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. Strictly Confidential (FR) 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) CLASS I - FOMC February 5, 1988 MONETARY POLICY ALTERNATIVES Recent developments (1) In the conduct of open market operations over the intermeeting period, the Desk increasingly placed more emphasis on reserve positions when feasible and less on day-to-day money market conditions, in accordance with the Committee's assessment that reductions in financial market fragility since the crash permitted a cautious return to more normal operating procedures. Still, informal adjustments to borrowing objectives were needed to take account of unusual borrowing behavior. After the December 15-16 FOMC meeting, reserve paths continued to be constructed assuming $300 million of adjustment plus seasonal borrowing, and the federal funds rate was expected to remain centered on 6-3/4 to 6-7/8 percent. Despite difficulties in estimating demands for excess reserves near the year-end, actual borrowing, at $355 million, turned out fairly close to path in the first reserve period. It was substantially higher in the next period at $1,460 million, however, owing to unusually heavy borrowing over the 4-day New Year's weekend and to subsequent borrowing resulting from a fire at a large bank; the Desk made allowance for both developments in its provision of nonborrowed reserves. Late in the next maintenance period ended Janu- ary 27, with average borrowing running very low, an informal downward adjustment in the borrowing assumption was made to avoid forcing a bulge in borrowing in the final days of the period, and borrowing averaged $176 million. With incoming data suggesting some weakening in economic (2) expansion, the borrowing assumption for the current period was formally reduced to $250 million, with funds expected to trade in a range of 6-1/2 to 6-3/4 percent. $165 million. Over the first eight days, borrowing has averaged only about The low borrowing in the current and previous maintenance periods may reflect a retrenchment after heavy discount window usage at year-end and in early January, as well as some remaining reluctance to be seen at the window given still unsettled financial markets and sensitivity to the financial condition especially of large banks. The funds rate averaged 6.82 percent over the three complete maintenance periods since the December FOMC meeting; in recent days funds have moved down toward 6-1/2 percent. Total reserves contracted in December with the continued weakness in transactions deposits, but rebounded strongly in January as reservable deposits grew rapidly and excess reserves increased as well. (3) Year-end pressures in money markets proved much milder than expected by many market participants. A greatly reduced need for funds compared with the previous year, the timing of the statement date at the beginning of a maintenance period rather than on the settlement date, more advance planning by banks and others, and fairly generous reserve provision all contributed to this outcome. When pressures failed to develop as anticipated, rates on money market instruments of private issuers plummeted in late December. Yields on Treasury securities of all maturities and on longer-term debt of private borrowers changed little on balance over the first few weeks of the intermeeting period, despite considerable weakness in the dollar. More recently, rates have fallen as the dollar firmed on evidence of improved trade data for November and as subsequent economic data were interpreted as pointing to a softer economy and modest price pressures, increasing the odds on a near-term easing of monetary policy. Short rates have fallen about 1/4 percentage point since mid-January, and the prime rate was reduced 1/4 point on February 2. Longer rates have dropped more, about 3/4 of a percentage point in recent weeks, leaving them at nine-month lows. Broad equity indexes are up 1-1/2 to 3-1/2 percent on balance since midDecember, though daily price movements still were unusually large on occasion. Spreads between short-term private and Treasury issues narrowed substantially with the unwinding of year-end pressures, and have fallen a little further in recent weeks. However, these spreads remain well above their lows of last summer. (4) The dollar weakened sharply on foreign exchange markets in the last half of December. The dollar jumped further in mid-January with the release of better-than-expected U.S. trade figures, and since then has traded in a fairly narrow range, even as U.S. interest rates declined relative to those abroad. On balance, the weighted average dollar is up about 3-1/4 percent from the time of the December Committee meeting. The Desk's intervention accounted for nearly $2-1/4 billion divided about equally between System and Treasury accounts. (5) Preliminary data show a strong rebound in money growth in January after weakness in December. Over the two months combined, M2 and M3 grew at 6 and 5 percent rates respectively, close to the Committee's shortrun paths of 5 and 6 percent, and M1 expanded at a 5 percent pace. Demand deposits were particularly weak late last year, reflecting in part incentives to adjust compensating balances downward before year-end, but other checkable deposits also fell in November and December without a corresponding increase in other deposits in M2. The pickup of money growth in January was widespread over various components of the aggregates. Reasons for the extent of the weakness late last year and strength in January are not entirely clear. However, the decline in interest rates generally after mid-October and in private rates around year-end probably has begun to boost money demand this year. Within M2, small time deposits have continued stronger than the liquid components, though by a smaller margin as their yield advantage erodes. Flows into money market mutual funds in both M2 and M3 were especially strong in January as rates on these funds reflected higher pre-year-end yields on short-term instruments. Even so, for the two months combined, the non-M2 component of M3 moderated from its rapid growth earlier in the fall, owing to slower growth in large CDs and term RPs. Core deposit inflows quickened over the two months, and with bank credit growth little changed on average from the previous few months, banks reduced their reliance on managed liabilities. 1. Monetary data presented in the bluebook are based on new benchmarks and seasonal factors and incorporate minor redefinitions of M1. A discussion of these changes is presented in the Appendix. The revised data should be considered confidential until their release, planned for February 18. -5- (6) Domestic nonfinancial debt is estimated to have grown at a reduced 8 percent pace on average over December and January. In January, business offerings of bonds rose as yields fell, while shorter-term borrowing in the form of bank loans and paper moderated. Households stepped up consumer credit borrowing in December while their mortgage borrowing remained moderate. Tax-exempt bond offerings continued light, despite a pickup in refunding issues. Federal borrowing contracted in January, as the Treasury cut back on offerings in light of a relatively high cash balance. -6- Key Monetary Aggregates (Seasonally adjusted annual rates of growth) November December January November to January QIV '87 to January P Money and credit aggregates Ml -5.6 13.3 5.1 4.7 M2 .9 2.4 9.8 6.1 5.9 M3 4.9 2.1 8.3 5.2 5.7 Domestic nonfinancial debt 10.8 8.4 7.8 8.2 8.5 Bank credit -1.1 -0.9 11.8 5.5 5.4 -5.1 -12.8 8.9 -2.0 -0.7 -10.4 -11.4 17.8 3.1 3.3 8.3 3.1 16.6 9.9 Adjustment plus seasonal borrowing 231 294 723 Excess reserves 923 1028 1247 Reserve measures 1 Nonborrowed reserves 2 Total reserves Monetary base Memo: -3.0 10.8 (Millions of dollars) -- -- p - Preliminary. 1. The January figures assume a level of adjustment plus seasonal borrowing of $250 million over the reserve period ending February 10 and excess reserves of $850 million. 2. Includes "other extended credit" from the Federal Reserve. NOTES: Monthly reserve measures, including excess reserves and borrowing, are calculated by prorating averages for 2-week reserve maintenance periods that overlap months. Reserve data incorporate adjustments for discontinuities associated with changes in reserve requirements. Money stock data incorporate benchmark and seasonal updates and minor definitional adjustments. Long-run alternatives (7) The table below gives three alternative specifications for growth in the money and credit aggregates from the fourth quarter of 1987 to the fourth quarter of 1988. Alternative I would carry over to 1988 the ranges that were in effect for 1987; the ranges for 1988 adopted on a tentative basis in July are given in alternative II; alternative III would involve a reduction in the ranges. The table includes ranges for M1 thought to be consistent with those for the broader aggregates, should the Committee wish to re-establish an objective for this aggregate. Alt. II Alt. I Alt. III Growth from QIV '87 to QIV '88 M2 M3 Debt of domestic nonfinancial sectors 5-1/2 to 8-1/2 5-1/2 to 8-1/2 5 to 8 5 to 8 8 to 11 7-1/2 to 10-1/2 4 to 10 3 to 9 4-1/2 to 7-1/2 4-1/2 to 7-1/2 7 to 10 Memo: M1 2 to 8 (8) The growth in money and debt the staff considers consistent with its forecast for the economy would be encompassed under any of the alternatives. The greenbook forecast is for nominal GNP growth of around 5-3/4 percent, and is thought to involve interest rates at or only a little lower than current reduced levels in the first half of the year when the economy may be relatively soft, with some upward drift in the second half as the economy strengthens. M2 velocity should decline in the first half in response to the drop in market interest rates from October peaks and then strengthen somewhat toward year-end. Given the pattern of interest rate movements, changes in opportunity costs in 1988 are projected to have little net effect on demand for M2 for the year. This aggregate would be expected to expand about 6 percent, roughly in line with the growth in income, and consistent with the long-run behavior of its velocity. (Charts of velocity behavior for the various aggregates, including the velocities implied by 1988 projections, are on the following pages.) Projected M2 growth in 1988 also presumes the absence of special factors that apparently were damping money demand in 1987. Econometric models of M2 demand tended to over- predict growth of this aggregate in 1987, given actual income and interest rates, by about a percentage point; the projection for 1988 assumes any such shortfall would be smaller. The behavior of household saving may tend to bolster M2 growth this year; saving was especially weak last year, but is expected to increase substantially in 1988, and some of this should find its way into liquid forms of wealth holding. In addition, IRAs and Keoghs, whose use in the first part of 1987 to reduce taxable income in 1986 was still unrestricted, will be less attractive this year, perhaps bolstering demand for savings vehicles in M2. (9) M3 would be expected to accelerate to around a 6-1/2 percent rate of growth under the staff economic forecast, implying a small decline in its velocity, nearly in line with its secular downtrend. Expansion of bank and thrift credit is expected to moderate somewhat in 1988 relative to 1987. These institutions are likely to continue to securitize and sell assets, given pressures on capital, holding down the growth of their credit next year. However, to fund asset growth depository institutions are expected to rely less in 1988 than in 1987 on sources of funds from outside M3. In part, this reflects stronger expansion of core deposits in M2, and a reduced need to rely on managed liabilities, some of which likely would be outside M3. For example, borrowing from foreign branches in the Eurodollar market is expected to be less than in 1987--though still above the relatively low totals of 1985 and 1986. In addition, Treasury deposits at commercial banks, which increased substantially in 1987, are not expected to rise further on balance over the year. (10) The growth of the debt of nonfinancial sectors is projected to slow in 1988, to a rate of 8-1/2 percent, also within the ranges under any of the alternatives. Consequently, debt growth would remain well in excess of the expansion of GNP. Borrowing will continue to be boosted by sizable net equity retirements by businesses, owing partly to a dropoff in gross stock issuance at lower share prices, and business credit demands also will be augmented by an increase in the financing gap. In the household sector, the recent pattern of credit usage is projected to persist in 1988, with sluggish consumer credit and robust growth of mortgages, some of which would represent home equity borrowing to substitute for consumer debt. Among governments, federal borrowing should decrease as the deficit falls on a calendar year basis, and debt issuance by state and local entities is projected to remain quite light as capital spending by many of these governments is restrained by budget problems as well as the continuing effects of tax reform. The foreign sector will remain an important source of funds in 1988, as the current account deficit, while declining, stays very high. The placement of foreign inflows in various financial assets depends in part on the extent of intervention purchases of dollars and the disposition of those funds. Implicit in the staff expectation of a lower Chart 1 ACTUAL AND PROJECTED VELOCITY OF M2 AND M3* M2 VELOCITY Ratio scale -- 2.5 -2 1.5 - 11111 II 1964 II 1968 I 111111111 1972 1976 II 1980 I III 1984 M3 VELOCITY 1988 Ratio scale S1.5 1111111111111111 1964 1968 111111111111 1972 1976 SProjections for 1988 are based on staff forecast of GNP and money. 1980 1984 1988 Chart 2 ACTUAL AND PROJECTED VELOCITY OF M1 AND DEBT* M1 VELOCITY Ratio scale - 7.5 -'6 -1 4.5 I I I I I I I 1964 II I I I I I 1968 1972 I I I I I I I I I 1976 1960 I 1984 DOMESTIC NONFINANCIAL DEBT VELOCITY I I 1988 Ratio scale -- 1.25 -- j -- I 1 I I 1964 I I II I I I 1 1968 1972 I I 1976 * Projections for 1988 based on staff forecast of GNP and money or debt. I I I 1980 I I I I I 1984 I I 1988 0.75 -10- dollar by the end of 1988 is the view that dollar assets of a magnitude corresponding to the projected current account deficit will not be willingly accumulated by private investors at existing exchange rates and interest rate differentials. (11) The staff's expectations for growth in money and credit would be around the middle of the Committee's tentative ranges, given in alternative II. They are also near the middle of the slightly lower growth rates associated with alternative III. But the alternative III ranges would better allow for another shortfall in money demand in 1988, if, for example, households finance spending more from liquid assets and less from borrowing as the tax deductibility of consumer debt interest is phased down further, or if banks once again tap the Eurodollar market in size. The alternative III ranges would also leave room for greater restraint on demand should the possibility of a strengthening of inflation pressures emerge as a substantial risk. With the economy already at higher levels of resource utilization, such a risk could arise in the process of continuing adjustment of our external imbalances, especially should real net exports advance more rapidly than projected, or domestic demand be insufficiently damped to release the needed resources. In addition, a flight from dollar assets could cause a sharp drop in the exchange value of the dollar, boosting expectations of future price and resource pressures. In any of these circumstances, with fiscal policy unlikely to move toward greater restraint, the responsibility would fall on monetary policy to promote better balance between internal spending and production. If, for example, circumstances called for a rise in interest rates beginning in the first half of the year, -11- money growth later in the year might need to be around, or even below, the lower end of the alternative II ranges, accelerating relatively little from 1987. Alternative III would leave open this possibility. A further reduction in ranges would underscore the Committee's intention to resist inflation pressures, should they arise, and continue to move toward price stability. (12) The more rapid growth associated with the Alternative I ranges could be considered necessary to offset the shortfall from last year, if that shortfall were thought to point to substantial risks on the side of weak demands in the economy. Significantly lower interest rates might be needed to support income growth if demands in the U.S. economy from domestic or foreign sources were appreciably below expectations. Such a fall in rates is likely to involve much faster M2 growth, perhaps even exceeding the upper end of its tentative range, and a substantial decline in velocity would be anticipated, as in 1985 and 1986. This alternative also would allow room for a reversal of the unexplained portion of weakness in money growth in 1987. If this were to occur, relatively high rates of money growth might be needed to promote satisfactory economic performance. (13) M1 would be expected to expand around 5 percent with the staff's economic forecast. Given the projected pattern of interest rates, OCDs should expand about in line with income, but with domestic spending sluggish, currency expansion might be damped. The velocity of demand deposits should rise at a moderate pace reflecting continuing efforts to economize on zero-interest deposits and ongoing shifts from compensating balances to fees to pay for services. Because of the higher interest -12- elasticities of M1, a range about twice the width of those for M2 and M3 would be needed to encompass the same set of possible outcomes for income and interest rates. Thus a range for M1 of 3 to 9 percent would appear consistent with alternative II, placing expected M1 growth a little below the midpoint of its range, as would be the case for M2 under this alternative. Alternatives I and III would seem to be consistent with M1 ranges of a percentage point more and less, respectively. 2 2. M1A might increase at about 4-1/2 percent over the year. Over an annual horizon, M1A is less interest elastic than M2, but given uncertainties about the behavior of demand deposits in recent years, a 3 percentage point range might also be appropriate for this aggregate, should the Committee choose to set one. An M1A range consistent with alternative II might be 3-1/2 to 6-1/2 percent, with 1/2 of a percentage point more or less for alternatives I and III respectively. -13- Short-run policy alternatives (14) Three short-run policy alternatives are presented for con- sideration by the Committee. Current reserve and money market conditions would be maintained under alternative B while alternatives A and C would involve somewhat easier or somewhat tighter conditions, respectively. The level of adjustment plus seasonal borrowing associated with alternative B, $250 million, is expected to entail federal funds trading around recent 6-1/2 to 6-3/4 percent levels. Such a relationship between borrowing and the funds rate would be broadly consistent with recent behavior but would involve a lower amount of borrowing than indicated by model relationships, reflecting some continued unusual reluctance by banks to borrow from the window. Remaining uncertainties about the borrowing relationship, as well as lingering sensitivities in financial markets, might call for some continued flexibility in implementing open market operations. Alternative A would be associated with a reduction in the federal funds rate of about 1/2 percentage point--achieved by a lowering of the borrowing objective to $100 million, a near-frictional level--or by a 1/2 percentage point cut in the discount rate. Alternative C would be associated with an increase in the borrowing objective to about $450 million and a rise in the federal funds rate of approximately 1/2 percentage point. (15) Expected growth rates of the monetary aggregates from November to March under each alternative are shown in the table below, along with associated federal funds rate ranges. Implied December to March growth rates, which are higher owing to the weakness in December, also are shown, should the Committee wish to shift the base for short-run money growth from -14- November to December, the more usual starting point for quarterly growth specifications. (More detailed data are shown on the table and charts on the following pages). Alt. A Alt. B Alt. C 7 6-1/4 6-3/4 6-1/2 6 6 6 5-3/4 5-1/4 4 to 8 4 to 8 5 to 9 8-1/2 7-1/2 10 8 7-1/4 9 7-1/2 7 8 Growth from November to March M2 M3 Ml Associated federal funds rate range Implied growth from December to March M2 M3 M1 (16) Alternative B contemplates a continuation of reserve conditions now expected to prevail after the recent slight easing. Although market participants may be uncertain as to whether a reduction in reserve pressures has already occurred, the structure of market interest rates suggests that some easing has already been discounted. With federal funds around the 6-5/8 percent area, the three-month Treasury bill rate would likely fluctuate around or a little above its recent 5-5/8 percent level. This bill rate is unusually low relative to the expected funds rate, but public supplies of Treasury bills continue to be reduced by Treasury paydowns. Rates on private money market instruments also would be expected to remain around current reduced levels prompting another 1/4 percentage point cut in the prime rate as the spread between the prime and money market yields still remains wide after this week's reduction. The recent rally in Alternative Levels and Growth Rates for Key Monetary Aggregates M2 M3 M1 Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Alt. A Alt. B Alt. C Levels in billions 1987 October November December 2894.8 2897.0 2902.7 2894.8 2897.0 2902.7 2894.8 2897.0 2902.7 3643.7 3658.5 3664.8 3643.7 3658.5 3664.8 3643.7 3658.5 3664.8 756.2 752.7 750.8 756.2 752.7 750.8 756.2 752.7 750.8 1988 January February March 2926.5 2944.8 2963.9 2926.5 2943.3 2960.0 2926.5 2941.8 2956.1 3690.3 3713.0 3734.1 3690.3 3712.4 3731.7 3690.3 3711.8 3729.3 759.1 764.2 769.4 759.1 763.4 767.5 759.1 762.6 765.6 6.0 0.9 2.4 6.0 0.9 2.4 6.0 0.9 2.4 7.5 4.9 2.1 7.5 4.9 2.1 7.5 4.9 2.1 14.0 -5.6 -3.0 14.0 -5.6 -3.0 14.0 -5.6 -3.0 9.8 7.5 7.8 9.8 6.9 6.8 9.8 6.3 5.8 8.3 7.4 6.8 8.3 7.2 6.2 8.3 7.0 5.7 13.3 8.1 8.2 13.3 6.8 6.4 13.3 5.5 4.7 Quarterly Ave. Growth Rates 6.5 1987 Q1 2.6 Q2 2.8 Q3 4.1 Q4 6.5 1988 Q1 6.5 2.6 2.8 4.1 6.2 6.5 2.6 2.8 4.1 6.0 6.5 4.7 4.5 5.6 6.2 6.5 4.7 4.5 5.6 6.1 6.5 4.7 4.5 5.6 6.0 13.2 6.6 0.8 3.9 5.9 13.2 6.6 0.8 3.9 5.4 13.2 6.6 0.8 3.9 4.9 6.9 8.4 7.7 6.5 7.9 6.9 6.1 7.4 6.1 6.2 7.6 7.1 6.0 7.3 6.7 5.8 7.0 6.3 6.7 9.9 8.1 5.9 8.9 6.6 5.2 7.9 5.1 4.0 6.5 5.9 6.4 6.8 4.0 6.2 5.9 6.2 6.4 4.0 6.0 5.9 6.0 6.0 5.4 6.2 5.7 6.3 6.4 5.4 6.1 5.7 6.2 6.2 5.4 6.0 5.7 6.1 6.0 6.3 5.9 4.7 5.8 6.4 6.3 5.4 4.7 5.4 5.7 6.3 4.9 4.7 5.0 4.9 Monthly Growth Rates 1987 October November December 1988 January February March Nov. 87 to Mar. 88 Dec. 87 to Mar. 88 Jan. 88 to Mar. 88 Q4 Q4 Q4 Q4 Q4 86 87 87 87 87 to to to to to Q4 87 Q1 88 Jan. 88 Feb. 88 Mar. 88 1987 Target Ranges: 1988 Ranges (Tentative): 5.5 to 8.5 5.0 to 8.0 5.5 to 8.5 5.0 to 8.0 c Chart 1 ACTUAL AND TARGETED M2 Billions of dollars 3200 Actual Level * Short-Run Alternatives 3150 Range for 1988 are those adopted tentatively at the July meeting. 3100 3050 3000 2950 2900 2850 2800 2750 O N 1986 D J F M A M J J 1987 A S O 2700 N D J F M A M J J 1988 A S O N D Chart 2 ACTUAL AND TARGETED M3 Billions of dollars 4050 -Actual Level * Short-Run Alternatives 4000 Ranges for 1988 are those adopted tentatively at the July meeting. 3950 3900 3850 3800 3750 3700 3650 5.5% 3600 3550 3500 3450 3400 D ON 1986 J F MA M J J 1987 A S ON D J F MA M J J 1988 A S ON D 3350 Chart 3 M1 Billions of dollars 960 - - Actual Level ........ Growth From 1986:04 * Short-Run Alternatives **' 15 - 940 15% _ 920 900 880 860 .10 .. *** S 10% *5 .. * 840 * 820 ..' 800 ° OO 780 .. o- . .. * 5% 760 740 ................ .. . ...... . o ° - . . 720 700 I I I D ON 1986 l J F l MA l l M I J J 1987 I I A I S I ON l l D I J I F I MA I I M I J J 1988 I I A I S I I ON II 680 D Chart 4 DEBT Billions of dollars 8600 -- - Actual Level Estimated Level 8500 8400 8300 8200 8% 8100 8000 7900 7800 7700 7600 .* 7500 7400 7300 I OCT I NOV 1986 I DEC JAN I FEB I MAR I APR I MAY I JUNE JULY 1987 I I AUG SEP iI OCT 7200 NOV DEC -16- the long-term credit markets appears to reflect an outlook for sluggish economic growth, broadly consistent with the staff forecast; consequently, long-term rates are expected to vary around current levels, absent renewed substantial downward pressure on the dollar. (17) Under the specifications of alternative B, M2 would be expected to grow in February and March at nearly a 7 percent annual rate, a little above the average pace of December and January. On a quarterly average basis, growth would accelerate from 4 percent in the fourth quarter to 6-1/4 percent in the current quarter as the response of demand to the drop in interest rates since October more than offsets the effects of slower income growth. Consequently, M2 velocity would decline at around a 1 per- cent rate--the first drop in more than a year. From its fourth-quarter base, M2 by March would advance at a 6-1/2 percent annual rate, the midpoint of its tentative long-run range. Within M2, rate relationships would tend to increase the attractiveness of the more liquid interest-earning components owing to the stickier adjustment of their offering rates following the recent declines in market rates. From the fourth quarter, M1 by March would rise at a 5-3/4 percent rate. (18) M3, under alternative B, would advance at a 6 percent annual rate from November to March as growth over February and March strengthens somewhat from the 5 percent average of December and January. By March, M3 would be 6-1/4 percent above its fourth-quarter base, also near the center of the tentative range. Inflows to core deposits at banks and thrifts are likely to fall short of credit demands, leading both types of institutions to issue a moderate volume of managed liabilities in M3. Credit growth at -17- banks is expected to slow somewhat in February and March from its exceptional January pace, which was boosted by a resurgence of security lending. Overall credit growth is forecast to increase slightly over coming months, reflecting primarily a pickup in borrowing by the federal government from its recent reduced pace. A continued wide financing gap along with a quickening pace of corporate acquisitions and restructurings are expected to give rise to sizable business credit demands. In addition to heavier borrowing from banks and in the commercial paper market, businesses are expected to tap the bond markets to avail themselves of reduced long-term borrowing costs. By March domestic nonfinancial debt is expected to be around 9 percent above its fourth-quarter base, also in the middle of its tentative range. (19) Although some easing of reserve conditions is now thought by market participants to be in train or at least in prospect, the reserve specifications of alternative A embody a larger move by the Federal Reserve than has been anticipated in market rates. The downward movement of rates associated with this alternative might be especially large if it were accomplished through open market operations, since the resultant narrow spread of the funds rate over the discount rate could foster expectations that a further easing through a discount rate cut was imminent. The easier conditions of alternative A are likely to put considerable downward pressure on the dollar, though the extent to which this would show through in dollar declines over the near-term would be affected by the incoming trade data. The response of bond yields to an easing of policies and possible drop in the dollar would depend importantly on perceptions of the situation in the -18- economy at the time. If economic conditions were thought to be quite soft-- weaker than consistent with the staff forecast--and incoming price data suggested no more inflationary pressures, the drop in the dollar would be less likely to adversely affect the bond market, which could register further substantial gains. (20) The tightening of conditions under alternative C would be entirely unexpected, and probably would result in substantial increases in both short- and, at least initially, long-term interest rates. Stock prices could drop, perhaps sharply, if the higher rates were seen as contributing to weakness in the economy as well as raising the rate at which future earnings are discounted, and risk premiums could widen again. The effects on long-term rates and markets might be muted over time, however, if this policy initiative bolstered confidence in the future purchasing power of the dollar, in circumstances in which inflation concerns had been aggravated by strong downward pressure on the dollar or greater economic strength than now generally anticipated. (21) The changes in reserve conditions under alternatives A and C would have fairly small effects on money growth in the current quarter, which has less than two months to run. Under alternative A, growth of the aggregates would accelerate noticeably relative to the pace of the last two months, leaving both M2 and M3 at or a little above the midpoints of their tentative long-run ranges in March. The delayed effects of the declines in interest rates contemplated under this alternative could push these aggregates well into the upper halves of those ranges during the second quarter, given the staff's GNP forecast. Thus, this alternative might be -19- considered most consistent with the higher paths for money growth envisioned under long-run alternative I. Under the tighter reserve conditions of alternative C, the broad aggregates would remain within the lower halves of their tentative ranges through March. By reversing most of the interest rate declines since October, Alternative C would tend to keep money growth on a fairly slow path over coming months, dropping further below the midpoint of the tentative ranges, and might be most consistent with the growth rates in long-run alternative III. -20- Directive language 1988 Ranges (23) Presented below for Committee consideration is draft directive language relating to the decisions on the longer-run ranges (draft language for the operating paragraph is shown in (24) below). is now the case, a separate paragraph would be devoted to M1. As The draft assumes in light of the discussion at the December meeting that the Committee will continue its practice of not setting a numerical range for M1. The proposed paragraph explaining this decision is drawn from that in the current directive, but it has been shortened and modified somewhat. The Federal Open Market Committee seeks monetary and financial conditions that will foster reasonable price stability over time, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. In furtherance of these objectives, the Committee[DEL: agreed] at THIS [DEL: its]meeting [DEL: in established [DEL: ranges] the for] February in Julyto reaffirm growth RANGES of [DEL: ____ 8-1/2] to 5-1/2 [DEL: both]M2 and TO TO ____ percent for PERCENT FOR M3, measured from the fourth quarter of 1986 1987 to the fourth quarter of 1987 1988. [DEL: The Committee agreed that growthin these aggregates around the lower ends of the ranges might be appropriate in velocity todevelopments respect light of with and signs strenthensome for potential the of pressures, underlying ing in inflationary provided that -21- aneconmic at expanding was activity acceptable pace.] The monitoring range for growth in total domestic nonfinancial debt WAS set February was year the for [DEL: in at unchanged] left ____ TO ____ [DEL: 8 percent to 11] FOR THE YEAR. [DEL: For 1988, Committee the in agreed tentative on July ranges of monetary growth, meaured from the fourth 1987 to the fourth of quarter quarter of M3. and M2 both for percent set 1988, of 5 to 8 Theprovisionally Committee the associated range for growth in nonfinancial debat tat total domestic 7-1/2 to 10-1/2 peercent.] With respect to M1, [DEL: the Committee that, recognized based on experience, be judged in the light the behavior of that aggregate must of other evidence to relating have M1 in fluctuation prices; and activity economic become changes to years recent in sensitive more much interest of this Because factors. other among rates, sensitivity, which had been reflected of the decline in slowing sharp a in M1 velocity over the first year], the Committee again decided [DEL: at the half of the July meeting]not to establish a specific target for 1988 [DEL: growth-in-M1-over the remainder of 1987 and no tentative 1988]. range was set for THE BEHAVIOR OF THIS AGGREGATE IN RELATION TO ECONOMIC ACTIVITY AND PRICES HAS BECOME VERY SENSITIVE TO CHANGES IN INTEREST RATES, AMONG OTHER FACTORS, AS EVIDENCED BY SHARP SWINGS IN ITS VELOCITY IN RECENT YEARS. -22- CONSEQUENTLY, the appropriateness of changes in M1 this year WILL would continue to be evaluated in the light of the behavior of its velocity, developments in the economy and financial markets, and the nature of emerging price pressures. [DEL: The Committee welcomed substantially slower growth of M1 in 1987 than in 1986 in context of the greater of evidence some and expansion economic continuing inflationary pressures. that in reachingoperational the year it The Committee indicated in July decisions of balance the over of would take account growth in light of circumstances prevailing. then M1 in the The-issues involved with establishing a target for M1 will be carefully reappraised at the beginning of 1988.] Operational Paragraph (24) Draft language for the operational paragraph, including the usual options, is shown below. Should the Committee wish to retain a sentence on its operating procedures, an updated version of the second sentence in the current directive [shown in brackets] could be used. In the implementation of policy for the immediate future, the Committee seeks to DECREASE SOMEWHAT (ALT. A)/ maintain (Alt. B)/INCREASE SOMEWHAT (Alt. C) the existing degree of pressure on reserve positions. [The Committee agrees that [DEL: the passing of time and the year end should permit further progress toward a] restoring THE CURRENT MORE normal approach to open market operations REMAINS -23- APPROPRIATE; [DEL: although] still sensitive conditions in financial markets and uncertainties in the economic outlook may continue to call for some flexibility in operations.] Taking account of conditions in financial markets, somewhat (SLIGHTLY) lesser reserve restraint (WOULD) (MIGHT), or somewhat (SLIGHTLY) greater reserve restraint would (MIGHT) be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from November through March at annual rates of about [DEL: 5] ____ percent and [DEL: 6] ____ percent, respectively. Over the same period, growth in M1 is expected to remain relatively limited. The Chairman may 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[DEL: 4 to 8] ____TO ____percent. APPENDIX A MONEY STOCK REVISIONS Measures of the money stock have been revised to incorporate annual benchmark and seasonal adjustments as well as certain technical redefinitions affecting M1. This appendix discusses and presents tables comparing growth rates of the old and new series. These revisions are to be regarded as strictly confidential until their release scheduled for February 18. Redefinitions The redefinitions make the treatment of thrift institutions identical with that of commercial banks in the construction of the monetary aggregates. Under the new definitions, all vault cash held by thrift institutions is excluded from the currency component of M1, and all demand deposits and other checkable deposits (OCDs) held by thrifts are excluded from the demand deposit and OCD components, respectively. Previously, only a portion of the vault cash and transaction deposits held by thrifts were excluded at the M1 level--representing the estimated amount held to service their OCD liabilities--while the remainder were subtracted at the M2 level. In practice, however, it was impossible to estimate this allocation with any degree of confidence since, unlike other components of the monetary aggregates, these estimates could not be benchmarked from reported data. In addition to the redefinitions noted above, automatic transfer service (ATS) accounts at credit unions--like those at commercial banks and all other thrift institutions--are now included in the OCD component of M1, rather than in the savings deposit component of M2. This change is consistent with the inclusion of all ATS accounts as transaction deposits for purposes of reserve requirements, and reflects accumulating evidence that under deposit deregulation credit union ATS accounts have behaved more like OCDs than like savings deposits at these institutions. On balance, the redefinitions lowered M1 by $6.2 billion in January 1988, but increased the growth rate of this aggregate over 1987 by 0.3 percentage point. The redefinitions had no effect on levels of M2 or M3. Benchmark Revisions Deposits of commercial banks and thrifts have been benchmarked using call reports through June 1987 and incorporate revisions from other sources as well. The benchmark revisions had negligible impacts on monetary growth over 1987 and on the quarterly pattern of growth within the year. Seasonal Revisions The seasonal factor review employed the same X-11 ARIMA procedures that were used last year. Although revisions to seasonal factors had little effects on the broad patterns of growth in 1987, some redistributions of growth occurred between the first and second halves. On a quarterly average basis, the seasonal factor revisions raised M1 growth by about 0.2 percentage point in the second half, while lowering second half growth for M2 and M3 by a similar amount. Table A-1 Comparison of Revised and Old M1 Growth Rates (percent changes at annual rates) Difference | Revised Old (1) - (2) (1) (2) (3) 1986--0ct. Nov. Dec. 13.1 19.9 32.3 14.4 18.8 30.5 1987--Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 9.9 -0.2 4.8 17.2 2.9 -7.1 2.4 4.7 1.6 14.0 -5.6 -3.0 1988--Jan. Difference due to Redefinition Benchmark Seasonals (4) (5) (6) -1.3 1.1 1.8 0.1 0.5 0.7 -0.2 0.1 -0.3 -1.2 0.5 1.4 11.8 -0.5 3.4 17.5 4.5 -10.4 1.6 5.5 0.3 15.3 -6.5 -5.6 -1.9 0.3 1.4 -0.3 -1.6 3.3 0.8 -0.8 1.3 -1.3 0.9 2.6 -0.8 0.5 0.6 0.7 -0.3 0.5 0.1 0.5 0.3 -0.1 0.2 0.6 -0.8 0.3 0.8 0.3 0.2 0.0 0.0 0.0 0.0 0.5 0.2 0.1 -0.3 -0.5 0.0 -1.3 -1.5 2.8 0.7 -1.3 1.0 -1.7 0.5 1.9 13.3 15.1 -1.8 -1.2 0.0 -0.6 1986--QIV 17.2 17.0 0.2 0.4 -0.1 -0.1 1987--QI QII QIII QIV 13.2 6.6 0.8 4.0 13.2 6.4 0.0 3.7 0.0 0.2 0.8 0.3 0.1 0.4 0.3 0.2 -0.1 0.3 0.0 0.2 0.0 -0.5 0.5 -0.1 1987--QIV '86 to QII '87 10.0 9.9 0.1 0.2 0.2 -0.3 QII '87 to QIV '87 2.4 1.8 0.6 0.3 0.1 0.2 15.6 6.3 15.2 5.9 0.4 0.4 0.2 0.3 0.2 0.1 0.0 -0.0 I Monthly Ouarterly Semi-Annual Annual (OIV TO OIV) 1986 1987 Table A-2 Comparison of Revised and Old M2 Growth Rates (percent changes at annual rates) Difference Revised I Difference due to (1) - (2) I Redefinition enchmark Seasonals (4) (5) (6) -1.0 0.7 0.0 0.0 0.0 0.0 -0.2 -0.5 -0.2 -0.8 1.2 0.2 9.6 -0.2 1.5 5.7 0.2 0.5 2.7 6.2 5.4 6.9 -0.5 1.9 -1.1 0.8 0.6 -0.2 0.5 0.5 0.0 -1.4 -0.6 -0.9 1.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.3 0.0 0.1 0.1 0.0 0.2 0.0 -0.1 0.1 0.1 0.0 0.0 -0.8 0.8 0.5 -0.3 0.5 0.3 0.0 -1.3 -0.7 -1.0 1.4 0.5 9.8 10.8 -1.0 0.0 0.0 1986--QIV 10.4 10.7 -0.3 0.0 -0.1 -0.2 1987--QI QII QIII QIV 7.5 2.9 2.2 4.2 7.5 2.6 2.2 4.6 0.0 0.3 0.0 -0.4 0.0 0.0 0.0 0.0 -0.2 0.1 0.0 0.1 0.2 0.2 0.0 -0.5 1987--QIV '86 to QII '87 5.2 5.1 0:1 0.0 -0.1 0.2 QII '87 to QIV '87 3.2 3.4 -0.2 0.0 0.0 -0.2 10.1 4.3 9.8 4.3 0.3 0.0 0.0 0.0 0.4 -0.1 (1) Old (2) 1986--Oct. Nov. Dec. 9.8 7.2 10.8 10.8 6.5 10.8 1987--Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 8.5 0.6 2.1 5.5 0.7 1.0 2.7 4.8 4.8 6.0 0.9 2.4 1988--Jan. (3) I Monthly -1.0 Quarterly Semi-Annual Annual (OIV TO OIV) 1986 1987 -0.1 0.1 Table A-3 Comparison of Revised and Old M3 Growth Rates (percent changes at annual rates) Difference Difference due to Revised Old Benchmark Seasonals (1) (2) (3) (4) (5) (6) 1986--0ct. Nov. Dec. 7.0 5.4 9.2 7.4 6.5 10.3 -0.4 -1.1 -1.1 0.0 0.0 0.0 -0.1 -1.5 -1.4 -0.3 0.4 0.3 1987--Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 8.5 3.0 3.0 5.8 5.0 5.8 2.3 5.7 5.1 7.5 4.9 2.1 8.9 1.2 1.6 5.6 5.5 5.8 2.2 6.9 5.4 7.7 4.4 1.6 -0.4 1.8 1.4 0.2 -0.5 0.0 0.1 -1.2 -0.3 -0.2 0.5 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.6 0.7 0.4 -0.2 0.1 0.1 0.0 0.0 0.2 -0.1 0.0 0.1 1.2 0.7 -0.2 -0.3 -0.1 0.0 -1.2 -0.3 -0.4 0.6 0.5 1988--Jan. 8.3 8.3 0.0 0.0 0.0 0.0 1986--QIV 9.2 9.7 -0.5 0.0 -0.5 0.0 1987--QI QII QIII QIV 7.1 4.3 4.4 5.6 7.5 3.6 4.5 5.8 -0.4 0.7 -0.1 -0.2 0.0 0.0 0.0 0.0 -0.4 0.3 0.0 0.0 0.0 0.4 -0.1 -0.2 5.7 5.6 0.1 0.0 0.0 0.1 5.0 5.2 -0.2 0.0 0.0 -0.2 9.8 5.4 9.6 5.5 0.2 -0.1 0.0 0.0 0.3 0.0 -0.1 -0.1 (1) - (2) 1 Redefinition Monthly Quarterly Semi-Annual 1987--QIV '86 QII '87 QII '87 to to QIV '87 Annual (OIV TO OIV) 1986 1987 February 8, federal funds SELECTED INTEREST RATES (percent) ---------------------------< -* -Tla-------------------Treasury bills---U.S. Gov't. constant-secondary market------maturity yields-money ads comm. market bank 12 3 6 uee mkt paper mutual prime month month month 3-month 1-month fund loan 3-year 10-year 30-year ono-r . 1988 -- caoventional hom---- ----mortgages sec mkt primary market corp. A utility rec off muni. Bond Buyer fixedrate fixedrate ARM 9.55 5.75 7.21 7.30 5.16 7.35 5.32 7.94 5.47 7.91 5.09 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--Hitih Low 7.62 5.95 6.84 5.24 7.36 5.36 7.64 5.40 8.49 5.83 8.12 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 FEB 87 MAR 87 APR 87 MAY 87 JUN 87 JUL 87 AUG 87 SEP 87 OCT 87 NOV 87 DEC 87 JAN 88 6.10 6.13 6.37 6.85 6.73 6.58 6.73 7.22 7.29 6.69 6.77 6.83 5.59 5.59 5.64 5.66 5.67 5.69 6.04 6.40 6.13 5.69 5.77 5.81 5.59 5.60 5.90 6.05 5.99 5.76 6.15 6.64 6.69 6.19 6.36 6.25 5.63 5.68 6.09 6.52 6.35 6.24 6.54 7.11 7.05 6.50 6.69 6.52 6.10 6.17 6.52 6.99 6.94 6.70 6.75 7.37 8.02 7.24 7.66 6.92 6.12 6.22 6.39 6.83 6.86 6.57 6.62 7.26 7.38 6.77 7.76 6.76 5.32 5.32 5.49 5.79 6.01 6.02 6.00 6.22 6.57 6.45 7.50 7.50 7.75 8.14 8.25 8.25 8.25 8.70 9.07 8.78 8.75 8.75 6.56 6.58 7.32 8.02 7.82 7.74 8.03 8.67 8.75 7.99 8.13 7.87 7.25 7.25 8.02 8.61 8.40 8.45 8.76 9.42 9.52 8.86 8.99 8.67 7.54 7.55 8.25 8.78 8.57 8.64 8.97 9.59 9.61 8.95 9.12 8.83 8.82 8.84 9.51 10.05 10.05 10.17 10.37 10.84 11.07 10.39 10.42 10.05 7.03 7.03 7.87 8.35 8.13 8.09 8.11 8.61 9.06 8,39 8.43 8.11 9.04 9.01 10.05 10.58 10.38 10.20 10.39 11.01 11.42 10.73 10.82 10.43 9.08 9.04 9.83 10.60 10.54 10.28 10.33 10.89 11.26 10.65 10.65 10.43 7.56 7.54 7.58 7.88 7.93 7.81 7.76 7.95 8.25 8.00 7.96 7.85 neekly NOV 4 87 NOV 11 87 NOV 18 87 NOV 25 87 6.43 6.68 6.77 6.78 5.42 5.67 5.85 5.73 6.03 6.12 6.32 6.18 6.38 6.41 6.57 6.51 7.40 7.08 7.17 7.19 6.91 6.67 6.78 6.75 6.47 6.49 6.68 6.43 9.00 8.75 8.75 8.75 8.01 7.90 7.99 7.98 8.90 8.76 8.83 8.86 9.04 8.85 8.92 8.95 10.39 10.38 10.31 10.40 8.28 8.41 8.44 8.43 10.81 10.73 10.62 10.74 10.79 10.66 10.60 10.55 8.11 7.98 7.97 7.94 7.95 7.91 7.99 7.96 86--High Low DEC DEC DEC DEC DEC 2 87 9 87 16 87 23 87 30 87 6.89 6.84 6.58 6.75 6.81 5.47 5.66 5.90 5.88 5.75 6.17 6.31 6.45 6.44 6.32 6.58 6.64 6.76 6.72 6.68 7.60 7.64 7.92 7.67 7.50 7.03 7.62 8.12 7.97 7.67 6.42 6.46 6.53 6.61 6.69 8.75 8.75 8.75 8.75 8.75 8.10 8.09 8.25 8.11 8.09 9.03 9.02 9.17 8.92 8.85 9.15 9.18 9.33 9.02 8.94 10.42 10.70 10.41 10.21 10.25 8.40 8.57 8.47 8.40 8.29 10.73 10.96 10.83 10.73 10.66 10.60 10.66 10.69 10.64 10.61 JAN JAN JAN JAN 6 88 13 88 20 88 27 88 7.02 6.81 6.89 6.66 5.83 5.79 5.88 5.80 6.29 6.35 6.28 6.17 6.64 6.67 6.56 6.38 7.05 7.02 6.92 6.83 6.88 6.83 6.77 6.70 6.79 6.57 6.48 6.38 8.75 8.75 8.75 8.75 8.02 8.06 7.88 7.73 8.81 8.91 8.68 8.48 8.94 9.07 8.85 8.65 10.30 9.99 9.92 9.76 8.28 8.31 8.00 7.84 10.68 10.43 10.28 10.08 10.50 10.53 10.34 10.16 7.82 7.74 6.77 5.68 6.07 6.25 6.66 6.62 6.33 8.68 7.47 8.25 8.41 7.84 10.00 9.94 7.64 6.79 6.57 56 6. p 5.64 5.65 5.64 6.03 6.05 5.96 6.23 6.23 6.13 6.67 6.63 6.57 6.63 6.57 6.52 8.75 8.50 8.50 7.48 7.44 7.32p 8.26 8.24 8.12p 8.42 8.46 FEB 3 88 Daily JAN 29 88 FEB 4 88 FEB 5 88 9.59 7.87 7.95 7.88 8.29p NOTE: Neekly data for columns 1 through 11 are statement week averages. Data in colum 7 are taken from Donoghue's Money 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 FNMA 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 mortgages(FRMs) with 80 percent loan-to-value ratios at a sample of savings and loans. Column 16 is the average initial contract rate on new commitments for 1-year, adjustable-rate mortgages(ARMsl at S&Ls offering both FRMs and ARMs with the same number of discount points. Strictly Confidential (FR)Class FOMC Money and Credit Aggregate Measures Seasonally adjusted S- Period M1 1 FEB. Money stock measures and liquid assets Bank credit nontransaclions total loans U.S. and governmen' M3 components M2 2 in M2 in M3 only 3 4 L 8, 1988 Domestic nontinancial debt 2 2 olher 2 total' investments' 5 6 7 8 9 10 PERCENT ANNUAL JOIWTI: AIIUALLI (QII TO U17) 1985 1986 1987 12.1 15.3 5.9 6.8 9.0 4.1 7.8 6.9 3.4 3.3 8.9 10.9 7.7 8.9 5.4 8.5 8.1 10.2 9.7 7.5 15.2 14.7 8.9 12.7 12.8 9.7 13.3 13.2 9.5 QOUARTERL 1ST QTR. 2ID UTR. 38D QTR. 4TH QTB. 13.1 6.4 -0.1 3.7 6.. 2.3 3.0 4.3 0.9 4.1 4.5 6.6 12.2 11.8 11.2 6.5 4.3 4.8 5.7 6.2 3.3 10.1 7.0 5.7 6b. 11.2 8.7 5.9 7.5 10.0 8-. 8.8 10.2 10.5 8.7 8.1 9.5 11.8 -0.5 3.4 17.5 4.5 -10.4 1.6 5.5 0.3 15.3 -6.5 -5.6 9.6 -0.2 1.5 5. 0.2 0.5 2.7 6.2 5.4 6.9 -0.5 1.9 8.7 -0.1 0.9 1.4 -1.3 4.4 3.0 6.6 7.2 4.0 1.6 4.5 6.4 6.9 2.2 5.5 26.9 26.7 0.7 9.3 5.7 8 23.6 0.3 8.9 1.2 1.6 5.6 5.5 5.8 2.2 6.9 5.4 7.7 10.2 4.4 1.6 16.1 0.8 3.0 11.9 7.4 3.9 1.4 10.8 9.7 11.1 5.1 10.1 11.0 9.7 7.9 7.4 9.8 11.5 10.2 8.6 10.6 5.8 6.8 9.5 10.3 9.2 6.5 7.8 9.0 9.7 10.8 8.4 6134.7 6184.9 6244.4 6297.6 6342.5 0037.5 8098.0 8163.7 8237.1 8294.9 AIVEAGE 1987 1987 1987 1987 BOIITBLI 1987--JAM. FEB. HAl. APL 1A JUNE JULY AUG. SEPT. OCT. o v. DIC. 1988--JAIL NOITRLL PB 15 LEVELS 751.0 751.2 760.8 756.7 753.2 IEULI LIELS (SIILLIONS) 1987-DBC. 7 11 21 28 754.8 751.1 752.3 752.3 1/ 2/ 9. -1 9.4 2.2 -3.2 3.5 9.8 4.2 -1.3 7.4 8.1 4.2 -1.1 -0.1 9.8 9.4 11.2 7.6 8.2 7.4 1.8 8.8 6.5 3.9 12.6 8.0 4252.1 4280.7 4316.5 4331.5 2189.0 2206.7 2225.5 2223.4 222.4 1902.8 1913.1 1919.3 1939.5 1952.5 4.7 8. ($BU.LIONS) 1987--AUG. SEPT. OCT. NOI. DEc. 1988-JAN. 11 6.1 4 11 18 P 25 P 2862.7 2875.7 2892.2 2890.9 2895.4 2111.7 2124.4 2131.4 2134.2 2142.2 742.0 74S.5 752.2 767.0 767.2 3604.8 3621. 1 3649.4 3657.8 3662.6 756.8 758.4 761.4 766.3 ANNUAL BATES FOR BANK CRPDIT ARE ADJUSTED FOR A TRANSFER OF LOANS FRON CONTINEITAL ILLINOIS NATIONAL BANK TO THE FDIC BEGINNING SEPTEfBER 26, 1984. DEBT DATA ARE O A MONTHLT AVERAGE BASIS. DEBIVED BY AVERAGING END-OPF-OITH LEVELS OF ADJACENT MONTHS. AND HAVE BEEN ADJOSTED TO REMOVE DISCONTINUITIES. P-PRELInINARY PE-PRELIMI NAY ESTIMATE Components of Money Stock and Related Measures Billions of dollars, seasonally adjusted unless otherwise noted FEB. Other Overnight Demand checkable RPs and deposits deposits Eurodollars Currency Period MMDAs NSA Savings deposits Small denomlnation time deposits t Money market mutual funds, NSA general Institupurpose, tlons Large denomination time 5 Term RPs NSA Term Eurodollars NSA Savings bonds 1988 8, Shortterm CommerTreasury clal paper Bankers accep- 5 6 7 ind broker/ dealer_ 8 67.2 78.0 80.6 509.2 568.2 527.5 301.9 358.4 413.1 880.3 858.4 899.2 176.6 207.2 219.7 64.7 84.3 86.2 433.3 483.2 62.7 82.2' 107. 232.3 78.4 571.4 366.3 853.5 207.6 84.1 447. 1 84.0 83.8 91.7 288. 1 230.2 37.5 305. 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 84.7 449.7 448.2 450.1 83.6 87.2 87.2 85.4 88.0 88.4 92.7 94.3 284.1 285.6 269.2 239.7 239.8 239.1 37.8 39.3 39.8 188.9 190.2 191.1 303.9 303.9 291.4 250.7 252.2 251.2 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 94.5 102.8 107.8 83.8 87.0 89.7 95.1 95.9 96.5 256.5 262.9 261.1 244.9 254.3 252.1 41.2 459.7 465.1 JOLT AUG. SEPT. 192.1 193.2 194.5 296.2 296. 4 294.1 252.6 255.6 75. 1 79.2 82.8 548.1 543.7 539.2 416.7 419.9 419.3 858.5 865.5 871.5 209.6 212.2 215.4 83.4 83.4 80.7 465.1 466.8 468.9 107.5 108.0 109.7 85.7 90.5 94.8 97.3 97.8 98.2 252.9 256.3 260.1 248.4 250.2 267.5 43.4 42.9 43.8 OCT. 30V. 196.2 198.4 199.7 300.5 295.8 291.7 257.1 255.5 254.7 85.4 79.0 77.5 532.6 526.3 523.7 416.8 412.0 410.6 882.5 900.9 914.1 217.9 219.9 221.2 81.6 88.5 88.6 476.0 485.1 488.6 106.9 109.7 106.7 93.7 93.1 92.7 98.7 99.5 272.5 278.5 256.4 250.6 44.5 NSA 1 2 3 1985 1986 1987 169.7 182.4 198.1 268.6 299.8 296.0 175.9 226.1 255.8 1986-DBC. 183.5 308.3 1987-J&A. FEB. BAR. 186.0 187.2 187.7 API. BAY 01I JUNE 4 only deposits 9 10 11 12 13 77.4 81.0 78.9 89.7 294. 7 287.0 201.7 229.0 43.2 37.7 securities 14 tances 15 16 AINUALLI (4TH QTRB) DEC. I INCLUDES I 254.6 I RETAIL REPURCHASE AGRZEBENTS. 84.9 446.1 93.2 42.4 43.5 45.1 I i I I I I I ____L_ ALL IRA AID KEOGH ACCOUNTS AT COIIERCIAL BANKS AND THRIFT I I.STITUTIOIS ARE SUBTBRCTED FROM SMALL TIBB DEPOSITS. BXCLUDES IBR AND KBOGH ACCOUNTS. NET OF LARGE DENOHIIATIOI TIRE DEPOSITS HELD 81 P-PRELIMINHAl ONEBr MARKET MUTUAL FOIDS AND THRIFT INSTITUTIONS. February Net Changes In System Holdings of Securities' 8, 1988 Treasury bills Period N et purchases2 5,698 13,068 3,779 14,596 19,099 3,905 312 484 826 1,349 190 3,358 1,797 4,668 9,668 893 236 158 -2,714 5,823 -3,539 4,334 1,767 143 -252 5,036 2,356 2,639 1,226 619 596 871 795 3,388 150 143 300 670 479 2,551 619 12,953 51 644 198 2,953 51 150 195 185 120 127 100 127 100 20 479 -1,914 5,823 4,690 4,334 4,528 795 3,388 150 S 800 8,; 229 3,657 Redemptions tio 307 383 441 190 1987--01 Q2 Q3 04 Nov. Dec. 3,1 000 2,4 100 7, 700 3,! 500 1,4 000 9,1 029 within 1________ -year 9,779 4,668 9,668 Oct. Net change 293 158 1,858 1986--Q3 04 1987--Sept. Treasury coupons Net purchases' 1 5 10 over 10 R Redemptions (-) 388 890 236 358 236 2,441 8,698 15,468 11,479 18,096 20,099 12,933 1982 1983 1984 1985 1986 1987 STRICTLY CONFIDENTIAL (FR) CLASS II--FOMC Millions of dollars, not seasonally adjusted 1,896 1,938 2,185 893 Federal Net change outright agencies redemptions holdings Netchange total 2,803 3,440 8,312 16,342 6,964 1,461 -5,445 1,450 4,185 18,619 1,476 20,178 20,994 3,001 10,033 3,566 17,366 -11,033 4,577 1,449 50 2,589 596 Net RPs s -1,476 4,044 9,925 10,927 -252 8,948 3,610 5,059 -3,076 14,735 12 9,323 -14,254 2,121 -1,433 3,805 300 650 4,109 4,676 1,039 4,038 4,246 26 7,493 -3,331 -1,629 150 195 115 120 794 393 3,068 171 -14,095 3,744 -4,309 1,982 70 4,109 196 4,210 -11 9,998 -10,780 -2,443 2,334 5,130 2,533 1988--Jan. 1987--Nov. Dec. Jan. 4 11 18 25 2 9 16 23 30 644 198 50 2,589 -3 - 6 13 20 27 -731 -600 - Feb. 3 -330 -350 LEVEL--Feb. 3 111.5 47.1 4 1. Change from end-of-period to end-of-period. 2. Outright transactions in market and with foreign accounts. 3. Outright transactions in market and with foreign accounts, and short-term notes acquired in exhange for maturing bills. Excludes maturity shifts and rollovers of maturing coupon issues. 15.2 25.4 -2,320 -2,527 -290 2,451 -350 -701 -4,565 110.9 229.8 -6.8 4 4. Reflects net change and redemptions (-) of Treasury and agency securities. 5. Includes changes in RPs (+), matched sale-purchase transactions (-), and matched purchase sale transactions (+) 6 The levels of agency issues were as follows: within 1-5 5-10 over0 total 1-year 1-5 5-10 over 10 7.4 .2 1.3 3.3 2.6 

Federal Reserve (1988, February 9). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19880210

@misc{wtfs_bluebook_19880210,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1988},
  month = {Feb},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19880210},
  note = {Retrieved via When the Fed Speaks corpus}
}