current business statistics - Bureau of Economic Analysis

Bank Reserves and Bank Credit
Billion $ (Ratio scale)
40
25 —
600
500
400
360
320
280
240
220
120
100
80
60
50
40
BANK CREDIT
Total
Other
$ecurities
-U.S. G wernment
Serurities
1968 1969 1970 1971
Seasonally Adjusted
U.S. Department of Commerce, Bureau of Economic Analysis
GHART 1
1972
Data: FRB
the BUSINESS SITUATION
72-2-1
JL HE monetary authorities have
moved in recent months to achieve a
more stimulative credit policy and
conditions in money and credit markets
have eased considerably. The Federal
Reserve's open market committee,
which formulates monetary policy,
voted on November 16 u to promote
somewhat greater growth in monetary
and credit aggregates,"• and on December
14 "to promote the degree of ease in
bank reserves and money market conditions
essential to greater growth in
monetary aggregates over the months
ahead." These positions have a clearly
more stimulative thrust than the positions
taken in late September and October,
when the committee set policy for
"moderate growth in monetary and
credit aggregates."
The current stance of monetary
policy was confirmed at mid-February
by the Federal Reserve chairman.
He stated that the Federal Reserve
intends to see that supplies of money
and credit are sufficient to finance the
accelerated growth of national output
expected this year, and that the Reserve
has no intention of allowing the
economic recovery to falter for want of
money or credit.
Rates and yields
The current decline in short-term
rates began last August, when the New
Economic Policy was introduced, and
gathered momentum in December and
January. By mid-February most shortterm
rates had declined roughly 2
percentage points from their highs of
last summer. The Treasury bill yield
and the Federal funds rate were well
below 3% percent and the rates on prime
commercial paper and bankers' acceptances
were below 4 percent. On
February 15, the commercial banks 7
prime loan rate was cut further to 4%
percent. This rate has been reduced \%
percentage points (in six steps) from
last summer and is at its lowest level
since the early 1960's. The decline in
short-term rates has been sufficiently
strong to carry through to consumer
loan rates, which tend to be rather slow
to respond to changes in overall credit
conditions. In early February several
major banks on the West Coast announced
further cuts of about.% percentage
point on most categories of
consumer loan rates.
In long-term markets, yields have
declined only modestly from last summer's
highs. By early February, yields
on long-term U.S. Government securities
had declined less than % percentage
point, yields on corporate Aaa bonds
about % percentage point, and municipal
yields about % point. The decline in
long-term yields had for the most part
ended by early November, and the
small declines that occurred thereafter
have been erased by the moderate upturn
in rates associated with the news
inlate January that the estimated budget
deficit for fiscal 1972 is now much
larger than had been expected. Market
participants were apparently expecting
a deficit in the unified budget in the