FEDERAL RESERVE BANK OF NEW YORK 193

in the final issued moved only slightly from the relatively H quarter of the year and by $2.8 billion quarter permits up (see Chart II). According to the same survey, however, low July level. from the consumer continues to provide shipments are also expected to advance over the remainder Apart housing, to economic Retail sales, rising al- of the year at such a rate that the inventory build-up will a major push activity. cent in reached a record of $22.1 serve only to maintain the generally tight relationship be- most 1 per August, high tween stocks and sales that has characterized the cur- billion, seasonally adjusted. Sales of automobiles con- rent economic tributed substantially to the advance, and dealers sub- expansion. model ears. Residential construction activity continues to slip back stantially cut their inventories of 1964 from the advanced levels reached earlier in the year. With Nondurables sales, particularly apparel, also contributed the weeks in some further decline in September, outlays for the third to the August advance. Data for early Sep- somewhat from quarter as a whole—at a seasonally adjusted annual rate tember suggest that retail sales declined of $26.3 billion—were about 4 per cent below the ad- their August record. As noted in last month's Review, are to be and, vanced first-quarter rate (see Chart 11) and 2 per cent consumer intentions to buy reported strong to an incentive below the second quarter. Housing starts declined again with the March tax cut continuing provide further in the consumer in August, putting the July-August average of starts 14 for increased spending, strength per cent below the first-quarter rate, while new housing sector can indeed be expected.

The Money Market gn September

S and six- The market remained generally firm in Septem- steady, while the range of rates at which three- money mar- ber. Federal funds traded predominantly at 3½ per month certificates of deposit traded in the secondary in cent, although there was trading at rates below that ket edged slightly higher. Several upward adjustments level on occasion. Member bank borrowing from the Fed- the rates of other short-term money market instruments eral Rcserve Banks was high prior to the Labor occurred duringthe month. Thus, at the end of September, temporarily 3¾ holiday, and after the midmonth quarterly corporate the major sales finance companies were quoting a per Day as dividend and tax payment dates which brought relatively cent offering rate on 30- to 89-day directly placed paper heavy pressures on reserve positions at banks in the leading against a per cent rate at the end of August. Similarly, 3 dealers 4 money centers.' Rates posted by the major at the month end commercial paper posted a per banks on new and renewal call loans to Govemment securi- cent offering rate on prime 4- to 6-month paper, compared ties dealers were in a 3¼ to 4 per cent range during the with a 33's per cent rate at the end of August. first half of the month but most frequently in a 3'/s to 4'/s Treasury bill rates worked irregularly higher in Septem- additions to the of cent range thereafter. ber. This trend reflected supply bills, per over the dividend Offering rates for new time certificatesof deposit issued seasonal pressures quarterly corporate view that by the leading New York City banks remained virtually and tax dates, and the spreading monetary policy had shifted slightly toward less ease. Dealer holdings of bankers' acceptances rose sharply in September, as seasonal influences brought about increased bank selling of these I As announced in the August issue of the Federal Reserve Bul- in demand them. Rates lefln, the Board of Governors is now releasing on a weekly basis a instruments and a contraction for new set of statistics giving information on reserve positions and on bankers' acceptances, however, remained unchanged purchases and sales of Federal funds by forty-six major money- center banks, eight of which are in New York. Certain informa- throughout the month. tion on the financing of Government securities dealers by these The gradual downward drift in prices of Government Bid/eli;i data for the banks is also provided. The gives period notes and bonds which late in extended through , and subsequent data can be began August obtained from the new current release and from future Bullelins. into early September, as market participants continued to ot the historical data and other related material will An analysis react with caution to the uncertainties in the balance-of- 5 be published by the Board this fall in a special monograph. 194 MONTHLY REVIEW. payments outlook and auto labor negotiations, to the pos- CUANGESIN FACTO TENDING TO INCREASE OR DECREASE sibility of rising credit demands over the fall season, and MEMBER DANK RESERVES. SEPTEMBER1964 to the view that a slight shift in Federal Reserve policy In millions of dollaa; (+) dcowtci Incosaus. (—) dccicasc In CA2COO rcsCfves might be taking place. Subsequently, as the distribution of in securities acquired the July and August Treasury Daily a,ezag,s.—wi*k sodod financings proceeded in an orderly fashion, a firmer at- Factor — — Nil Prices of issues Sgnt. Sast Swt. Sut. Sopt. "" mosphere reappeared. coupon generally 2 9 16 23 30 edged higher from through , and then moved narrowly through the end of the month. Opmatlng tr*niacllon, Tr&,Uryupr70t11OOo .4. 74 — 7 — 111, — G4 + 42 — 1!dorsl Ril.er'e float —224 -4—112 +28:: ±4111 4-371 In the markets for and bonds, — — corporate tax-exempt prices Crreur, In CI7rUlfltIOfl 11 — (157 4- 1(12 — 77 — — 2 + — came underdownward as underwriters for Gold end (orolgn acreUlli. 1) + :r.l II + ii — 31 17 pressure probed lltl,or lopOidlI. and ('(1107 P'e'ImnI R11184r40 yield levels at which the month's large supply of new securi- — OUllflta (aet)! Ill + 51 -a1' .—$ + ties could be distributed. Investment buying appeared at the Total — 210 — 1111 + 81 -4-- 442 3117 3r higher yield levels and prices were generally firm at the end DIrect FedufalRiser,. credIt of the month. trnaactlons Openerarkot opcratlofla PuocbaaceUl saled — BANK RERRRV&8 Go,nenI aenr11101 + 112 + 811 + 08 Ills + 7(11:4 .4-. itink*g* scCex*an. —i + a — i —.3 — —3 Re000cbase $gTee0101lt3 Gorom,mentocowliki — 104 83! — 241 — 135 :l — Nation-wide net reserve some- + — -4- availability averaged Rsnker 3cpt&1I45.... S El 4 — 13 .11f1 .4— 12 + + — + lower over five-week Munibec benk TOU1nRI - -.- — 14 + 10:4 7 .1. Itt — 131 — SI what the period ended September 01111,1 lOan,. dIwourtI.!. sod 30 than in the four statement weeks. On a 50010DM — — — 41 +1 4-2 preceding — — wcckly average basis, market factors absorbed $292 mil- Total 4- ((II + 11311 4711 31:: + .1. 1211 MonIkerbeak reserves in — lion of rcserves from the final statement period August WIth YedMal t4cacrc I0O1l. — III + 1(14 4.54-3 — 2123 -4- :1141 allowed as rneenenl. . .- II —7112 451 — 72 to .1- SI through the final week of September while System Ac- each + + + Total reaveveal — 181' + 12111 + OIl +IllS — 138 1 171 count operations released a somewhat smaller volume Effect chani In ruIred il — of reserves. Banks throughout the country increased their reiervesl ÷ 7 4!' — IS'! — 403 -4- 24 — 11119 — — borrowing from the Federal Reserve Banks around the Eaceis rea&vcsl 43 + 149 — 12t + 104 — ill Ill! 7 Labor as un- flute $20112541Orl of ,oombcr September Day holiday they guarded against bent: , certainties over the long week end. After a brief subsequent tlorrowIngorrim1tyfR&,hj 711% 470 2211 1018 11718 14111 llxceoo reqigreil 71'O 497 371 479 (11111 'SI Free 73 15 183 III 27 easing, reserve pressures built up on money-center banks renervelf 1171 significantly around midmonth during the dividend and Note: Ileclune f ruundlng. figures do not 000ee'artlM *1.! to totS!,. tax period. These banks experienced a runoff of time cer- • Iticludre changer In TTcooury misrency and caeb. Include, an,rtn donominalsel lit foreign currencies. tificates of deposit as well as expanded loan demand from * May alw Include redel:Iptl.xIn. • These figuris are 10izoIotjd. business In finance and Oo fire ended94ocuber 20. 101(14. corporations. addition, companies 4 .'.rersgo a Government securities dealers were increasing their borrowing from banks, as finance company paper matured and corporate repurchase agreements were terminated. While the money-center banks were able to cover most of temporary reserve needs over the Labor Day holiday were their increased needs through the Federal funds market, supplied largely through the purchase of Government their borrowing from the Reserve Banks also rose during securities under repurchase agreements. Subsequently, as the week ended . Subsequently,a shift of re- movements in market factors began adding to the reserve serves in favor of the money centers led to a decline in base, the System absorbed reserves through the effects of such borrowing, and to the appearance of considerable the termination of outstanding repurchase agreements as ease in the money market around the re- well as through outright sales of Treasury bills. In the serve settlement date for "country" banks. final week of the month the System again provided re- System open market operations helped to offset most serves as an offset to the month-end absorption of reserves of the effects of the fluctuations in market factors and re- by market factors. Over the five-week period as a whole, serve distribution that occurred during September. At the the weekly average of System outright holdings of Gov- beginning of the period the System sought to avoid aug- ernment securities rose by $228 million, while average menting the already heavy demand for Treasury bills that holdings of Government securities under repurchase agree- was present in the market and injected reserves mainly ments fell by $93 million. Average total System holdings through purchases of Treasury notes and bonds. The of bankers' acceptances increased by $39 million. From FEDERAL RESERVE BANK OF NEW YORK 19$

ednesday, , through Wednesday, September the quarterly corporate dividend and tax payment dates 30, System holdings of Government securities maturing in and to additions to the regular weekly bill auctions.2 As less than one year fell by $117 million, while holdings was the case in the bond market, the bill sector was in- maturing in more than one year rose by $388 million. fluenced during this period by market discussion of a pos- sible shift in monetary policy. Following the midmonth ThE GOVERNMENT SECURITIES MARIIET tax date, bill offerings tapered off, demand increased some- what—particularly from commercial banks—and the tone In the market for Government notes and bonds, the of the market strengthened. Against this background, bill hesitant atmosphere which had appeared in tate August rates edged lower through . During the re- remained in evidence in the early part of September. In mainder of the month rates edged irregularly higher as part, this cautious tone reflected some feeling that the dealers—faced by higher financing costs—attempted to Federal Reserve System had permitted a slightly firmer lighten their positions. Over the month as a whole, rates tone to develop in the money market. At the same time, on outstanding bills were generally 5 to 22 basis points there was continued concern on the part of some partici- higher. pants over the balance of payments and over the possible The auction of $1 billion of new one- implications for price stability of the automobile labor year bills resulted in an average issuing rate of 3.773 per negotiations and contract settlements, as well as some dis- cent, compared with an average issuing rate of 3.688 per cussion of the likelihood of increased credit demands cent on the comparable issue sold in August. At the last stemming from the fall pickup in business activity. regular weekly auction of the month held on September Against this background, professionalofferings expanded 28, average issuing rates were 3.555 per cent for the new somewhat and prices of notes and bonds generally receded three-month issue and 3.711 per cent for the new six- in the early part of September, with the largest losses oc- month bill, 4 and 8 basis points higher, respectively, than curring in the long-term maturity area. Offerings from the average rates at the final weekly auction in August. -nonprofessional sources remained modest, however, and The newest outstanding three-month bill closed the month me investment demand appeared at the lower price at 3.55 per cent (bid), as against 3.50 per cent at the vels. At the same time, professional offerings gradually end of August, while the newest outstanding six-month contracted as the technical position of the market strength- bill was quoted at 3.72 per cent (bid) on September 30, ened1 and a steadier tone emerged toward midmonth. The compared with 3.63 per cent at the close of the preceding improvement in tone also reflected a renewed sentiment in month. the market that long-term interest rates were likely to re- main relatively stable in the period immediately ahead. Al- OTHERSECURITIES MARKETS though a consensus gradually developed that monetary pol- icy had shifted slightly, most participants felt that such a In the markets for corporate and tax-exempt bonds, movc was aimed primarily at raising short-term rates and prices of ncw and seasoned issues were little changcd in would not have significanteffects on long-term yields. The quiettrading during the period immediately preceding the feeling that rates in the longer maturity areas might remain Labor Day holiday. Subsequently, a cautious fairly stable was reinforced by press comments that the atmosphere developed in both sectors in response to Treasury's refunding and new money needs over the com- some uncertainty over the posture of monetary pol- ing year would be relatively modest. In this improved icy as well as to the usual September increase in the atmosphere investment demand expanded, particularly for calendar of scheduled corporate and tax-exempt issues. high-coupon securities in the five- to ten-year maturity Neither the more attractive pricing of new bonds nor some category, while a good professional short-coveringdemand price cutting on recent issues remaining on dealers' shelves also developed for notes and bonds of various maturities. sparked any significant expansion in demand, and prices Accordingly, prices of most intermediate- and long-term of new and seasoned issues generally edged lower through issues edged higher from September 16 through Septem- midmonth. Toward the end of the month, however, the ber 22. Price movements thereafter were narrowly mixed. improved atmosphere of sevcrjl weeks' duration in the At the close of the month, prices of Treasury notes and Government securities market began to influence the cor- bonds were generally lower to 1%2 higher than end-of- porate and tax-exempt bond markets, and these markets August levels. In the Treasury bill market, rates edged higher through idmonth partly in response to seasonal pressures over See this Reiiew, . p. 176. for details. 196 MONTHLY REVIEW,OCTOBER 1964 - firmed. A stronger tone was particularly evident in the with $170 million in the preceding month and $280 corporate sector where aggressive syndicate bidding for lion in . The largest new corporate bond new issues pushed reoffering yields down and stimulated flotation during the period consisted of $60 million of demand for higher yielding older issues still on dealers' 4¾ per cent utility company first and refunding mortgage which were Aa-ratcd shelves. The corporate sector was also buoyed by the light bonds maturing in 1994. The bonds, calendar of new corporate flotations on tap in the coming by Moody's, were reoufered to yield 4.53 per cent. They but weeks. In the tax-exempt sector, investor demand generally were initially accorded only a fair investor reception expanded during this period following the very successful sold out later in the month when the market atmosphere marketing of a large housing authority bond issue. At the brightened. New tax-exempt flotationsin Septembertotaled in same time, however, the tax-exempt sector continued to approximately $850 million, as against $705 million be restrained by the large volume of dealer inventories, and $415 million in September 1963. The for sale closed and by a heavy calendar of forthcoming flotations. Blue List of tax-exempt securities advertised Over the month as a whole, the average yield on Moody's the month at $673 million, compared with $611 million seasoned Aaa-rated corporate bonds rose by I basis on . The largest new tax-exempt bond issue dur- point to 4.42 per cent, while the average yield on simi- ing the period was a $130 million Aaa-rated series of larly rated tax-exempt bonds increased by 3 basis points housing authority bonds. Reoffered to yield from 2.05 per to 3.11 per cent. (These indexes are based on only a limited cent in 1965 to 3.50 per cent in 2005, the bonds were number of issues.) well received. Other new corporate and tax-exempt issues re- The volume of new corporate bonds floated in Septem- floated in September were accorded mixed investor ber amounted to approximately $365 million, compared ceptions.

International Monetary and Financial Developments

THE MEETiNGOF termine the limitations on the use of the Fund's resources, THE INTERNATIONAL MONETARY FUND as well as the voting power, of each member country. The question of international liquidity and of future This year's discussions were held against the back- world liquidity needs again dominated the annual meeting ground of two studies of the international monetary sys- of the International Monetary Fund (IMF), which thisyear tem and international liquidity needs that were pre- was held in Tokyo during the week of September 7•1 In pared by the IMF and the Group of Ten as a result of order to expand the Fund's resources and thus strengthen resolutions taken at the Washington meeting of the IMF its ability to meet any contingencies that might arise, the last year.2 The discussions, which produced a thorough the evolution Fund's governors agreed in principle on an increase of analysis of the past performance and likely members' quotas. Several speakers suggested a 25 per cent of the international monetary system, showed a large increase in most quotas, and there were also suggestions measure of agreement on the basic issues. It was generally that the quotas of , Germany, and might be felt that the present gold exchange standard has served raised somewhat more than proportionately, in recognition past needs well and has contributed to an orderly expan- and finance. The several of the growing share of these three countries in interna- sion of international trade speak- tional trade and payments. Individual quotas—which were last raised in 1959 and currently total $15.6 billion—dc- InternationalMonetary Fund. Annual Report of the Executive Directors for the Fiscal Year Ended April 30, 1964. Part It, and Ministerial Statementof the Group of Ten, , 1964. The 'For a discussion of the 1963 meeting, see "The Questionof In- group consistsof . Canada. , Germany. Italy, Japan, ternational Liquidityat the Fund Meeting",this Review, November the Sweden, , and the United Sta 1963, pp. 167-69. with Switzerlanian unofficial member.