bluebooks · July 16, 1984

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.

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

July 13, 1984

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

July 13,

1984

MONETARY POLICY ALTERNATIVES Recent developments (1)

Growth in M1 accelerated to about a 12-1/4 percent annual

rate on average in May and June.

As a result, expansion over the March to

June period, at about an 8-1/4 percent rate, was well above the Committee's specification for that period of 6-1/2 percent. in the broader monetary aggregates was about in in

the case of M3 in

Committee meeting.

In contrast to M1,

growth

line with anticipations,

line with the upward revised expectations of the last Over the March to June period,

M2 grew at a 7-3/4

percent annual rate and M3 at a 10-1/4 percent rate.

Compared with the

longer-run ranges adopted at the February meeting, M1 by June was somewhat below its upper limit, M2 a little below the middle of the range, and M3 above the range. (2)

Domestic nonfinancial debt is

estimated to have expanded

at about a 13 percent annual rate over the past three months,

with both

federal and private borrowing continuing at about their advanced firstquarter pace.

Borrowing related to mergers is

estimated to have accounted

for about one percentage point of total debt growth in

the first

half of

the year.

(3)

Total reserve growth accelerated to a 10-3/4 percent rate

in May and further to a 26 percent annual rate in June, owing to a larger demand for excess reserves and rapid growth of required reserves in June which reflected especially strong demand deposits in that month and a surge in large time deposits that began in May. borrowing by Continental Illinois before it

After adjustment for

was formally classified

-2-

KEY MONETARY POLICY AGGREGATES (Seasonally adjusted annual rates of growth)

April

March to June

May

June

12.8

11.5

8.7

7.3

10.6

11.3

8.6

10.3

13.6

14.1

1 1 .2e

13.1

5.8

14.9

2.2

Q4 to June

Money and Credit Aggregates 0.2

Domestic nonfinancial debt Bank credit

7.7

13. 0 e 11.6

Reserve Measures 1 Nonborrowed reserves 2

-9.0

-49.4 83.2 (20.1) (24.1)

7.0 (11.8)

6.3 (8.4)

Total reserves

0.0

10.7

26.3

12.4

9.5

Monetary base

6.0

10.1

11.3

9.2

8.5

1190

2952 (928)

1428 (1012)

577

773

Memo:

(Millions of dollars)

Adjustment and seasonal borrowing Excess reserves

e--Estimated. Note: Figures in parentheses treat all discount window borrowings by Continental Illinois after May 9 as extended credit and therefore as nonborrowed reserves; such borrowings were formally classified as extended credit on June 7. 1. 2.

Growth rates of reserve measures are adjusted to remove the effects of discontinuities resulting from phased changes in reserve ratios under the Monetary Control Act. Includes "other extended credit" from the Federal Reserve.

-3as extended credit in early June, nonborrowed reserves rose at about a 22 percent rate over the last two months.

Adjustment plus seasonal

credit remained very close to $1 billion in each of the complete 2-week statement periods since the last Committee meeting.

Thus far in the

current statement period, borrowing has averaged $662 million. (4)

The federal funds rate has risen from the area of 10-1/2

percent at the time of the May meeting to an average of around 11 percent in June, with trading mostly in an 11 to 11-1/2 percent range thus far in July.

Money market pressures were especially marked around the mid-June

tax date and in the reserve maintenance period containing the quarter-end statement date and the July 4 holiday.

Generally, over the whole period

since the last Committee meeting, federal funds have traded at a higher rate than might have been expected relative to the average level of discount window borrowing, perhaps partly because large banks seem to have become somewhat more conservative in their reserve management (for example, more reluctant to use the discount window) in light of market concerns generated by Latin American debt problems.

Given these concerns,

the spread of CD over

bill rates widened further and there were indications of tiering within the CD market.

Spreads have narrowed somewhat in recent days, but over the

intermeeting period 3-month CD and Euro-dollar rates rose around 50 basis points on balance, while the 3-month T-bill rate was about unchanged.

Mar-

ket concerns also appear to have affected private credits in general to some degree.

The bond market has been quite volatile since the FOMC meeting, with

Treasury bond yields currently about 15 to 40 basis points below levels at the time of the last FOMC meeting.

Private longer-term market rates, on

the other hand, are about unchanged on balance over the same period, while rates on conventional fixed-rate home mortgages have risen about 65 basis points.

-4(5)

The dollar's exchange value has risen, net, about 4

percent on a weighted average basis since the last Committee meeting. Appreciations against major foreign currencies range from 3 percent against the Canadian dollar to almost 6 percent against sterling.

The

dollar weakened early in the period at the time of greatest concern about large banks, but the rise in U.S. short-term interest rates and indications of stronger than expected U.S. growth contributed to a sharp rise in the weighted average dollar to a new peak.

-5-

Longer-run ranges for 1984 and 1985 (6)

The table below shows the 1984 growth ranges for the

monetary and credit aggregates that are currently in place, an alternative set that might be considered, year.

and actual growth through the first half of the

The alternative encompasses somewhat higher growth ranges for M3 and

credit than in the current set of ranges. Actual Growth QIV to QII QIV to June

Current

Alternative

4 to 8

6.7

7.5

6 to 9

7.0

7.1

6 to 9

6-1/2 to 9-1/2

9.7

9.8

Debt

8 to 11

9 to 12

13.0

(7)

As may be seen from the table, the growth to date for M1

and M2 suggests little need to alter their longer-run ranges.

Despite

growth in nominal GNP over the first half of the year that has been about 2-1/2 percentage points faster than projected by the staff at the beginning of the year, expansion of these two aggregates has been within their ranges. Growth in their income velocities accelerated to annual rates of around 4-1/2 to 4-3/4 percent,

in part reflecting the one to two percentage point

rise in short rates since the fourth quarter, following velocity increases in the second half of last year in the neighborhood of 2-1/2 percent for both aggregates.

The largest velocity increases for M1 and M2 occurred in

the first quarter of this year, and velocity growth in the second quarter was more in line with experience in the second half of last year.

Assuming

that velocity continues to rise at a moderate pace, and also assuming some little further rise in short-term interest rates, M1 growth over the balance of the year is likely to remain in the upper half of its range and M2 growth around its midpoint, given the staff's GNP projection.

(8)

In contrast to M1 and M2, growth of M3 and total debt

has been above their longer-run ranges thus far this year, as the velocities of these aggregates have not accelerated from their pace in the second half of last year.

The alternative set of ranges for 1984

provides an option of raising growth of M3 and debt by 1/2 and one percentage points, respectively, while retaining the current M1 and M2 ranges.

This could be considered as needed to reflect the impact of merger

activity. range,

Credit growth for the year might be above the upward adjusted

though, given the strength of demands for goods and services in the

staff's GNP forecast.

On the other hand, there is also some,

though small,

probability that M3 and debt growth could come within their present longerrun ranges by year-end.

This could occur if concerns about the fragility

of financial institutions and markets were to intensify, making it more difficult for institutions to raise funds and leading to more conservative lending practices generally.

It may also occur if

for other reasons the

economy were to slow more than currently projected and merger activity were to subside much more rapidly than assumed. (9)

Three alternative sets of tentative ranges for 1985 are

shown in the table below for Committee consideration. represents the current ranges.

Alternative I simply

Alternative III reduces all of the ranges

by 1/2 point-with an option shown in parentheses for narrowing the M1 range while retaining the alternative III midpoint should the Committee wish to indicate a little more confidence in M1 as a guide. is in between.

Alternative II

No alternative providing higher ranges is shown on the

thought that would be inconsistent under existing economic circumstances-

particularly so in the market's view--with the Committee's intention to continue making progress toward reasonable price stability. I

III

4 to 8

4 to 7-1/2

3-1/2 to 7-1/2 (or 4 to 7)

6 to 9

6 to 8-1/2

5-1/2 to 8-1/2

6 to 9

5-1/2 to 8-1/2

8 to 11

7-1/2 to 10-1/2

Debt (10)

How much,

if any, reduction in growth of the aggregates

the Committee might wish to consider for 1985 depends in part on assessment of the trend in velocity.

also depends on the desirability of a more or

less gradual strategy of monetary growth rate reductions given price pressures,

the need to sustain the economic expansion, and implications of

various strategies for overall financial and economic stability. (11)

With regard to the underlying trend in the velocity of M1,

that cannot be known with any real certainty, given the relative recentness of institutional changes affecting that aggregate.

The trend since the

Second World War after taking out the effect of the rise of interest rates over that period appears to be around 2 percent.

The most probable outcome

under current circumstances would seem to be under 2 percent, as the introduction of interest-bearing checkable accounts may well have increased the income elasticity of demand for M1 by making transactions accounts more attractive as savings instruments and also may have worked to reduce the pace of technological innovation in money substitutes.

With regard to the

trend velocity of M2, our best estimate continues to be around zero, although M2 velocity has proven to be quite variable.

At the beginning of

1985, the minimum denomination on MMDAs and super-NOW accounts will fall from $2,500 to $1,000.

We have assumed that this change will have only a

minimal impact on M1 and M2.

(12)

At this point monetary policy is expected to confront

greater upward price pressures next year than this, as we go into the third year of economic expansion with relatively limited excess labor and plant

capacity and assuming a drop in the dollar on exchange markets.

If,

currently projected by the staff, price increases next year are on the order of 5 to 5-1/2 percent while economic growth decelerates to a pace

more consistent with its potential, it seems probable that a slowing in M1 growth in 1985 to the area of 5-1/2 to 6 percent-as assumed for the GNP projection and consistent with alternatives II or III--might generate

a little further upward pressure on short-term interest rates.

In 1985, we

would anticipate M1 velocity growth of 2 to 2-1/2 percent associated with the projected GNP increase of around 8 percent.

The increases in velocity

of M1 over the third year of four previous expansions that have lasted at least that long have averaged in the neighborhood of 4 percent, but they have generally been accompanied by rather sizable interest rate increases and occurred in an era when the underlying velocity trend was probably higher than can now be expected.

Maintenance of an M1 range of 4 to 8

percent as in alternative I--and with actual M1 growth expected to remain above the midpoint-might involve no further upward interest rate pressures next year. (13)

The growth of debt is expected to moderate noticeably next

year, on the assumption of reduced merger activity and in view of the impact on credit demands of the projected 2-1/4 percentage point slowing in growth of nominal GNP.

As demands taper off, credit at banks and thrifts

also is projected to grow more slowly, accompanied by more moderate M3 expansion.

However, with both debt and M3 running above their ranges this

year, even a substantial slowing may not allow scope for more than the one-half percent reduction in ranges suggested under alternative III, and

-9-

growth would be expected near the upper ends of these ranges.

Under

alternative II the current ranges for both credit and M3 are suggested to be retained, although this would of course represent a reduction if Committee chose to adjust upward the existing 1984 range.

the

-10-

Short-run alternatives (15)

Shown below are three possible approaches to policy

implementation for the period immediately ahead.

Specifications for

the monetary aggregates are presented for the June-to-September period, along with proposed federal funds rate ranges.

(More detailed material

can be found on the charts and table on the following pages.) Alt. A

Alt. B

7 8 9-1/2

5-1/2 7-1/2 9-1/4

7-1/2 to 11-1/2

8 to 12

Alt. C

Growth from June to September Ml M2 M3 Federal funds rate range (16)

4 7 9 8-1/2 to 12-1/2

All of the alternatives call for deceleration in growth

of M1 and M3 over the next three months from their March-to-June pace; however, on a quarterly average basis growth in M1 would be stronger in the third than the second quarter because of the carryover effect on the averages of the rapid growth in money in the latter part of the second quarter.

For M1,

a deceleration over the third-quarter months is

needed to keep long-run growth from the fourth quarter of 1983 base from moving closer to the upper limit of the Committee's current 4 to 8 percent range. still

In the case of M3 the contemplated deceleration would

leave that aggregate above its long-run range.

In all cases, M2

remains at or a little below its midpoint. (17)

Alternative B--which underlies the staff's GNP projection-

contemplates a marked slowing in M1 growth to around a 5-1/2 percent annual rate over the June-to-September period in the process of bringing

Chart I

CONFIDENTIAL (FR) CLASS II FOMC

Actual and Targeted M1

Billions of dollars v---7ft

"ACTUAL

LEVELS

a SHORT RUN ALTERNATIVES

-1530

-J520

-510

0N 1983

i M

.J J

1984

Chart 2

CONFIDENTIAL (FR) CLASS II FOMC

Actual and Targeted M2

Billions of dollars 12400

-ACTUAL

9% -

LEVELS

2380

* SHORT RUN ALTERNATIVES

2360

2340

2320

6% -

2300

2280

2260

2240

2220

2200

2180

-S O

1983

I D

I J

I F

1 M

I J

1964

I A

1 S

1 O

1 N

2160 0

Chart 3

CONFIDENTIAL CLASS II

Actual and Targeted M3

(FR)

FOMC

Billions of dollars 2960 -

2940

LEVELS

-ACTUAL

2920

* SHORT RUN ALTERNATIVES A

fe /

2900

2880

2860

6%-

2840

2820

2800

2780

2760

2740

2720

2700

2680 2660

IIl O

1983

.II A

1964

, 1 N

2640 O

Alternative Levels and Growth Rates for Key Monetary Aggregates Ml

Alt. C

Alt. A

Alt. B

Alt. C

Alt. A

Alt. B

Alt. C

Alt. A

Alt. B

------

May June

535.3 541.0 546.2

535.3 541.8 546.2

535.3 541.0 546.2

2242.8 2259.1 2272.8

2789.8 2816.0 2836.3

2789.8 2816.8 2836.3

2789.8 2816.0 2836.3

July August September

548.6 552.6 555.8

548.4 551.6 553.7

548.2 550.6 551.7

2286.3 2302.3 2318.3

2286.1 2301.0 2315.3

2285.9 2299.6 2312.6

2859.9 2881.4 2903.7

2859.9 2880.9 2901.9

2859.9 2880.4 2900.1

0.2 12.8 11.5

6.9 8.7 7.3

10.6 11.3 8.7

5.3 8.7 6.9

4.8 7.0 4.6

4.4 5.3 2.4

7.1 8.4 8.3

7.0 7.8 7.5

6.9 7.2 6.8

18.0

9.0 9.3

10.0 8.8 8.7

10.0 8.6 8.2

7.0

5.5

4.0

8.8

7.5

7.0

9.5

9.3

9.0

7.2 6.1 8.5

7.2 6.1 7.7

7.2 6.1 7.0

7.0 6.9 7.8

7.0 6.9 7.5

7.0 6.9 7.3

9.0 10.2 9.6

9.0 10.2 9.5

9,. 10.2 9.4

7.4

7.0

6.5

7.5

7.3

7.2

9.8

Monthly Levels 1984--April

Growth Rates Monthly 1984--April May June July August September 1984 June to Sept. Growth Rates

Quarterly Average 1984--01 Q2 Q3 Memo: '83 04 to Sept.'84

9.7

-12-

growth of that aggregate closer to the midpoint of its longer-run range by the end of the year.

Such June-to-September growth, distributed

fairly evenly over the quarter, would entail a 7-3/4 percent quarterly average increase in M1.

That growth in money may not involve much,

any, further rise of interest rates over the summer, assuming nominal GNP grows no faster than the 9-1/2 percent annual rate currently projected for the third quarter and given the rise of interest rates that has already taken place. (18)

The deceleration of M1 growth under alternative B is

not expected to be accompanied by any significant slowing of M2 from its rate of growth of the previous three months. aggregate is

Growth of the latter

likely to be sustained, given the projected reasonably

strong growth in personal income and assuming little change in the personal savings rate.

Somewhat more rapid expansion in the nontrans-

actions component is expected, partly reflecting a lagged response of the public to the increased rate attractiveness of time deposits and MMDAs relative to demand deposits and regular NOW accounts.

However,

expansion of M3 over the summer might well slow from its unusually rapid second-quarter pace.

Banks may have less need to issue CDs as

merger-related financing demands are reduced, and in any event the recent tightening of markets and widening of yield spreads against banks might encourage a somewhat less aggressive posture by banks in credit markets.

Even so, with the economy and underlying credit demands

expected to be fairly strong, M3 growth would probably be high relative to its long-run range. (19)

Growth of domestic nonfinancial debt is expected to

decelerate moderately in the months ahead, but credit demands seem likely

-13-

to be strong enough to generate growth at around an 11-1/2 percent annual rate pace over the third quarter, with only a small further falling off in prospect later in the year.

Although the pace of borrowing by

businesses is expected to slow, this reduction reflects only the assumed abatement of merger activity.

Underlying demands for funds by business

are expected to strengthen in the third quarter as the financing gap (the excess of capital spending over internal funds) widens, and to be even stronger in the fourth quarter.

Federal government credit demands

are expected to moderate slightly between the second and third quarters, but to remain relatively large over the balance of the year.

The more

fundamental slowing in credit growth in prospect is in the household sector and depends on a weakening in spending for homes and durables. (20)

Expansion in the aggregates as specified in alternative B

would probably entail growth of nonborrowed reserves at about an 8 percent annual rate from June to September, with borrowing continuing to average around $1 billion.

If recent experience is any guide, the federal funds

rate would probably average in the 11 to 11-1/4 percent area.

However,

should investors gain more confidence in banks, and should bank attitudes toward reserve management and the discount window become less cautious, the funds rate could well trade consistently below 11 percent for S1 billion in borrowing.

If that occurred,

it might entail greater expansion over

time in nonborrowed reserves--as banks more willingly lend and add to deposits-and hence more money growth than assumed for this alternative. (21)

Interest rates generally might show little net change

under alternative B, though probably edging higher from the most recent levels if funds traded consistently around 11-1/4 percent.

Speculation

about a discount rate increase could become more widespread in markets,

-14and this could itself add to upward pressures, at least temporarily, on federal funds and other rates.

The dollar may well remain generally firm

on exchange markets. (22)

The degree of tightness in bank reserve positions under

this alternative would also work to restrain money and credit growth later in the year.

Thus, alternative B may be consistent with growth in M1 over

the year 1984 in the area of 6-1/2 percent with only a little further upward movement of interest rates.

Growth of M3 and credit for the year

would probably be somewhat above the upper limits of their current longerrun ranges, though expanding somewhat more slowly in the second half than in the first half of the year.

Growth of M2 would be expected to be

around the midpoint of its long-run range. (23)

Alternative A involves a policy approach that keeps M1

growth nearer the upper end of its longer-run range.

The 7 percent

annual growth rate for this aggregate from June to September would bring growth from QIV '83 to September to just under 7-1/2 percent.

Such money

growth, when translated to a quarterly average basis for the third quarter, implies only a small rise in the income velocity of M1 over the months ahead and is probably consistent with some drop in money market rates from recent levels under existing circumstances, particularly considering the lingering restraining effects on money demand of the rise of interest rates over recent months.

Nonborrowed reserves are

likely to expand at a 14 percent annual rate under this alternative, with borrowing about $750 million.

Borrowing in that area might involve

a federal funds rate of around 10-1/2 percent-unless the recent relative reluctance of banks to borrow from the discount window abates, in which case the funds rate could be lower for such a level of borrowing.

-15-

(24)

Such reserve and money market conditions appear to be

on the easy side of current market expectations.

Should they be sustained,

bond prices might be expected to rise, assuming the economy does not unexpectedly strengthen, no major disappointments occur with respect to the budget, and M1 does not grow much faster than specified.

The

3-month Treasury bill rate may drop about 25 basis points to around 9-3/4 percent; private short-term rates, particularly for CDs, may decline by more in such a market atmosphere.

Whether these rate levels

would be sustainable or reversed later in the year or in 1985, depends in part on the likelihood that the rate declines themselves help generate a strengthening of money and credit growth inconsistent with the Committee's long-run objectives.

A reversal of the rate declines and a

further rise seems most likely, given the projected overall strength of money and credit demands,

if such objectives encompass M1 growth in

1984 and 1985 in the 6-1/2 and 6 percent areas, respectively. (25)

Alternative C contemplates a very considerable decelera-

tion in M1 growth-as more consistent with growth around the midpoint of its longer-run range over the year as a whole-and greater restraint on growth of the broader money and credit aggregates.

The 4 percent annual

rate of growth in M1 from June to September would bring expansion of this aggregate from QIV '83 to September to 6-1/2 percent at an annual rate. Growth at a 3-1/4 percent annual rate from September to December would be needed to hit 6 percent for the year as a whole. (26)

Such a deceleration of money growth over the next three

months would probably require a sharp slowing of nonborrowed reserve growth to a one percent annual rate, assuming a rise in borrowing to $1-1/4 to $1-1/2 billion.

The federal funds rate would probably rise to

-16-

around 12 percent, and other rates would adjust sharply upwards.

Quality

rate spreads-such as between bills and CDs, or high grade industrial and bank holding company commercial paper--would probably widen.

Large

banks may be viewed as coming under even more pressure because of increasing difficulties many borrowers would have in meeting higher debt service payments.

In addition, thrift institutions-which still

have a sizable portion of their portfolio in fixed-rate mortgages--would be moving into a negative earnings position.

The dollar may rise

further on exchange markets, but this could prove to be temporary should the market come to the view that the financial system is coming under excessive strain.

-17-

Directive language (27)

Given below is draft directive language related to the

Committee's decisions on the longer-run ranges (draft language for the operating paragraph is shown in paragraph (28)).

Suggested deletions

from the current directive are shown in strike-through form with proposed additions in caps and certain alternatives bracketed.

Deletion of

the two full sentences concerning M1 is suggested on the ground that behavior of that aggregate over recent quarters has been somewhat more "normal" in relation to GNP and other economic variables. able uncertainties that still

The consider-

remain in interpreting M1 and the other

aggregates, given ongoing adaptation to institutional changes by banks and the public and the potential for financial market disturbances, appear to be clearly encompassed by the language of the second paragraph below. The Federal Open Market Committee seeks to foster monetary and financial conditions that will help to reduce inflation further, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. IN FURTHERANCE OF THESE OBJECTIVES the Committee AGREED AT THIS MEETING TO REAFFIRM THE RANGES FOR MONETARY GROWTH THAT IT HAD established growth ESTABLISHED IN JANUARY: [DEL:

ranges for the

broader aggregates of] 4 TO 8 PERCENT FOR M1 AND 6 to 9 percent for both M2 and M3 for the period from the fourth quarter of 1983 to the fourth quarter of 1984.

/WITH REGARD TO ______,

THE COMMITTEE CHANGED THE RANGE(S) FOR 1984 TO ___________.

-18-

percent 8 to 4 of range a that considered also Committee The [DEL: for the same period, taking account

appropriate be would M1 for of the possibility ofM1,

its

that, in the light of changed competition

relationship to GNP over time may be shifting. Pend-

ing further

be to need will aggregate hat int growth experience,

interposed in

the lightof monetary other in growth the

aggregates, which for the time being would continue to receive weight.] substantial

The associated range for total domestic

nonfinancial debt was ALSO REAFFIRMED [DEL: set]at (RAISED TO) 8 to 11 (____TO ____)percent for the year 1984.

FOR 1985 THE COMMITTEE

AGREED ON TENTATIVE RANGES OF MONETARY GROWTH,

MEASURED FROM THE

FOURTH QUARTER OF 1984 TO THE FOURTH QUARTER OF 1985, OF ____TO ____ PERCENT FOR M1,

PERCENT FOR M3.

____TO ____ PERCENT FOR M2,

AND ____TO ____

THE ASSOCIATED RANGE FOR NONFINANCIAL DEBT WAS

SET AT ____ TO ____ PERCENT.

The Committee understood that policy implementation would require continuing appraisal of the relationships not only among the various measures of money and credit but also between those aggregates and nominal GNP,

including evaluation of conditions in

domestic credit and foreign exchange markets. (28)

Given below is suggested language for the operating

paragraph of the directive.

The specifications adopted at the meeting

on May 22 are shown in strike-through form. In the short run, the Committee seeks to DECREASE SLIGHTLY (ALT.

A)/

maintain (ALT.

B)/INCREASE SLIGHTLY (ALT. C) existing

-19-

pressures on bank reserve positions.

This ACTION is expected to

be consistent with growth in M1, M2, and M3 at annual rates of around [DEL: 6-1/2,

8 and 10]

____, ____,

during the period from [DEL: to] March

AND____ percent,

June TO SEPTEMBER.

respectively,

Somewhat

greater reserve restraint might be acceptable in the event of more substantial growth of the monetary aggregates, while somewhat lesser restraint might be acceptable if growth of the monetary aggregates slowed significantly.

In either case, such

a change would be considered only in the context of appraisals of the continuing strength of the business expansion,

inflation-

ary pressures, financial market conditions, and the rate of credit growth.

The Chairman may call for Committee consultation

if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated 7-1/2 with a federal funds rate persistently outside a range of [DEL: 11-1/2] to ____

____ percent.

Selected Interest Rates

July 16.

1984

Percent

money market mutual

Period

bank prim pr

loan

fund

fund 7

on Term

Ir U S government constant maturity yields

10 year 10

30 year 11

-year

Long Term munl corporate cpal A utility recently Bond offered Buyer 12 13

conven tional at S&Ls 14

home mortgages FNMA FHAVA 1 year cling ARM 15 16

1983--High Low

10.21 8.42

9.49 7.63

9.64 7.72

9.79 7.82

9.93 8.15

9.85 8.02

8.79 7.71

11.50 10.50

11.57 9.40

12.14 10.18

12.11 10.32

13.42 11.64

10.56 9.21

13.89 12.55

13.50 11.50

12.50 10.49

1984--High Low

11.49 9.41

10.03 8.84

10.56 8.94

11.09 9.01

11.71 9.35

11.15 9.16

10.21 8.70

13.00 11.00

13.44 10.87

13.84 11.62

13.81 11.69

15.30p 12.83

11.44 9.86

14.68 13.19

14.00 12.50

13.70 11.25

1983--May June

8.63 8.98

8.19 8.79

8.22 8.89

8.23 8.87

8.49 9.20

8.36 8.97

7.83 8.01

10.50 10.50

9.66 10.32

10.38 10.85

10.53 10.93

11.92 12.40

9.56 10.07

12.63 12.87

11.63 11.88

10.68 11.36

July Aug. Sept.

9.37 9.56 9.45

9.08 9.34 9.00

9.26 9.51 9.15

9.34 9.60 9.27

9.50 9.77 9.39

9.15 9.41 9.19

8.34 8.69 8.77

10.50 10.89 11.00

10.90 11.30 11.07

11.38 11.85 11.65

11.40 11.82 11.63

12.79 13.16 12.98

10.06 10.25 10.20

13.42 13.81 13.73

12.30 13.38 13.00

11.93 12.16 11.86

Oct. Nov. Dec.

9.48 9.34 9.47

8.64 8.76 9.00

8.83 8.93 9.17

8.98 9.08 9.24

9.18 9.36 9.69

9.03 9.10 9.56

8.67 8.55 8.69

11.00 11.00 11.00

10.87 10.96 11.13

11.54 11.69 11.83

11.58 11.75 11.88

12.89 13.14 13.29

10.14 10.22 10.40

13.54 13.44 13.42

13.00 12.50 12.50

11.40 11.40 11.56

1984--Jan. Feb. Mar.

9.56 9.59 9.91

8.90 9.09 9.52

9.02 9.18 9.66

9.07 9.20 9.67

9.42 9.54 10.08

9.23 9.35 9.81

8.80 8.72 8.91

11.00 11.00 11.21

10.93 11.05 11.59

11.67 11.84 12.32

11.75 11.95 12.38

12.99 13.05 13.63

10.03 10.00 10.37

13.37 13.23 13.39

12.50 12.50 12.70

11.45 11.38 11.91

Apr. May June

10.29 10.32 11.06

9.69 9.83 9.87

9.84 10.31 10.51

9.95 10.57 10.93

10.41 11.11 11.34

10.17 10.38 10.82

9.29 9.52 N.A.

11.93 12.39 12.60

11.98 12.75 13.18

12.63 13.41 13.56

12.65 13.43 13.44

13.96 14.79 15.56

10.26 10.88 11.07

13.65 13.94 14.42

13.00 13.94 14.00

12.30 12.83 13.45

May

2 9 16 23 30

10.70 10.46 10.52 9.75 10.30

9.67 9.90 9.94 9.85 9.69

9.88 10.22 10.27 10.35 10.52

10.08 10.37 10.55 10.65 10.89

10.52 10.85 11.39 11.14 11.27

10.24 10.34 10.66 10.24 10.27

9.35 9.40 9.58 9.51 9.60

12.00 12.14 12.50 12.50 12.50

12.16 12.45 12.73 12.83 13.19

12.79 13.08 13.44 13.50 13.84

12.83 13.11 13.48 13.52 13.81

14.40 14.77 14.87 15.15 15.02

10.34 10.61 10.82 11.21 11.44

13.78 13.87 14.04 14.08 14.29

13.00 13.50 13.50 13.50 14.00

12.45 12.70 13.00 13.15 13.35

June

6 13 20 27

10.72 10.85 11.49 11.27

9.78 9.94 9.91 9.81

10.48 10.56 10.45 10.55

10.81 10.91 10.83 11.09

11.17 11.16 11.21 11.67

10.44 10.72 10.86 11.06

9.74 9.87 10.00 10.04

12.50 12.50 12.50 12.71

13.04 13.11 13.06 13.44

13.57 13.51 13.38 13.75

13.52 13.41 13.27 13.56

14.82 14.78 15.21 15.28

11.16 10.97 10.94 11.19

14.33 14.47 14.49 14.50

14.00 14.00 14.00 14.00

13.35 13.40 13.40 13.60

July

4 11 18 25

10.91 11.25

9.87 10.03

10.45 10.48

11.08 10.97

11.71 11.69

11.11 11.15

10.05 10.21

13.00 13.00

13.44 13.29

13.83 13.62

13.59 13.40

15.30 14.88

11.11 10.88

14.66 14.68

14.00 14.00

13.70 13.60

Daily--July

6 12 13

11.13 11.03 10.95p

10.00 10.03 9.96p

10.45 10.30 10.44

11.00 10.96 10.85

11.74 11.23 11.45

11.13 11.12 11.03

13.00 13.00 13.00

13.38 13.19 13.04p

13.75 13.42 13.30p

13.55 13.20 13.11p

NOTE Weekly data for columns 1 through 11 are statement week averages Data In column 7 are taken from Oonoghue's Money Fund Report Columns 12 and 13 are 1 day quotes for Friday and Thursday, respectively following the end of the statement week Column 13 Is the Bond Buyer revenue Index Column 14 Is an average of contract Interest rates on new commitments for conventional first mortgages with 80 percent loan to value

ratios at a sample of savings and loan associations on the Friday following the end of the statement week After November 30, 1983, column 15 refers only to VA guaranteed loans Column 16 Is the initial gross yield posted by FNMA, on the Friday following the end of the statement week, In its purchase program for adjustable rate home mortgages having rate and payment adjustments once a year FR1367(4184)

Security Dealer Positions Millions of dollars July 16, 1984 Pgsitions Cash

Period 4

Treaaury bills

Treasury coupons under over 1vear 1 year

. . e nd Futures Positions.. Forward --

Forward

federal agency

private short-term

Treasury bills

and

Futur

reasury coupons under over 1 year 1 year

federal agency

[

private short-term

1983--High Low

20,858 -296

13,273 -3,461

1,579 -687

8,778 -3.148

12,088 4.013

17.005 8,839

1,654 -11,307

14 -95

1984--High Low

19.053 5,047

6,765 12.140

1,310

2.477 -4.785

17,554 11.086

14,R61* 11,263

8,272 -13,048

22 -109

2,272* -933

-7,223 -10,402

1983--June

12.133

6,756

1,084

436

5,748

9,787

-23

-722

-1,595

-8,423

July Aug. Sept.

7,992 13.669 16.971

4,076 5,929 8,011

956 748 223

140 2.639 6.344

6,976 8,093 9.285

10,275 10,361 13,138

-2,635 -1,861 -7,309

-6 -3 -2

-1,282 -2.706 -2,613

-1,836 -3.634 -5,018

-8,673 -5.899 -5.090

Oct. Nov. Dec.

14.672 15,981 18,172

9.694 10,762 8,653

609 934 1,165

3.390 325 -831

10.255 9.451 11.568

14.242 15,302 15.449

-9,132 -7,993 -5,549

-12 -2 -2

-1,667 -1,022 669

-5,909 -5.445 -7,354

-6,798 -6.331 -5.596

1986-Jan. Feb.

12,470 9,266 15,956

10,815 9,658 4,627

1,083 953 811

667 -1,543 -2,626

11.398 12.530 16,164

12,786 13,336 12.763

-10,846 -8,784 -1,027

-15 -38 -10

-116 23 1,045

-7,474 -8,192 -9.552

-5,829 -8,677 -6,239

14.463 14,191 16,515*

2,929 -7,091 -2,628*

-32 -291 -595*

-1.643 -1.754 -3.224*

16.649 16,852 16,003*

13.063 12,525 14.475*

2,108 5,489 2,204*

-13 -10 -14*

-9,406 -9,650 -9.934*

-5,453 -2,237 -1,193*

2 9 16 23 30

11.392 11,221 16,016 15,105 14.699

-2.812

-295 -284 -1 -263 -541

-1,137 -1,674 187 -2.986 -2.715

16,729 17.016 16,875 16.390 16.723

13.659 14.119 12.190 11,263 11,703

-213 3,234 6,262 6,423 8,272

-3 -8 -15 -5 -17

6 13 20 27

19.053 18,627 15,970* 14.023*

-4,432

-1.350 -712* -4,085*

-427 -365 -647* -843*

2.207 -3.391 -3.419* -2,832*

17.285 16,547 15,714* 14,995*

14,147 14.318 14,861* 14,307*

6,029 4.987 - 149* -604*

-37 -41 -2*

6 11 18 25

13,554* 10,660*

-2,904* -4,368*

-1,038* -669*

-5,451* -3,023*

15,961* 16,887*

14.868* 15,236*

596* -2,326*

itar,

Apr. May

June 1984--Hay

June

July

-7,601

-8,251 -6,019 -8,202

843*

NOTE: Government securities dealer cash positions consist of securities already delivered, commitments to buy (sell) securities on an outright basis for Immediate delivery (5 business days or less), and certain "when-issued" securllies for delayed delivery (more than 5 business days). Futures and forward positions Include all other commitments Involving delayed delivery; futures contracts are arrang. ed on organized exchanges. 1. Cash plus forward plua futures posltlons In Treasury, federal agency, and private short-term securities. 2.

Adjusted for reverses to maturity and related transactions. *Strictly confidential.

-914

1,516 -3,270

476 359 1,422*

236 378 -51 387 766

-907 -8.001

-4,411 -9,564 5* -9,819

-9,685 -10,400 -9.709 -9.014 -9,091

-5.088 -3,459 -1.472 -1,085 -2,381

-8*

1,088 364* 2,272*

-10.257 -10,402 -9,862* -9,183*

-2.082 -2,766 -178* 5*

42* -10*

3.265* 2,391*

-10.470* -10.576*

-1,315* -2,877*

1,033

STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC

Net Changes

System Holdings of Securities 1 July 16, 1984

Millions of dollars, not seasonally adjusted

Treasury coupons net purchases

Treasury

bills net2 change

Period

within 1-year

6,243 -3.052 5,337 5,698 13,068

1979 1980 1981

1982 1983

1983--QTR. II III IV 1984--QTR.

I II

5,116 4.617 4.738 -1,168 491

1984--Jan. Feb.

-3,267 -1,060

Mar.

3,159

May June

1984--APR. 4

1,633

11 It

321

18 25

JUNE

5-10

I-

within l1yeaI

1-5

5-10

over 10

--I

Net change outright holdings 5 total --- Net RPs

10,290 2,035 8,491 8,312 16,342

-2.597 2,462 684 1,461 -5,445

454 811 379 307 383

5.035 4.564 2,768 2,803 3.653

595 481 820

108 124 151

1,203 975 1,474

6.208 5,439 6.120

-793 9,412 -10,739

-300 1,484

-1,555 1 ,918

-286 70

-300

-3,607 -1,098 3,149

1 .253 -8,347

4,764 -3,633 786

7,286 -3,643 -3,572

1,633 321 2,136 1,937

3,724 -375

808

200

277

-300 ----

131 217 133

1 484

652 1 937

1,484

2.300

1 ,660

278 -1.214 -1,980 -959 385

278 -1,214 -2.020 -959 385

4.978 -5,962 -5.689 2.691 2,163

6 13

497 458

483 456

-1.402 386 5.938 -6,737

-1

904 1,978

20 JULY

6,807

9 16 23 30

27 4

11 LEVEL--JULY 12

70.4

17.0

35.5

14.3

19.1

1 Change from end-of period to end of period. 2 Outright transactions in market and with foreign accounts, and redemptions (-I in bill auctions. 3 Outright transactions in market and with foreign accounts, and short term notes acquired in ex change for maturing bills. Excludes redemptions, maturity shifts, rollovers of maturing coupon isues. and direct Treasury borrowing from the System. 4 Outright transactions in market and with foreign accounts only. Excludes redemptions and maturity shifts

2.3

4.5

1.3

8.5

3,456 2,138 1,702 1.794 1,896

---300

198

Federal agencies net purchases

over 10

3,283 -3,593 801

Apr.

HAY

164.9

-32

5 In addition to the net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct Treasury borrowing from the System and redemptions ( ) of agency and Trea sury coupon issues. 6 includes changes in RPs (+), matched sale purchase transactions ( -). and matched purchase sale transactions (+),

Cite this document

APA

Federal Reserve (1984, July 16). Bluebook. Bluebooks, Federal Reserve. https://whenthefedspeaks.com/doc/bluebook_19840717

BibTeX

@misc{wtfs_bluebook_19840717,
  author = {Federal Reserve},
  title = {Bluebook},
  year = {1984},
  month = {Jul},
  howpublished = {Bluebooks, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/bluebook_19840717},
  note = {Retrieved via When the Fed Speaks corpus}
}