,246 443 2,551 -300 442 3,983 804 -4,478 2,994 2,023 4,414 -300 245 -3,546 -854 19,582 -19,561 26 -1,025 - -50 285 300 105.0 24.3 300 42.5 14.8 24.8 1. Change isom and of period to end-ol-prlod. 2. Outrighl transactions in market and with foreign accounts, and redemptions (-) In bill auctions. 3. Outright tranactlons In market and with foreign accounts, and short-term notes acquired in exchange for maturing bils. Excludes redemptions, maturity shifts, follovers of maturing coupon issues, and direct Treasury borrowing Ifrm the System. 4. Outright transactions In market and with foreign accounts only. Excludes redemptions and maturity shills 106.5 2.4 1.4 .2 604 -1,392 157 46 4,105 26 Net RPs' 8,491 8,312 16,342 181 157 46 1987 1,152 194 2,600 285 8,557 222.4 8.9 5. In addition to the net purchase of securities, also relects changes In System holdings of bankers' acceptances, direct Treasury borrowing Irom the System and redemptions (-) of agency and Treasury coupon Issues. 6. Includes changes In RPs (+), matched sale-purchase transactions (- , and matched purchase sale transactions ( ) 

Federal Reserve (1987, November 2). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19871103

@misc{wtfs_bluebook_19871103,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1987},
  month = {Nov},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19871103},
  note = {Retrieved via When the Fed Speaks corpus}
}