bluebooks · May 3, 2004
Bluebook
Prefatory Note
The attached document represents the most complete and accurate version available
based on original files from the FOMC Secretariat at the Board of Governors of the
Federal Reserve System.
Please note that some material may have been redacted from this document if that
material was received on a confidential basis. Redacted material is indicated by
occasional gaps in the text or by gray boxes around non-text content. All redacted
passages are exempt from disclosure under applicable provisions of the Freedom of
Information Act.
Content last modified 05/27/2010.
Strictly Confidential (F.R.)
Class I – FOMC
April 29, 2004
M ONETARY POLICY ALTERNATIVES
Recent Developments
(1)
The FOMC’s decision at its March meeting to leave the intended level
of the federal funds rate unchanged had been fully anticipated in markets, but the
assessment of the economy in the accompanying statement was read as having a soft
cast, and interest rates moved lower.1 In the weeks that followed, however, interest
rates rose sharply in response to the much-stronger-than-expected employment report
for March and to other data releases pointing to firming household and business
spending and rising prices, as well as to the Chairman’s statement in congressional
testimony that “the threat of deflation is no longer an issue.” Futures markets and
dealer surveys suggest virtually no expectation of a rate move at the M ay meeting.
With regard to the associated statement, dealers apparently anticipate that the
Committee will modify or drop the reference to “patience” and characterize the risks
to the achievement of sustainable growth and to price stability as balanced. Market
participants now appear to believe that tightening will commence in the third quarter,
rather than late in the year as previously thought, and will bring the federal funds rate
to nearly 3½ percent by the end of 2005, a full percentage point higher than
anticipated at the time of the March meeting (Chart 1).
(2)
This shift over the intermeeting period toward the expectation of
prompter and more substantial monetary policy tightening precipitated increases of
over 70 basis points in nominal Treasury yields at maturities between two and ten
1
The effective federal funds rate averaged 1 percent over the intermeeting
period. The Desk expanded the System’s outright holdings of securities by
$4.5 billion, with purchases from foreign official customers of $1.1 billion of Treasury
bills and market purchases of $2.6 billion of Treasury bills and $0.8 billion of coupon
securities. The volume of outstanding long-term RPs increased $1 billion to
$16 billion.
Chart 1
Interest Rate Developments
Expected Federal Funds Rates*
Percent
4.5
April 29, 2004
March 15, 2004
Implied Distribution of the Federal Funds Rate
About Six Months Ahead*
Percent
March 15, 2004
(Dotted Line)
4.0
3.5
3.0
2.5
April 29, 2004
(Solid Bars)
2.0
1.5
1.0
0.5
Apr.
Aug.
2004
Dec.
Apr.
Aug.
2005
Dec.
Apr.
2006
Daily
7
FOMC
1.00
1.25
1.50
1.75
2.00
Inflation Compensation*
Percent
Ten-Year Treasury
Five-Year Treasury
Two-Year Treasury
0.75
2.25
2.50
*Based on the distribution of the three-month eurodollar rate five
months ahead (adjusted for a term premium), as implied by options
on eurodollar futures contracts.
*Estimates from federal funds and eurodollar futures, with an allowance
for term premia and other adjustments.
Treasury Yields*
0.50
45
40
35
30
25
20
15
10
5
0
Daily
6
Percent
3.0
Over Next Ten Years
Over Next Five Years
FOMC
2.5
5
4
2.0
3
1.5
2
1
1.0
0
Jan.
Mar.
May
July
2003
Oct.
Dec.
Feb. Apr.
2004
Jan.
*Par yields from an estimated off-the-run Treasury yield curve.
Nominal Treasury Yield Curve*
Mar.
May
July
2003
Oct.
Dec.
Feb. Apr.
2004
*Based on a comparison of an estimated TIIS yield curve to an estimated
nominal off-the-run Treasury yield curve.
Real Treasury Yields
Percent
5
April 29, 2004
March 15, 2004
Daily
4
Percent
4.0
Ten-Year TIIS
Five-Year TIIS
FOMC
3.5
3.0
2.5
3
2.0
2
1.5
1.0
1
0.5
0
1
3
5
7
10
0.0
Jan.
Mar.
May
Maturity in Years
*Smoothed yield curve estimated from off-the-run Treasury
coupon securities. Yields shown are those on notional par
Treasury securities with semi-annual coupons.
Note: Vertical lines indicate March 15, 2004. Last daily observations are for April 29, 2004.
July
2003
Oct.
Dec.
Feb. Apr.
2004
2
years.2 Rates on inflation-indexed securities rose somewhat less, leaving inflation
compensation modestly higher (as discussed in the box entitled “Inflation
Expectations and CPI Futures”). Despite the backup in real interest rates, equity
indexes edged higher over the intermeeting period, supported importantly by earnings
reports that generally outstripped market expectations. Investment-grade private
yields moved up in line with Treasuries, but those on lower-rated instruments posted
smaller increases, leading to a further narrowing of high-yield risk spreads (Chart 2).
Investment-grade yields are now about a percentage point higher than at the time of
last June’s policy easing, while those on high-yield instruments are around a
percentage point lower.
(3)
The dollar appreciated about 1¾ percent on balance against other major
currencies during the intermeeting period, principally in response to further
indications of strength in the U.S. economy and the associated increases in interest
rates (Chart 3). The dollar gained 2½ percent versus the euro as convincing signs of a
quickening in economic activity in the euro area failed to emerge. The ECB held
policy steady. The Bank of Canada responded to continued sluggish economic
performance with another 25-basis-point cut in its policy rates in mid-April–the third
such action this year–and the dollar ended the period about 2¾ percent higher against
the Canadian dollar. The dollar recorded an unusually wide swing against the yen,
dropping more than 6 percent over the second half of March before reversing most of
that loss. In addition to the effects of U.S. data surprises, the turnaround may have
reflected Japanese investors taking new dollar positions following the end of their
fiscal year on March 31. In a distinct break from their previous policy, Japanese
2
The rise in longer-term yields over the intermeeting period may have been
amplified by efforts to hedge the lengthening duration of mortgage portfolios, which
increased about one year on average as interest rates moved higher and the risk of
prepayment fell. Nevertheless, with market participants reportedly prepared for
increases in interest rates, trading in Treasuries remained orderly.
3
Inflation Expectations and CPI Futures
Inflation compensation, as measured by the difference between yields on nominal
and indexed Treasury securities, edged up over the intermeeting period for both the
next five years and the subsequent five years. Inflation compensation over the next
five years has been on an uptrend since last summer, likely reflecting strengthening
economic activity, rising energy and commodity prices, and recent data showing
higher-than-expected realized inflation. By contrast, the forward inflation
compensation measure has changed little, on net, over that period.
For a more complete view of investors’ outlook, inflation compensation can be
computed for all outstanding ten-year indexed notes, which have remaining
maturities spanning 2007 to 2014 (chart). At shorter maturities, this information
can now be supplemented with readings from CPI futures contracts. CPI futures
were recently introduced by the Chicago Mercantile Exchange and cover maturities
shorter than those of Treasury indexed debt. While CPI futures remain illiquid, the
two measures of inflation compensation match up fairly well–although not
perfectly–where they meet near the end of 2006. Inflation compensation increases
appreciably over the next two years and moves up more gradually thereafter,
reaching around 2½ percent at the ten-year maturity. Although some portion of
the upward slope to inflation compensation may owe to inflation risk premiums, it
seems likely that inflation is also expected to rise over the next few years.
Chart 2
Financial Market Indicators
Higher-Tier Corporate Bond Spreads*
Lower-Tier Corporate Bond Spreads*
Basis Points
200 400
Daily
FOMC
Ten-Year AA
Ten-Year Swap
160
Daily
350
Basis Points
FOMC
Ten-Year BBB (left scale)
Five-Year high-yield (right scale)
300
1200
1000
120 250
80
800
200
150
40
600
100
0
Jan.
May Sept.
2002
Feb.
June
2003
Oct.
Feb.
2004
*AA spread measured relative to an estimated off-the-run Treasury yield
curve. Swap spread measured relative to the on-the-run Treasury
security.
Stock Prices
Wilshire
Nasdaq
Feb.
June
2003
S&P 500 EPS Revisions Index
120
FOMC
May Sept.
2002
Oct.
Feb.
2004
*Measured relative to an estimated off-the-run Treasury yield curve.
Index(12/31/01=100)
Daily
400
Jan.
Percent, monthly rate
Monthly
3
2
110
Apr.
1
100
0
90
-1
80
-2
-3
70
-4
60
-5
-6
Jan.
May Sept.
2002
Feb.
June
2003
Oct.
Earnings-Price Ratio for S&P 500
and Real Treasury Yield
Feb.
2004
1989
1995
1998
2001
Implied Volatility - S&P 500
9
Percent
50
Daily
FOMC
8
Twelve-Month Forward E/P Ratio
2004
Note. Index is a weighted average of the percent change in the consensus
forecasts of current-year and following-year earnings per share.
Percent
Monthly
1992
7
+
40
6
5
+
30
4
3
Real Treasury Yield*
20
2
1
10
1993
1995
1997
1999
2001
2003
*Yield on synthetic Treasury perpetuity minus Philadelphia Fed ten-year
expected inflation.
+ Denotes latest daily observation, April 29, 2004.
Jan.
May Aug.
2002
Note: Vertical lines indicate March 15, 2004. Last daily observations are for April 29, 2004.
Dec.
Apr.
Aug.
2003
Dec.
Apr.
2004
Chart 3
International Financial Indicators
Nominal Trade-Weighted Dollar
Indexes
Index(12/31/02=100)
Ten-Year Government Bond Yields
Percent
5.5
Daily
Broad
Major Currencies
Other Important Trading Partners
FOMC
105
3.0
Daily
UK (left scale)
Germany (left scale)
Japan (right scale)
FOMC
5.0
2.5
4.5
2.0
4.0
1.5
3.5
1.0
3.0
0.5
100
95
90
85
Jan.
Mar.
May
July
2003
Oct.
Dec.
2.5
Feb.
Apr.
2004
EMBI+ Index
Mar.
May
July
2003
Oct.
Dec.
Commodity Prices
$U.S./ounce
Basis Points
800
Daily
0.0
Jan.
440
FOMC
Feb.
Apr.
2004
$U.S./barrel
Daily
FOMC
Gold (left scale)
Oil (right scale)
700
49
47
420
45
43
400
600
41
39
380
37
500
35
360
33
400
31
340
29
300
27
320
25
200
Jan.
Mar.
May
July
2003
Oct.
Dec.
Feb.
Apr.
2004
300
Jan.
Mar.
May
July
2003
Note: Vertical lines indicate March 16, 2004. Last daily observations are for April 29, 2004.
Oct.
Dec.
Feb.
Apr.
2004
4
authorities refrained from intervening in foreign exchange markets after mid-March.3
Yields on longer-term government bonds in major industrial countries rose 25 to 50
basis points over the intermeeting period, considerably less than in the United States.
Stock markets in most major foreign economies continued to make solid gains, with
the 7 percent average increase in Japanese stocks leading the pack.
(4)
The dollar rose about 1 percent during the intermeeting period against
an index of currencies of other important trading partners. The dollar moved up
more than 3½ percent on balance versus the peso on evidence that economic activity
in Mexico was weaker than expected. The Mexican central bank surprised market
participants by tightening policy, in part to bring inflation down to within the official
target range. Mexico’s EMBI+ spread was about unchanged over the intermeeting
period, but Brazil’s spread widened 100 basis points, to over 6½ percentage points.
The People’s Bank of China raised reserve requirements and tightened restrictions on
lending in late April in an effort to prevent overheating of the Chinese economy.
(5)
The expansion of domestic nonfinancial sector debt remained brisk in
the first quarter, supported by a pickup in federal issuance and strong household
borrowing (Chart 4). A further jump in the federal budget deficit resulted in record
sales of marketable Treasury debt in the first quarter. Residential mortgage debt
growth continues to be rapid, albeit somewhat off the record rates of the last two
years, as the recent drop-off in refinancing applications has yet to show through
materially to originations. Financing conditions for businesses have continued to
improve, with banks further easing standards and terms between January and April as
reported in the most recent Senior Loan Officer Opinion Survey. Although business
credit demands have strengthened a bit this year along with a faster pace of capital
expenditures, borrowing needs have been held down by robust corporate profits.
Bond issuance by investment-grade firms rose in the first quarter as interest rates fell
but seems to have weakened a bit in April with the backup in rates. Lower-tier bond
3
The Japanese authorities last intervened on March 16 th, the day of the FOMC
meeting, when they purchased $615 million.
. The Desk did not
intervene during the latest period for the accounts of the System or the Treasury.
Chart 4
Debt and Money Growth
Changes in Selected Components of
Nonfinancial Business Debt
$Billions
Monthly rate
Mortgage Refinancing Activity
50
40
Total
12000
Index(3/16/90 = 100)
$Billions
Monthly, n.s.a.
350
Monthly, n.s.a.
300
10000
30
20
250
Originations
(right axis)
8000
Apr e
10
0
200
6000
150
-10
-20
C&I Loans*
Commercial Paper
Bonds
2002
4000
Mar
100
-30
-40
H1
Q3
Q4
J
2003
Note. Bonds are not seasonally adjusted.
F
-50
M
2000
Applications
(left axis)
0
1990 1992 1994 1996
Source. Staff estimates.
e Estimated.
2004
50
1998
2000
2002
2004
Growth of Federal Debt
Growth of Household Debt
Percent
Quarterly, s.a.a.r.
18
Percent
s.a.a.r.
15
Consumer
Credit
22
18
p
12
14
Q1
9
10
Q1
Home
Mortgage
6
6
3
2
0
-3
1990
1992
1994
1996
1998
2000
2002
2004
-2
2002
H1
Q3
Q4
Q1
Q2
2003
2004
Note. Treasury debt held by the public at period-end.
p Projected.
Net Inflows to Equity
and Bond Mutual Funds
Growth of M2
Percent
s.a.a.r.
16
12
$Billions
Monthly rate, n.s.a.
50
Equity Funds
Bond Funds*
Total
e
8
60
40
e
30
4
20
0
10
-4
2002
e Estimated.
H1
Q3
2003
Q4
J
F
M
2004
A
0
-8
-10
2002
H1
Q3
Q4
J
F M A
2003
2004
* Includes hybrid funds but excludes reinvested dividends.
e Estimated.
5
issuance has remained robust, reflecting in part the narrowing of spreads on such
instruments. Short-term business debt contracted again in the first quarter, but at a
slower pace than last year, and has edged up in recent weeks.
(6)
M2 growth was quite strong in March and April, boosted in part by the
temporary effects of elevated refinancing activity in the first quarter. Currency
growth, by contrast, has been held down by weak demand from abroad. In addition
to ongoing substitution of euros for dollars in Europe and elsewhere, foreign demand
for U.S. currency has been damped by relative stability in countries that had been
significant sources of demand.
6
Policy Alternatives4
(7)
Incoming data on spending and employment over the intermeeting
period led the staff to mark up its estimate of first-quarter growth but not to change
materially the contours of the forecast of output thereafter. The past few readings on
inflation also ran faster than expected, reflecting in part the effects of higher energy
and non-oil import prices and outsized increases in a few volatile components. The
staff saw some signal in these releases and revised up its projection of core consumer
price inflation about ¼ percentage point this year and next. In light of these
developments, the staff now assumes that the Committee will start tightening in the
fall, a quarter earlier than in the March Greenbook, and firm gradually thereafter.
Longer-term interest rates move sideways over the forecast period, with the upward
push of tighter policy about offsetting the downward pull of revisions to expected
future short-term rates as investors realize that inflation is likely to remain lower and
policy to tighten by less than currently expected. Equity prices and the foreign
exchange value of the dollar have both been marked up to reflect their current,
higher-than-anticipated levels. Equity prices are again assumed to rise to yield
risk-adjusted returns in line with those on fixed-income instruments and the dollar to
edge lower at a rate similar to that assumed in the March Greenbook. With
accommodative monetary and fiscal policy supporting growth, real GDP is projected
to expand at about a 5 percent rate over the final three quarters of 2004. However,
monetary policy tightening and a swing in fiscal policy toward restraint contribute to a
moderation of GDP growth to about 3¾ percent in 2005–a touch above the
estimated growth rate of potential output. The unemployment rate is expected to end
the forecast period at 5¼ percent, still somewhat above the staff’s estimate of the
4
All references to output, employment, and inflation measures in this
document, as well as the money and debt projections, are based on the data available
and the staff forecast when the April Greenbook was published yesterday. The BEA’s
advance estimate of first quarter GDP, which was released this morning, shows GDP
growth of 4.2 percent in the first quarter–a percentage point below the staff
projection. The bulk of the difference reflected lower inventory investment than the
staff had anticipated.
7
natural rate, as productivity growth continues to be robust and labor force
participation picks up. With oil prices moderating, commodity prices stabilizing,
longer-term inflation expectations apparently remaining well-anchored, and a portion
of the gap between output and its potential persisting until the end of the forecast
period, core PCE inflation is projected to edge lower to about 1¼ percent later this
year and remain near that level through next year.
(8)
This Bluebook presents three alternatives for the Committee’s
consideration, summarized by the draft statements in Table 1. Alternatives A and B
assume that the federal funds rate holds at 1 percent but differ as to the Committee’s
characterization of the strength of the economy and its willingness to be patient in
removing policy accommodation. Alternative C contemplates a quarter-point firming
and aligns the wording of the statement accordingly. Under any of these alternatives,
several changes seem necessary to update the characterization of economic
conditions. In particular, with employment growth averaging 170,000 per month over
the first three months of the year, the rationale paragraph could indicate that “hiring
appears to have picked up.” And the unexpectedly high inflation figures could be
acknowledged by stating that “incoming inflation data have moved somewhat higher.”
Assuming that the Committee now sees the odds of a significant further decline in
inflation as remote, the assessment-of-risks paragraph should indicate that “the upside
and downside risks to the goal of price stability are seen as roughly equal.”
(9)
In light of the data released over the intermeeting period, the Committee
may feel more confident that vigorous output growth will be sustained and that slack
in labor markets will diminish. Moreover, the higher-than-anticipated price data might
be taken as evidence that inflation has bottomed. In these circumstances, the
Committee might want to adopt language that would provide more flexibility about
future action so that it has scope to begin unwinding its current policy
accommodation if circumstances soon warrant, as in Alternative B. Even if such
action were not viewed as imminent, the Committee might favor a change in the
wording if members put some weight on the possibility of tightening in the next few
months as more information bearing on the strength of the labor market and inflation
Table 1: FOMC Statement Alternatives for the May Bluebook
M a rc h F OM C
Policy
Decision
1. The Federal Open Market Committee
decided today to keep its target for the
federal fund s rate at 1 percen t.
2. The Comm ittee continues to believe that
an accom mod ative stance of monetary
policy, coupled with robust underlying
growth in productivity, is providing
imp ortant ongoing sup port to economic
activity.
Rationale
Alternative A
Alternative B
Unchanged
Unchanged
Unchanged
Unchanged
The Federal Open Market Committee
decided today to raise its target for the
federal fund s rate to 1¼ perce nt.
The Comm ittee continues to believe
that robu st underlying grow th in
productivity is providing important
ongoing support to economic activity.
3. The evidence accumulated over the
intermeeting period indicates th at output is
continuin g to expand at a solid pace.
Although job losses have slowed, new
hiring has lagged.
The evidence accumulated over the
intermeeting period indicates that
outpu t is continuing to exp and at a
solid rate and hiring appears to have
picked up.
The evidence accumulated over the
intermeeting period indicates that
outpu t is continuing to exp and at a
solid rate and hiring appears to have
picked up.
The evidence accumulated over the
intermeeting period indicates that
outp ut is co ntinu ing to expand at a solid
rate and hiring appears to have picked
up.
4. Increases in core co nsum er prices are
muted and expected to remain low.
Although incoming inflation data have
mov ed som ewhat higher, core
inflation is expected to rem ain low.
Although incoming inflation data have
mov ed som ewhat higher, long-term
inflation expectations appear to have
remained well-anchored.
Long-term inflation expectations appear
to have remained well-anchored,
although incoming inflation data have
mov ed som ewhat higher.
[None]
[None]
Unchanged
Unchanged
5. [None]
6. The Committee perceives that the upside
and downside risks to the attainment of
sustainable growth for the next few
quarters are roughly equ al.
Assessment
of
Risks
Alternative C
Against this backdrop, the Committee
felt that some reduction in the degree of
monetary accom modation was desirable
to prom ote price stability and thus help
sustain the economic expansion.
With this policy action, the Committee
perceives that the upside and downside
risks to the attainm ent of susta inable
growth for the ne xt few quarters are
roughly equ al.
7. The probability of an u nwelcome fall in
inflation has diminished in recent months
and now appears alm ost equal to that of a
rise in inflation.
Similarly, the upside and downside
risks to the goal of price stability are
seen as roughly equal.
Similarly, the upside and downside
risks to the goal of price stability are
seen as roughly equal.
Similarly, the upside and downside risks
to the goal of price stability are seen as
roughly equ al.
8. With inflation quite low and resource use
slack, the Comm ittee believes that it can be
patient in removing its policy
accommodation.
Nonetheless, with inflation low and
resource use slack, the Comm ittee
believes that it can be patient in
removing its policy accomm odation.
At this juncture, with inflation low and
resource use slack, the Comm ittee
believes that policy accomm odation
can likely be removed at a measured
pace.
Even following today’s action, the
Comm ittee judges that the stance of
policy is qu ite accom modative.
However, with inflation low and
resource use slack, the Comm ittee
believes that policy accomm odation can
likely be re moved at a me asured pace.
8
trends becomes available. Deferring policy firming, at least for a time, may not be
seen as especially costly: Even if somewhat stronger employment growth and a
slowing in the rate of advance of productivity pushed up labor costs, competitive
pressure may lead firms to trim currently high profit margins, limiting the passthrough of rising costs to inflation. And, while inflation compensation five to ten
years out implied by TIIS yields moved up some over the intermeeting period, it has
changed little, on net, since last fall, suggesting that longer-term expectations remain
well-anchored.
(10)
The Committee has multiple opportunities in its statement to indicate
that the odds of policy firming in the near future are higher than at the March
meeting, as shown in the column labeled Alternative B in Table 1. At the same time,
it might also offer a reason in the rationale paragraph why it does not see the need to
tighten immediately by noting that “longer-term inflation expectations appear to have remained
well-anchored.” With the risks to the outlook balanced and the economy potentially
picking up steam as the gloom that weighed on business investment and hiring
disperses, Committee members may feel that it is now appropriate to drop the
sentence referring to patience in removing policy accommodation. Such a change
may be seen as particularly desirable if the Committee believes that investors’
confidence that interest rates will remain low has been encouraging the development
of financial market imbalances that could have adverse macroeconomic effects as they
unwind. However, members may be concerned that eliminating any characterization
of the Committee’s future action might lead market participants to build in outsized
expectations about the speed with which policy accommodation will be removed,
thereby augmenting the considerable tightening in financial conditions of the past few
weeks. The Committee could convey the sense that its current outlook was consistent
with a gradual return to a neutral policy stance by providing assurance at the end of
the assessment of risks paragraph that, “At this juncture, with inflation low and resource use
slack, the Committee believes that policy accommodation can likely be removed at a measured pace.”
Even with the inclusion of such a sentence, however, a statement along these lines
would likely lead market participants to bring a bit closer in time the expected date of
9
the commencement of monetary policy tightening. In response, interest rates would
rise, stock prices likely would decline, and the foreign exchange value of the dollar
would tend to appreciate.
(11)
If Committee members were sufficiently confident that the expansion
was now self-sustaining or saw the recent increase in core inflation as signaling an
upturn in underlying inflation, then they might find an increase of ¼ percentage point
in the federal funds rate at this meeting, as in Alternative C, to be appropriate. The
Committee may view the advances in investment outlays, coupled with the more
recent evidence that hiring is picking up, as suggesting that the tentativeness that had
earlier marked business behavior has lifted. Indeed, as increased hiring buoys incomes
and consumer confidence, the resulting growth in spending may support faster gains
in investment spending and employment than expected by the staff, implying a swifter
erosion of resource slack. Members may also be less confident than the staff that
aggregate supply will continue to expand at a rapid pace and that the recent increases
in energy and non-oil import prices will leave only a small imprint on inflation
expectations. If so, the Committee, like financial market participants, may see a
significant risk that inflation could move higher, suggesting that the time has come to
adjust policy. Indeed, if the Committee believes that expected inflation may rise, then
it might see an increase in the target funds rate as necessary just to avoid a reduction
in the real federal funds rate and a consequent easing of policy relative to measures of
the equilibrium funds rate (Chart 5). The argument for tighter policy would be
strengthened to the extent that the Committee wants to keep inflation near its recent
lows over the longer term, rather than allowing some increase. While policy
tightening might put some strains on financial markets for a time, Committee
members might not be convinced that the elevated uncertainty and financial market
turbulence of 1994-95 is as relevant a precedent as some observers assert, in part
because investors seem to expect that significant tightening will commence soon (see
box on “Lessons From the 1994-95 Tightening Cycle”).
Chart 5
Actual Real Federal Funds Rate and
Range of Estimated Equilibrium Real Rates
Percent
6
Quarterly
5
Actual Real Funds Rate
4
TIIS-Based Estimate
Historical Average: 2.61
(1961Q4-2003Q4)
3
2
1
0
●
Current Rate
-1
-2
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Note: The shaded range represents the maximum and the minimum values each quarter of four estimates of the equilibrium
real federal funds rate based on a statistical filter and the FRB/US model. Real federal funds rates employ a four-quarter moving
average of core PCE inflation as a proxy for inflation expectations, with the staff projection used for 2004Q1 and 2004Q2.
Equilibrium Real Funds Rate Estimates (Percent)
2002
____
Statistical Filter
- Two-sided:
Based on historical data and the staff forecast
March Bluebook
- One-sided:
Based on historical data*
March Bluebook
FRB/US Model
- Two-sided:
Based on historical data and the staff forecast
March Bluebook
- One-sided:
Based on historical data*
March Bluebook
Treasury Inflation-Indexed Securities
March Bluebook
2003
____
2004Q1
______
______
2004Q2
-0.2
0.0
0.2
0.2
-0.2
0.0
0.3
--
0.0
-0.4
0.0
NA**
0.0
-0.5
-0.1
--
2.4
2.1
2.1
2.1
2.5
2.1
2.0
--
1.9
0.9
1.2
1.5
1.9
0.9
1.2
--
3.5
3.0
2.7
2.9
3.5
3.0
2.7
--
* Also employs the staff projection for the first and second quarters of 2004.
** Because the NIPA data for the first quarter were not available until after the Greenbook was published, this value could
not be computed without employing an additional quarter of projected data.
10
Lessons from the 1994-95 Tightening Cycle
The current policy environment is similar in some respects to that prevailing before the
policy tightening in 1994-95. In both cases, an initially sluggish expansion in
employment was accompanied by a real federal funds rate that fell to near zero for a
time. The nominal federal funds rate target, shown in the left panel on the next page, is
currently 2 percentage points lower than at the start of 1994, reflecting in part the net
decline in inflation over the intervening ten years. The policy tightening that began in
February 1994 sparked a period of financial market turbulence that caused serious
difficulties for some financial institutions. This adverse outcome has raised concerns
about whether similar volatility could follow a move to tighter policy this year.
The seemingly outsized market reaction to the 1994-95 tightening reflected several
factors. First, many market participants had not fully expected a policy tightening at that
time and so were poorly positioned. Second, investors considerably underestimated the
ultimate extent of tightening, though part of that forecast error reflected the surprising
strength of the economy after the tightening process had begun. (The staff was
surprised as well, and the Greenbook forecast of the unemployment rate in the fourth
quarter of 1994 fell about ¾ percentage point over the course of that year.) Third,
uncertainty about the timing and magnitude of future policy actions was high, particularly
early in the tightening cycle. Investors reacted to the changed economic and policy
outlook by selling long-term securities to limit capital losses and hedge the lengthening
durations of mortgage portfolios that resulted from higher interest rates. These portfolio
adjustments at times took place over short periods of time, leading to volatile moves in
long-term rates. As shown in the right panel, long-term yields increased almost as much
as short-term rates early in the tightening cycle.
To be sure, the historical record does suggest that changes in the direction of the policy
rate tend to elicit a stronger market response than actions extending the existing trend in
the policy rate. And the turbulence in financial markets last summer and fall may suggest
that hedging flows will magnify the amplitude of any swings in longer-term interest rates.
As a result, some firms with large interest rate exposures could face substantial losses
when interest rates rise. That said, there are some signs that financial firms and markets
may be able to handle policy tightening better than they did in 1994. Although the
expected policy path is not as steep now as the actual tightening that took place ten years
ago, it is nonetheless considerably steeper than that foreseen immediately before the first
tightening in 1994. Even if interest rates do respond strongly to a move toward tighter
policy, financial institutions appear better positioned to withstand the impact owing to
improved risk-management practices. And, although the size of the mortgage market is
now much larger, the recent run-up in interest rates has reduced prepayment rates
enough to moderate the extent to which any further increase in rates will induce hedging
flows.
11
Lessons from the 1994-95 Tightening Cycle (Continued)
(12)
If the Committee chooses to tighten policy at this meeting, then it might
well be inclined to issue a statement like that shown in the last column of Table 1.
This statement starts by noting the change in policy: “The Federal Open Market
Committee decided today to raise its target for the federal funds rate to 1¼ percent.” To avoid
repetition later, the first sentence of the rationale paragraph might refer only to
productivity growth–“Robust underlying growth in productivity is providing important ongoing
support to economic activity.” The explanation for the policy move could follow at the end
of the paragraph: “Against this backdrop, the Committee felt that some reduction in the degree of
monetary accommodation was desirable to promote price stability and thus help sustain the economic
expansion.” So long as the Committee believed that the policy move, and the expected
reaction to that move in financial markets, was likely to be sufficient to contain upside
risks for the time being, then it might want to indicate that, “With this policy action, the
Committee perceives that the upside and downside risks to the attainment of sustainable growth for
the next few quarters are roughly equal. Similarly, the upside and downside risks to the goal of price
stability are seen as roughly equal.” In order to leave a sense that additional policy
tightening was likely at some point but that the Committee did not foresee a rapid
return to a neutral stance, the statement could end with “Even following today’s action, the
12
Committee judges that the stance of policy is quite accommodative. However, with inflation low and
resource use slack, the Committee believes that policy accommodation can likely be removed at a
measured pace.” While market participants expect policy to tighten in the not-toodistant future, action at this meeting would come as a considerable surprise, especially
given the reference to patience included in the March statement. Market interest rates
would likely move significantly higher, stock prices would fall, and the dollar would
rally. If investors took the final sentence of the statement to heart, then these
reactions might be somewhat damped.
(13)
While the Committee might find some encouragement in the stronger
tone of recent economic data, it may not yet be convinced that the expansion has
become self-sustaining and may still expect inflation to remain low. In early 2002, for
instance, the expansion appeared to be gaining traction for a time and market
expectations about the onset of tightening were building, but the expansion
subsequently faltered. If the Committee believed that the case for tighter policy
would likely require at least several more months of evidence, it might choose a
statement fairly close to the one released following the M arch meeting, as in
Alternative A. With investment spending still reported to be primarily for
replacement rather than for expansion and with only one month of reasonably strong
employment data in hand, the Committee may not yet be confident that business
gloom has really lifted all that much. Indeed, with the impetus to both household and
business spending from expansionary fiscal policy expected to wane over coming
quarters and financial conditions having tightened considerably of late, some members
may be concerned that growth could fall back more than in the staff projection. The
recent uptick in inflation might be seen as primarily the result of temporary factors
and, therefore, leaving open the possibility that the underlying trend in inflation could
edge lower (much as is discussed in the “Inflation Reversal” simulation in the
Greenbook). Moreover, some Committee members might see the level of inflation
over the past year as at the low end of its desirable range over the longer term and so
may not be averse to a modest step-up. Against this backdrop, the Committee may
continue to view downside surprises to inflation as more costly than upside surprises,
13
implying that a cautious approach to monetary policy tightening remains appropriate.
(14)
If the Committee finds sufficient merit in the selection of Alternative A,
it could issue a statement like that shown in the corresponding column of Table 1.
While the recent increase in inflation should be noted, the statement could indicate
that the rise is likely to be transitory: “Although incoming inflation data have moved somewhat
higher, core inflation is expected to remain low.” Even in this view, the risks to the
attainment of price stability related in the assessment of risks paragraph would
presumably be balanced. However, with the vigor of the expansion seen as less
certain and the upside risks to inflation less pressing, the Committee might choose to
retain with only minor adjustment the sentence indicating its belief that it can be
“patient in removing its policy accommodation.” Market participants think that the
Committee is likely to modify or drop the reference to patience in the statement at
this meeting, and its retention would probably lead them to push back somewhat the
expected timing of policy tightening. The resulting decline in market interest rates
would likely spark a modest rally in stock markets but weigh on the foreign exchange
value of the dollar.
Money and Debt Forecasts
(15)
M2 growth is projected to slow from its recent rapid pace, as the
temporary boost from last quarter’s high level of mortgage refinancing ebbs.
Nonetheless, this aggregate is expected to grow about 5½ percent this year, about the
same as last year and ½ percentage point faster than projected at the time of the last
Bluebook. The higher projected growth reflects in part the stronger-than-expected
underlying money growth thus far this year. Foreign demand for U.S. currency is also
anticipated to rebound from the low growth rate posted in the first quarter.
Nonetheless, as the economic expansion continues, households are expected to shift
the composition of their portfolios further toward capital market instruments at the
expense of monetary assets, implying a modest rise in M2 velocity this year.
(16)
Growth of total domestic nonfinancial debt this year is projected to
remain near the 8 percent pace posted in 2003. Household debt growth should slow
as higher mortgage rates damp residential investment and refinancing activity, and so
14
trim mortgage debt growth. However, with increases in investment outlays outpacing
gains in profits, business borrowing should gradually pick up, though from a very low
level. Federal debt growth is also expected to be a little higher this year, reflecting the
wider deficit, before falling back next year as fiscal policy moves toward restraint.
Directive and Balance-of-Risks Language
(17)
Should the Committee wish to follow the same procedure as at the last
two meetings, it could vote on the directive and on the language of the assessment of
risks. Draft language with a range of options for the assessment of risks identical to
those presented in Table 1 is provided below.
(1) Directive Wording
The Federal Open Market Committee seeks monetary and financial
conditions that will foster price stability and promote sustainable growth
in output. To further its long-run objectives, the Committee in the
immediate future seeks conditions in reserve markets consistent with
maintaining/INCREASING/REDUCING the federal funds rate at/TO
an average of around _______ 1 percent.
(2) Risk Assessments
(A)
The Committee perceives that the upside and downside risks to the
attainment of sustainable growth for the next few quarters are roughly
equal. Similarly, the upside and downside risks to the goal of price
stability are seen as roughly equal. Nonetheless, with inflation low and
resource use slack, the Committee believes that it can be patient in
removing its policy accommodation.
(B)
The Committee perceives that the upside and downside risks to the
attainment of sustainable growth for the next few quarters are roughly
15
equal. Similarly, the upside and downside risks to the goal of price
stability are seen as roughly equal. At this juncture, with inflation low
and resource use slack, the Committee believes that policy
accommodation can likely be removed at a measured pace.
(C)
With this policy action, the Committee perceives that the upside and
downside risks to the attainment of sustainable growth for the next few
quarters are roughly equal. Similarly, the upside and downside risks to
the goal of price stability are seen as roughly equal. Even following
today’s action, the Committee judges that the stance of policy is quite
accommodative. However, with inflation low and resource use slack, the
Committee believes that policy accommodation can likely be removed at
a measured pace.
M2 Growth Under Alternative Policy Actions
No
Change
Tighten
25 bp
Monthly Growth Rates
Jan-04
Feb-04
Mar-04
Apr-04
May-04
Jun-04
Jul-04
Aug-04
Sep-04
1.0
10.4
8.8
8.9
9.6
6.0
5.0
4.2
4.5
1.0
10.4
8.8
8.9
9.3
5.3
4.2
3.5
3.9
Quarterly Growth Rates
2003 Q4
2004 Q1
2004 Q2
2004 Q3
-1.5
3.3
8.9
5.5
-1.5
3.3
8.8
4.8
Annual Growth Rates
2002
2003
2004
6.8
5.3
5.7
6.8
5.3
5.3
Growth From
2003 Q4
2003 Q4
2003 Q4
To
Jun-04
Sep-04
Dec-04
6.4
5.9
5.6
6.2
5.6
5.2
Dec-03
Dec-03
Apr-04
Oct-04
Mar-04
Jun-04
Sep-04
Dec-04
6.8
7.6
5.9
4.3
6.8
7.4
5.3
3.9
* This forecast is consistent with nominal GDP and interest rates in the Greenbook forecast.
Chart 6
Actual and Assumed Federal Funds Rate and
Range of Values from Policy Rules and Futures Markets
Percent
10
Percent
10
Actual federal funds rate and Greenbook assumption
Market expectations estimated from futures quotes
Shaded region is the range of values from rules 1-5 below
8
8
6
6
4
4
2
2
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Values of the Federal Funds Rate from Policy Rules and Futures Markets
2004
2005
Q1
Q2
Q3
Q4
Q1
1.45
0.66
1.01
2.29
1.50
1.28
2.48
1.88
1.34
2.67
2.23
1.75
2.57
2.18
1.98
1.16
1.12
1.24
1.17
1.17
1.16
1.14
1.19
1.30
1.23
1.44
1.35
1.24
1.40 **
1.01
1.21
1.60
1.99
1.00
1.00
1.25
1.50
Outcome-based Rules
1. Baseline Taylor
2. Aggressive Taylor
3. Estimated
Forecast-based Rules
4. Estimated with Greenbook forecasts
5. Estimated with FOMC forecasts
6. First-difference rule*
From Financial Markets
7. Estimated TIPS-based rule*
Memo: Expected federal funds rate derived from futures
Memo: Greenbook assumption
1.00
* Not included in the shaded region in the figure.
** Computed using average TIPS and nominal Treasury yields to date
Note: Rule prescriptions for 2004Q2 through 2005Q1 are calculated using Greenbook projections for inflation and the
output gap (or unemployment gap). It is assumed that there is no feedback from the rule prescriptions to the Greenbook
projections over this horizon.
0
Rules Chart: Explanatory Notes
In all of the rules below, it denotes the federal funds rate, Bt the staff estimate at date t of trailing fourquarter core PCE inflation, (yt-yt*) the staff estimate (at date t) of the output gap, it-1 the lagged federal
funds rate, gt-1 the residual from the rule’s prescription the previous quarter, (yt+3|t-yt+3|t*) the staff’s
three-quarter-ahead forecast of the output gap, () yt+3|t-) yt+3|t*) the staff’s forecast of output growth less
potential output growth three quarters ahead, Bt+3|t a three-quarter-ahead forecast of inflation, and (ut+3|tut+3|t*) a three-quarter-ahead forecast of the unemployment gap. Data are quarterly averages taken from
the Greenbook and staff memoranda closest to the middle of each quarter, unless otherwise noted.
Rule
Specification
Root-meansquare error
1988:1200 4:1
2001:1200 4:1
Outcome-based
1. Baseline Taylor
Coefficients are benchmark values, not estimated.
it = 2 + Bt + 0.5(yt-yt*) + 0.5(Bt2)
.92
.87
2. Aggressive Taylor
Coefficients are benchmark values, not estimated.
it = 2 + Bt + (yt-yt*) + 0.5(Bt-2)
.74
.75
3. Estimated Outcome-based
Rule includes both lagged interest rate and serial
correlation in residual.
it = 0.55it-1 + 0.45 [1.17
+ 0.96(yt-yt*) + 1.45Bt]+ 0.42gt-1
.25
.27
.26
.28
.45
.72
.87
.32
.44#
.48
Forecast-based
4. Estimated Greenbook Forecast-based
Rule includes both lagged interest rate and serial
correlation in residual.
5. Estimated FOM C Forecast-based
Unemployment and inflation forecasts are from
semiannual “central tendency” of FOM C forecasts,
interpolated if necessary to yield 3-qtr-ahead va lues;
u t * forecast is from staff memoranda. Inflation
forecasts are adjusted to core PC E deflator b asis. Rule
is estimated at semiannual frequency, and projected
forward using G reenbo ok forecasts.
6. First-diffe rence R ule
Coefficients are benchmark values, not estimated.
it = 0.72it-1 + 0.28 [0.65
+ 1.05(yt+3|t-yt+3|t*) + 1.57Bt+3|t]
+ 0.36gt-1
it = 0.49it-2 + 0.51 [0.26
! 2.10(ut+3|t-ut+3|t*) + 1.60Bt+3|t]
it = it-1 + 0.5() yt+3|t-) yt+3|t*)
+ 0.5(Bt+3|t-2)
From Financial Markets
7. Estimated TIPS-based
Bcomp5|t denotes the time-t difference be tween 5-yr
nom inal Treasury yields an d T IPS . Sample begins in
1999 due to TIPS volatility in 1997-8.
# RMSE calculated for 1999:1-2004:1.
it = 0.96it-1+ [-1.31 + 0.76Bcomp5|t ]
SELECTED INTEREST RATES
(percent)
Short-term
Treasury bills
secondary market
Federal
funds
1
Long-term
CDs
secondary
market
Comm.
paper
Off-the-run Treasury yields
Indexed yields
Moody’s
Baa
Municipal
Bond
Buyer
Conventional home
mortgages
primary market
4-week
3-month
6-month
3-month
1-month
2-year
5-year
10-year
30-year
5-year
10-year
Fixed-rate
ARM
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
03 -- High
-- Low
1.45
0.86
1.26
0.75
1.22
0.81
1.28
0.82
1.32
0.93
1.28
0.91
2.11
1.09
3.60
2.06
4.80
3.29
5.61
4.37
1.84
0.77
2.48
1.56
7.48
6.01
5.50
4.78
6.44
5.21
4.06
3.45
04 -- High
-- Low
Monthly
Apr 03
May 03
Jun 03
03
Jul
Aug 03
Sep 03
Oct 03
Nov 03
Dec 03
1.08
0.92
0.98
0.73
1.00
0.87
1.19
0.96
1.11
1.04
1.06
0.97
2.37
1.49
3.67
2.65
4.71
3.84
5.44
4.77
1.36
0.42
2.16
1.35
6.70
6.03
5.20
4.73
6.01
5.38
3.76
3.36
1.26
1.26
1.22
1.01
1.03
1.01
1.01
1.00
0.98
1.16
1.08
0.98
0.89
0.95
0.91
0.91
0.94
0.89
1.15
1.09
0.94
0.92
0.97
0.96
0.94
0.95
0.92
1.17
1.10
0.94
0.97
1.05
1.03
1.02
1.04
1.01
1.24
1.22
1.04
1.05
1.08
1.08
1.10
1.11
1.10
1.22
1.21
1.06
1.01
1.03
1.02
1.02
1.02
1.03
1.65
1.41
1.23
1.50
1.89
1.70
1.75
1.92
1.90
2.94
2.53
2.27
2.84
3.36
3.16
3.17
3.27
3.25
4.16
3.74
3.51
4.14
4.64
4.45
4.45
4.45
4.41
5.07
4.70
4.56
5.06
5.46
5.30
5.30
5.27
5.22
1.39
1.19
0.95
1.33
1.53
1.34
1.24
1.29
1.26
2.21
1.94
1.75
2.12
2.32
2.19
2.07
1.97
1.99
6.85
6.38
6.19
6.62
7.01
6.79
6.73
6.66
6.60
5.17
4.92
4.87
5.14
5.43
5.30
5.27
5.15
5.11
5.81
5.48
5.23
5.63
6.26
6.15
5.95
5.93
5.88
3.80
3.66
3.52
3.57
3.79
3.86
3.74
3.75
3.76
04
04
04
1.00
1.01
1.00
0.84
0.92
0.96
0.90
0.95
0.95
0.99
1.01
1.01
1.06
1.05
1.05
0.99
0.99
0.99
1.75
1.73
1.57
3.10
3.05
2.78
4.28
4.22
3.96
5.13
5.06
4.87
1.11
0.88
0.55
1.88
1.77
1.48
6.44
6.27
6.11
4.99
4.86
4.78
5.74
5.64
5.45
3.65
3.55
3.41
Jan
Feb
Mar
Weekly
Feb
Mar
Mar
Mar
Mar
Apr
Apr
Apr
Apr
Apr
Daily
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
Apr
27
5
12
19
26
2
9
16
23
30
04
04
04
04
04
04
04
04
04
04
1.01
1.02
1.00
1.00
1.00
1.01
1.01
1.01
0.99
--
0.96
0.97
0.96
0.94
0.95
0.95
0.94
0.92
0.89
0.87
0.96
0.96
0.96
0.94
0.94
0.95
0.94
0.95
0.98
0.99
1.02
1.02
1.00
1.01
1.00
1.02
1.05
1.09
1.15
1.17
1.05
1.05
1.04
1.04
1.04
1.06
1.07
1.08
1.09
1.11
1.00
0.99
0.99
0.99
0.98
1.01
1.00
1.01
1.01
0.99
1.67
1.68
1.52
1.53
1.52
1.67
1.90
2.04
2.18
2.31
2.99
2.96
2.71
2.71
2.71
2.90
3.18
3.36
3.48
3.59
4.17
4.14
3.90
3.88
3.89
4.08
4.35
4.51
4.58
4.65
5.03
4.99
4.81
4.81
4.82
4.97
5.16
5.29
5.36
5.39
0.76
0.64
0.57
0.49
0.49
0.62
0.90
1.01
1.11
1.25
1.71
1.57
1.47
1.42
1.44
1.54
1.78
1.88
1.96
2.04
6.23
6.20
6.06
6.07
6.09
6.21
6.36
6.46
6.53
--
4.81
4.85
4.75
4.73
4.79
4.91
5.07
5.18
5.20
--
5.58
5.59
5.41
5.38
5.40
5.52
5.79
5.89
5.94
6.01
3.50
3.47
3.41
3.39
3.36
3.46
3.65
3.69
3.69
3.75
13
14
15
16
19
20
21
22
23
26
27
28
29
04
04
04
04
04
04
04
04
04
04
04
04
04
1.00
1.01
1.03
0.99
1.00
0.99
0.99
1.00
0.99
1.01
0.99
1.01
1.03 p
0.91
0.92
0.92
0.91
0.91
0.93
0.93
0.80
0.86
0.87
0.91
0.87
0.84
0.95
0.96
0.95
0.93
0.97
0.98
1.00
0.97
0.98
1.00
0.99
0.98
0.97
1.08
1.13
1.12
1.08
1.11
1.13
1.17
1.14
1.19
1.19
1.17
1.16
1.15
1.07
1.09
1.09
1.08
1.08
1.08
1.09
1.09
1.09
1.11
1.10
1.10
1.11
1.02
1.04
1.00
1.00
1.00
1.00
1.06
1.03
0.97
0.99
0.99
0.98
--
2.02
2.12
2.11
2.05
2.08
2.13
2.23
2.17
2.31
2.30
2.25
2.32
2.37
3.35
3.41
3.43
3.38
3.41
3.45
3.52
3.46
3.58
3.57
3.52
3.61
3.67
4.50
4.55
4.57
4.52
4.55
4.58
4.61
4.55
4.64
4.62
4.59
4.66
4.71
5.27
5.30
5.33
5.32
5.34
5.35
5.37
5.33
5.39
5.36
5.35
5.40
5.44
1.02
1.05
1.07
0.99
0.99
1.03
1.10
1.12
1.32
1.23
1.19
1.29
1.36
1.88
1.91
1.93
1.86
1.87
1.92
1.95
1.97
2.10
2.03
2.00
2.09
2.16
6.46
6.48
6.51
6.48
6.51
6.53
6.54
6.50
6.55
6.52
6.51
6.56
--
--------------
--------------
--------------
NOTE: Weekly data for columns 1 through 13 are week-ending averages. Columns 2 through 4 are on a coupon equivalent basis. Data in column 6 are interpolated from data on certain commercial paper trades settled by the
Depository Trust Company. Column 14 is the Bond Buyer revenue index, which is a 1-day quote for Thursday. Column 15 is the average contract rate on new commitments for fixed-rate mortgages (FRMs) with 80 percent
loan-to-value ratios at major institutional lenders. Column 16 is the average initial contract rate on new commitments for 1-year, adjustable-rate mortgages (ARMs) at major institutional lenders offering both FRMs and
ARMs with the same number of discount points.
MFMA
p - preliminary data
Strictly Confidential (FR)Class II FOMC
Money Aggregates
Seasonally adjusted
nontransactions components
Period
M1
1
M3
In M2
In M3 only
2
3
4
5
Annual growth rates(%):
Annually (Q4 to Q4)
2001
2002
2003
6.8
3.3
6.7
10.3
6.8
5.3
11.2
7.7
4.9
18.3
5.6
2.8
12.7
6.4
4.5
Quarterly(average)
2003-Q2
Q3
Q4
2004-Q1
8.5
7.5
2.5
7.1
8.1
6.9
-1.5
3.3
8.0
6.7
-2.5
2.3
0.6
6.9
-1.6
9.2
5.8
6.9
-1.5
5.2
5.0
11.7
12.6
4.4
8.5
0.1
2.2
-0.8
8.6
8.8
9.8
7.4
8.7
7.6
-4.3
-3.1
-0.8
-1.0
9.8
9.3
6.1
9.8
7.4
-5.4
-4.6
-0.9
-3.6
-3.0
2.9
5.7
14.4
-0.1
4.7
-5.6
-3.6
0.3
5.1
7.7
6.9
10.5
5.2
-1.5
-3.9
-1.7
-0.6
-5.5
23.2
17.7
-13.7
1.0
10.4
8.8
8.9
2.8
7.0
6.4
15.1
21.0
5.9
10.5
8.4
7.3
9.0
9.3
8.8
1283.8
1293.0
1287.1
1312.0
1331.4
6076.1
6071.0
6076.2
6129.1
6174.0
4792.3
4777.9
4789.1
4817.1
4842.6
2747.8
2748.5
2796.7
2810.4
2835.0
8823.9
8819.4
8872.9
8939.5
9008.9
1
8
15
22
29
1323.8
1303.2
1320.0
1342.8
1352.6
6152.5
6142.9
6162.0
6183.0
6195.6
4828.6
4839.7
4842.0
4840.2
4843.0
2818.3
2818.8
2840.3
2829.8
2859.7
8970.8
8961.7
9002.3
9012.8
9055.3
5
12p
19p
1325.7
1316.9
1312.1
6196.0
6212.3
6207.6
4870.3
4895.4
4895.5
2849.7
2849.8
2857.3
9045.8
9062.0
9064.9
Monthly
2003-Apr.
May
June
July
Aug.
Sep.
Oct.
Nov.
Dec.
2004-Jan.
Feb.
Mar.
Apr. e
Levels ($billions):
Monthly
2003-Nov.
Dec.
2004-Jan.
Feb.
Mar.
Weekly
2004-Mar.
Apr.
p
e
M2
preliminary
estimated
Changes in System Holdings of Securities 1
Strictly Confidential
(Millions of dollars, not seasonally adjusted)
Class II FOMC
April 29, 2004
Treasury Bills
Treasury Coupons
Net Purchases 3
Net
Redemptions
Net
Purchases 2
(-)
Change
<1
1-5
5-10
Redemptions
(-)
Over 10
Net
Change
Federal
Net change
Agency
total
Redemptions
(-)
outright
holdings 4
Net RPs 5
ShortTerm 6
LongTerm 7
Net
Change
2001
2002
15,503
21,421
10,095
---
5,408
21,421
15,663
12,720
22,814
12,748
6,003
5,074
8,531
2,280
16,802
---
36,208
32,822
120
---
41,496
54,242
3,492
-5,366
636
517
4,128
-4,850
2003
18,150
---
18,150
6,565
7,814
4,107
220
---
18,706
10
36,846
2,223
1,036
3,259
2003 QI
6,024
---
6,024
1,796
2,837
1,291
50
---
5,974
---
11,998
1,957
3,770
5,727
QII
QIII
6,259
2,568
-----
6,259
2,568
2,209
---
1,790
---
234
1,232
--150
-----
4,232
1,382
-----
10,491
3,950
-2,578
1,712
1,056
-554
-1,522
1,158
QIV
3,299
---
3,299
2,561
3,188
1,350
20
---
7,118
10
10,407
-561
2,750
2,189
1,707
---
1,707
1,311
2,848
1,251
275
---
5,685
---
7,391
-772
-3,515
-4,286
2003 Aug
Sep
981
780
-----
981
780
-----
-----
--1,232
--150
-----
--1,382
-----
981
2,162
3,195
-1,562
-935
1,817
2,259
256
Oct
Nov
880
925
-----
880
925
--2,561
1,447
1,503
280
787
-----
-----
1,728
4,851
-----
2,608
5,775
-73
-382
-527
894
-600
512
Dec
1,494
---
1,494
---
237
283
20
---
540
10
2,024
-767
5,268
4,500
2004 QI
2004 Jan
619
---
619
---
---
---
---
---
---
---
619
-424
-5,097
-5,520
Feb
Mar
747
341
-----
747
341
1,311
---
1,555
1,293
510
741
235
40
-----
3,611
2,074
-----
4,358
2,414
-568
1,949
-2,423
-1,803
-2,991
146
2004 Feb 4
Feb 11
239
342
-----
239
342
--1,311
--825
--85
-----
-----
--2,221
-----
239
2,563
3,715
-4,798
---1,000
3,715
-5,798
Feb 18
Feb 25
209
86
-----
209
86
-----
730
---
--425
--235
-----
730
660
-----
939
746
3,757
-5,018
5,000
2,000
8,757
-3,018
Mar 3
Mar 10
99
132
-----
99
132
-----
--718
--491
--40
-----
--1,249
-----
99
1,381
7,103
-4,997
-4,000
-1,000
3,103
-5,997
Mar 17
Mar 24
96
---
-----
96
---
-----
--575
--250
-----
-----
--824
-----
96
824
6,403
-5,536
---1,000
6,403
-6,536
Mar 31
Apr 7
71
190
-----
71
190
-----
-----
-----
-----
-----
-----
-----
71
190
4,352
-3,727
-----
4,352
-3,727
Apr 14
Apr 21
403
200
-----
403
200
-----
-----
-----
-----
-----
-----
-----
403
200
5,420
-4,484
--4,000
5,420
-484
Apr 28
1,425
---
1,425
---
---
---
---
---
---
---
1,425
3,917
---
3,917
2004 Apr 29
1,298
---
1,298
---
---
---
---
---
---
---
1,298
-23,369
-2,000
-25,369
3,657
---
3,657
---
575
250
---
---
824
---
4,481
-17,331
1,000
-16,331
250.1
116.3
183.8
50.0
427.6
---
677.7
-23.6
16.0
-7.6
Intermeeting Period
Mar 16-Apr 29
Memo: LEVEL (bil. $)
Apr 29
1. Change from end-of-period to end-of-period. Excludes changes in compensation for the effects of
inflation on the principal of inflation-indexed securities.
2. Outright purchases less outright sales (in market and with foreign accounts).
3. Outright purchases less outright sales (in market and with foreign accounts). Includes short-term notes
acquired in exchange for maturing bills. Excludes maturity shifts and rollovers of maturing issues,
except the rollover of inflation compensation.
77.5
4.
5.
6.
7.
Includes redemptions (-) of Treasury and agency securities.
RPs outstanding less reverse RPs.
Original maturity of 13 days or less.
Original maturity of 14 to 90 days.
MRA:SCL
Cite this document
APA
Federal Reserve (2004, May 3). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_20040504
BibTeX
@misc{wtfs_bluebook_20040504,
author = {Federal Reserve},
title = {Bluebook},
year = {2004},
month = {May},
howpublished = {Bluebooks, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/bluebook_20040504},
note = {Retrieved via When the Fed Speaks corpus}
}