230 MONTHLY REVIEW,

The Money and Bond Markets in October

The capital markets were under considerable pressure BANK RESERVES AND THE MONEY MARKET during October, and both short- and long-term interest rates rose. Credit demands remained substantial, as evi- The tone of the money market was generally firm dur- denced by an accelerated flow of new corporate and tax- ing October despite intermittent periods of relatively corn. exempt bond offerings. At the same time, mounting mdi- foflable conditions. Member banks made additional prog- cations that the economy was continuing to expand quite ress toward a more economical management of reserve vigorously and that inflationary pressures were persisting positions following the inauguration during September generated a perceptible shift of sentiment in the money of the new reserve-accounting procedure for all member and bond markets. Observers grew increasingly uncertain banks.1 Under these rules, the reserve city banks followed about the likely course of monetary policy and interest a pattern of building up large excess reserve positions rates in the months ahead. Against this background, the during alternate weeks and carrying the excess over to first half of the month saw a fairly steady drop in prices interveningweeks in which deficiency positions were main. of Treasury notes and bonds, sharp price-cutting in the tamed. Consequently, pressures on the money market corporate and tax-exempt bond sectors, where yields ap- tended to increase during settlement periods when excess proached the historic highs reached last spring, and a reserve positions were built up and to dirnmish when general rise in rates on Treasury bills and other short-term the excess was carried over to the subsequent period. This money market instruments. effect became especially pronounced during the latter halt On , however, reports began to circulate of October. that the Paris peace talks had reached a critical stage and On a nationwide basis, excess reserves of all member that an agreement to dc-escalate the Vietnam conflict banks averaged only $241 million during the five stató- might soon be forthcoming. These reports sparked a rally ment weeks ended on (see Table I), compared in the capital markets. Participants anticipated that any with $332 million during the four weeks in September.' reduction in the United States military involvement in Member bank borrowings at the Federal Reserve Bankt Vietnam would eventually contribute to an casing of showed little change, declining by $34 million on average pressures in the credit markets as well as in the economy during the five statement weeks to $458 million. Largely at large. Investment demand for corporate and tax-exempt in reflection of the decline in average excess reserves, net bonds expanded considerably, and prices rebounded from borrowed reserves averaged $217 million for the five thcir depressed levels. Prices of Government securities weeks, compared with $160 million during the four weeks also rallied in reaction to the Vietnam peace conjectures. ended in September.z Subsequently,peace hopes began to fade and interest rates Firm conditions prevailed in the money market at the tended to rise as the Treasury's November refunding ap- proached. Market participants initially responded favor- ably to the Treasury announcement on that it would offer a new eighteen-month note, priced to yield No- 5.73 per cent, and reopen the 5¾ per cent note of Required reserves are now computed on the basis of aver- vember 1974 as alternative replacements for $11.9 billion age deposits beld two weeks prior to the current statement Wek and the vault cash component of total reserves is calculatel W!w of outstanding notes and bonds maturing in November and the same two-week lag. Moreover, reserve excesses or defiCaeI'- the market in- to a limit of 2 per cent of average required reserves 1fl37 December. In the closing days of month, up details b0 with carried over to the next settlement period. For further terest in the Treasury refunding ebbed and flowed the new reserve-accountingprocedures, see this Review (OCtOUCt changing prospects for a Vietnam agreement. The financ- 1968), page 212. ing results, summarized below, indicated a satisfactory Data cited above for excess reserves and net borrowedrcSCr market response to the offering. do not include the carry-over of excess reserves or defiCflCS FEDERAL RESERVE DANK OF NEW YORK 23

Table 1 Table 12 FACIORSTENDING TO INCREASE OR DECREASE RESERVE POSITiONS OP 89430K RESERVE CiTY BANKS MEMBER BANK RESERYW.S, OC1OBER 19O8 OCI'OIIER 1968 Iii millionSof dollar,; (+) denotes mercase, In mlliiosu of dolIar (—1 decrease In elcess rcacr,'ea DaIly asn,sOes—weol .14,4 Aesra;liOI Factort fne aelOl an,t In dil asrrnØIS— aITidln8 — w.s9 on basicrolesW positiost IitddCii indod Oct. Oct. Oct. Oct. Oct. Oct. 30 Fietore chartS 2 9116123 Oct. OtI. Oct. Oct. Oct. 2 9 1.6 23 30 Fightbeaks iii New York .City

"Market" liners Reserve escea. or dchclcncy—) . 64,— 431 521— 48 7 6 lOenbnl 5501 requIred Icis borrowingS from Rcacree Oankn — 342 — 160 —•333 231 168 — 211 150 60 161 211 12 81 jeserira + + 1 ears net unIc:bgtk Federal Op&.Wc tranoanlon. hoods 952 — — pwchnc, or oa1e—). 1,493 1,786 I.8R 609; 1.331 4isMut&t — ST9 .4- 28 — 99 — 63 5f1 220 U,oij purclirases . 1.871 2,167 2,245 1,710 5QQ 1.918 G'eu nak 7.58 990 fadesel Resane, 8o& — 8.91 189 60 130 — tOe — 610 373 382 4i2 588 + + 4. Equals ad basic reserve — — nor — SI — 196 .aaurI oprzaUoois' 330 + 142 + 103 Surplus or delicill—) —1,579 —i.889-'—1.922 —1.021 —.6i4 l,405 Gold and forc2i annoest. — 12 — U 4. II + 1 a — 4 Net lonn to Gocerarnent + securirics desleri Cwreony otitilde .. .- 150 — 1,4 —271 — 59 431 — UT 1,189 901 652 642 760 829 beats .4. + Net arry-ovcr.cacti, or . Other lTndezel lle,ui de6cit(—) -" 53 8 22 soerunci InstIl — 40 .— 81 — 9 .4.189 + 3? 4..98 2 Total "mtSkit" factor. —1.411 -±-_-±-. Thlrty.elgbl bank.. ogtslde New York 01, 3rset 1e6.,ul R.wes sedit traneaotlons Reserveeacru or nierket U,sLruwest. dclicicncy(—1 .... 30.— 14 4.6— 75' 74 12 Osan Leers borrowings from Ouvlgbt boldlnas: Reserve Banks _....,. 29' Ill 113' 81 100 88 Uo,,flimeol securities .. -' + 968 + 284 +831 — 165 + 119 +1.801 1_cu ad interbank Federal Barrier.' soreor4aa + I fmds puLchs,cs or nalcs4—). 1.071 2,043' 1.881 1.7241 1.426 1.629 +4 +3 42 G,uas purchases 2,468 2,325 3,093 2,818 2.682 2,877 BuoM aFeenientl G'uas lair' 1,397 1.282 1,210 1.0941 1,256. 1,248 Ooeemxunt ai,to.ltteS 4..e3 —03 +96 — 41 4.1 4-51 Equate ad basic resent — 49 SurpluS or defic'iI(—) —1,070 2.l74 —1,952 —1,180 —1,452 —1,706 • Banker.' .ceupten + I —5 + 61 Net tuon to Government I federal tenser ubittetisna 4.1 +1 + securities dealers 1,013. 1,342 '756 624 560; 863 — ' Møaberbank borrowings +33 1311 +Ut —163 -4. 161 +88 Net rury-Oeer, cacti,or I 14 20 10 Other loans, dlrsoouirla. sad dellcit(—)t ...... ,,,...._.....[ 36'— 33 9 of — 43" Note: Ilecauae roundin8, figure-sdo not necessarily add to totals. Total .4.1.11.0 + SO + 003 +251 +1.586 • Reservesheld oiler ceftala adjuatmenta appUcribie to the reporti96 pctiod lea. rc,iiuIfd resereel. Slut, + 136 + 1?? ._.1?IJ +346 + 188 Not reflectedin data above.

Table m Dilly .,ITag! ltiels AVERAGE ISSUING RATFS• N.ober b.ni: AT REGULAR TREASURY BILL AIJCIIONS fatal reesryos. tnolioitlng In per cent null eisa 14.910 16.458 83.060 83.463 10.286 2f..56119 Besuired reserves 80,05') 1& 33.60') 26,4?? 24.369 26,3470 reserves ISO 128 365 — 527 211: Weekly aiirtior, dales—Ontab., 1968 151 Borro,tng, 540 402 515 136 491 4.511 Maturities fly. (4.5 or net bOrrowsO (—I — tin — 12? —144 —953 — 170 — liT; Noebarrawart r,.rr,es tLUD 16.053 28.442 88.154 24.189 11.180* Not oerry-oe,r. incu. or Ii 160 15 II!, 5 88$ Three-mouth Six-month

Ch.an;esin Wtdnnday lush Monthly aettlon dtet—Au*rnt-0etober 1968 Byitsat Aecount holding. -— — If Gourninsot uneritIs, OItijljn1 Iii: Aa. Sept. Oct. — 27 24 24 less than 000 7201 4.. 975 620 +808 + 485 —143 .4.1,9.00 — — — Mciv than one ySer 227 + 83 — — 144 N.ae-montb 5.245 5102 5.446 Total .4-. 7411 — 4T + 1103 +4X — 243 .4-1,186 Oco-yese 5.151 5.109 5.405 ?toia: Bresusi, of TOt2flhItfl, 3gw,.do not e,nrtls add to totilu. •tonlude, chu.4e.g In ?0.asurl eu,rnncy sad o&b. • Interest rates on bills crc quotedin terms of or 360-day year. with the discounts * InCludes aessla itoorlma4sdLa rw,lizi cuirranciel. from par as the return on thc lace amount of tire bills paablc at matutity. $ Mnrse of fle wed., eatled oa Oitobez 30. 1969. Bond yield equivalents, related to tire amount actually wvcatcd, would be I Noi Indurled In &,ei., larets of ases or Ores reses-r,.. aligirtly higher. 232 MONTHLYREVIEW, NOVEMBER 1968

beginning of the month. In the statement week ended on ers quoted ninety-day unendorsed paper at 6 per cent bid , Federal funds traded primarily at 6 per cent, (5 per cent offered) at the month's end. Posted rates while both reserve city and "country" banks accumulated for three-month negotiable certificates of deposit (C/D's) excess reserves. During the next two statement periods, the rose to 5¾ per cent at most major New York City major New York City banks labored under the pressure banks, and a few banks posted 6 per cent by the end of of record basic reserve deficits that averaged $1.9 bil- the month. The volume of outstanding C/D's at the lion, compared with $1.3 billion during the four state- weekly reporting banks in New York City expanded to ment periods in September. Reserves released as a result $7.0 billion on October 30, an increase of $513 million of a sharp curtailment of lending to securities dealers from September 25. In contrast, a decline of $81 million were more than absorbed by current declines in demand bad occurred in September. Liabilities of United States deposits and higher required reserves which, under the banks to their foreign branches declined by $31 million new lagged reserve-accounting procedures, reflected a during the five weeks ended on October 30, compared buildup of deposits in the latter half of September. Banks with a rise of $95 million during the previous four weeks. in money centers outside New York City were also under reserve pressure as evidenced by an average basic reserve THE GOVERNMENT SECURITIES MARKET deficit of $2.1 billion at a group of thirty-eight major banks. All reserve city banks, which had earned over a Prices of Treasury notes and bonds generally moved sizable reserve surplus from the previous week, had a lower in the first half of the month in a climate of in- deficit reserve position on average in the week ended on creasing caution regarding the outlook for monetary pol- , and the Federal funds rate eased slightly to a icy and interest rates. The coupon sector was also ad- 5¾ to 6 per cent range. Money market conditions grew versely affected by the firm conditions prevailing in the tighter in the following week, when the reserve city banks money market, the heavy tone evident in the markets accumulated excess reserve positions and Federal funds for corporate and tax-exempt bonds, and the apparent traded predominantly in a 6 to 6 per cent range. growing investor enchantment with equities. Government After midmonth, a decline in loans and investments securities dealers marked prices progressively lower as at the major New York City banks, coupled with gains they attempted to reduce their sizable inventories prior in time deposits and Euro-dollar balances, resulted in a to the Treasury's November refunding operation. Prices sharp improvement in their basic reserve position. These of most coupon issucs declined during the first half of reserve gains, combined with the carry-over of excess re- the month by from %a to as much as 2½ points, with the serves from the preceding week, contributed to reduced largest losses recorded at the longer end of the matu- pressure in the money market during the October 23 state- rity spectrum. (Associated yield increases are illustrated ment period. The predominant rate on Federal funds gen- in the right-hand panel of the chart.) erally cased to a 5¾ to Wa per cent range, and member A more favorable climate emerged in the Government banks ended the week with a reserve deficiency averaging coupon Sector when reports began to circulate that a $18 million, not including a carry-over excess of $172 breakthrough in the Vietnam peace negotiations might be million from the preceding week. The basic reserve posi- imminent. Prices of Treasury notes and bonds rallied tions of money market banks eased further in the week sharply on October 16 and 17, and demand from pro- ended on October 30 (see Table Il), as gains in demand fessional sources expanded substantially. As the month deposits and repurchase agreements against securities ex- progressed, activity subsided again when the outlook for ceeded the growth in credit outstanding. Both reserve city a quick Vietnam settlement dimmed somewhat. The and country banks, however, accumulated excess reserves stronger than expected expansion in GNI' during the third during the week, and money market conditions firmed quarter, which was reported at midmonth and had tem- somewhat, with Federal funds trading generally in a 5 porarily been overlooked by the coupon sector in the to 6 per cent range. flurry of market activity, also influenced market sentiment Commercial paper dealers increased their offering rate as participants awaited the terms of the Treasury's No- for prime four- to six-month paper from 5¾ per cent to vember refunding. 5 per cent on . In the course of the month, The Treasury announced on October 23 that it would direct issuers raised rates for some selected shorter matu- offer holders of $1 1.9 billion of notes and bonds maturing rities by ¼ percentage point to 5¾ per cent. Rates for in November and December the opportunity to exchange bankers' acceptances edged ¼ percentage point higher these securities either for a new issue of the 5¼ per cent in two steps during the first half of the month. Most deal- note, maturing in and priced at a discount to FEDERAL RESERVEBANK OF NEW YORK 233

SELECTEDINTEREST RATES

Pq CN MONEYMARKET RAILS A.cu,i.Od.b., BOND M.A8KETYIELDS Per cent Y.Id, on n.w cbliutility bond, 7.50 R.eUenn8yield—. Marketyield Aoa .—-—--—-—.-__--——-.. 7.00

I. __ r . : jj 6 50

6.00 ii.. Aoo.,ot.dsea,oned corpWole bond,

— 3to 5.yecrGoeornmoniiscjrirj., — 5.30 — -- f-.' I _,_ '—— LonO.r.re.Gcn,rnm.nt turwili., 5.00

I.

— 4.50

?O.year 05.e.ectpPbonds - 4.00

I _iiii II III! 3 A 7 4 21 28 1 ii lB 23 2 9 16 73 30 7 14 21 28 4 II lB 23 2 9 *8 23 30 Au9uII 5.plesnber Orlobe, AuviI S.pt.cmbsr OcIber P401.: D.te,• .h..n II,, bo.,.ssdove oiy. MONEYMAIT IATUQUOTLO, Deity...g. ci rat,. poU.dby .vjo. N.. YertCipy b..b. poirl I..., e,d....ihngsy,di.ute rseIl.,ic yisido. c .i,.,e I..0,1.1 yScid cc II.. lendal ii o, ,calIpn e d.,.l a.onr.dby united Stat.. G...,n.nt 1fl.rih•$ (0ponl ,o. u..imn.diatsty oIls, ho, be.n ,.l.o..d i.o., ipndi.o1. de.I, i,di..40pM. .b..'t.ci clay .0,911 04i.ain retibr dir..tly PIOS.di929U.1OffIP.L'P Opo!(I G..og., ci yi.Id.en (ovg o n9Ja.t.yi!!1 bcM. 1..or callnbi. ,I., yes's M. .II.ctI.. 0* on 9jj,yllh. ,gis laoa,,,pr,It.1in. 04 lt ,a.cciior,. s.....t.dl os.,e,.l ond .4 yew. .o.ep..t.d,c,h. bcu.,4 dotingbid Inletlqeer,d ic,.rm, ci ,cj. ci di..e,n ott ,.w..o,uilanding n(y,Lr4i. cloii..gbid prk..i Th,r,do,sInogei ol ,,.ld,on l..nly j ,eoso,,d J99,79LM!-'!T'Pi nd.4.w.ying Moody, 0Iinga oIAoo. Ac. A. ,,4Roe!. BONDMARUI YIELDS QUOTLO Yi.Id.o.. 9529,.AJIdA0!ettd p yoI.ty..bititdsoss ploitid Sce,rSi: i.d.reIRe,.,., Sac1 ciN1. To,k. Be-s.dci Go....0.. ci tb F.d.,olP...n-. .ytIo, •a. iho..i.g d.ly..osog. yt.ldac' t!912ftai2Id1oipo1A!IkfldJ le"e—. No.1y.ln..de,. S.,oIc.. .cd ThWpdB.y

I yield about 5.73 per cent, or for an additional amount however, when reports again circulated that a United of the outstanding 5¾ per cent note of November 1974 States bombing halt was numineni In fact, on thc evening at par. Private investors held approximately $5.6 billion of , the President announced that the bombing • of the eligible maturing issues. Market observers gen- of would cease on . .1 erally considered the Treasury's terms to be relatively On November 1, the Treasury released the preliminary attractive, although there was some surprise at the inclu- results of its refunding operation. Approximately 84.5 per sion of an intermediate-term issue in the exchange. The cent of the $11.9 billion of November and December market response was also influenced by the reiteration maturities eligible for exchange was converted into the two of official forecasts of an appreciably lower Federal bud- note issues offered by the Treasury. Subscriptions totaled get deficit for fiscal 1969, as well as by the prediction $7.8 billion for the new 5¼ per cent note of 1970 and that the Treasury would not have to raise net new cash $2.3 billion for the reopened 5¾ per cent note of 1974. over the balance of calendar 1968. Late in the month, Approximately 66 per cent of the eligible maturing issues a more cautious tone reappeared in the coupon sector, held outside the Federal. Reserve Banks and Government • largely in reflection of renewed uncertainty about the accounts was exchanged, including $2.9 billion of Novem- Vietnam outlook. The month closed on a stronger note, ber maturities and $0.8 billion of December maturities. 234 MONTHLY REVIEW, NOVEMBER 1968

In the market for Government agency obligations, in the form of credits to Tax and Loan Accounts ap4 prices generally eased in the first half of the month, pri- the two-week delay in providing required reserves against marily in reflection of the prevailing weakness in other these deposits. The bills were sold at an average rate of capital market sectors. Several large agency issues were 5.178 per cent, 22 basis points below the average rate floated during this period, including offerings amounting on a comparable offering in July. to $1.1 billion—of which about $400 million provided Rates for outstanding bills rose irregularly during the new money—from the Federal Home Loan Banks, the remainder of the month. At the regular monthly auction Federal land banks, and the Export-Import Bank. These of nine- and twelve-month bills held on , issues were initially accorded mixed receptions by in- average issuing rates were set at 5.446 per cent and 5.401 vestors. Demand expanded, however, as a better tone per cent, respectively, 24 and 29 basis points above aver- emerged in the agency market during the second half of age rates established a month earlier (see Table III). the month in response to the widespread speculation At the final regular weekly auction of the month held on about progress in the Vietnam peace negotiations. In the , average issuing rates for the new three- and improved atmosphere, offerings from the Banks for Co- six-month bills were 5.471 per cent and 5.473 per cent, operatives and the Federal intermediate credit banks were respectively, 29 and 19 basis points above average issuing well received. rates at the comparable auction held in late September. A heavy atmosphere pervaded the Treasury bill market during the early part of October. As in other sectors, wide- OTHER SECURITIES MARKETS spread uncertainty over the near-term outlook for mone- tary policy and interest rates set the tone. Moreover, as In the markets for corporate and tax-exempt bonds, firm conditions prevailed In the money market and rates prices declined on a broad front during the first half of posted by the major city banks on call loans to Govern- October. The heavy volume of new flotations in these ment securities dealers remained in a high range, dealers markets was a major source of pressure. Although new became restive and attempted to reduce their inventories. issues were offered at progressively higher yields, consid- Selling pressure from professional sources was also erable investor resistance was encountered. As dealer prompted by expectations that the Treasury would soon inventories of unsold offerings expanded and the calen- announce a special bill offering Against this background, dar of scheduled flotations gave no indication of signifi- and in the face of quite limited investment demand and cant respite in the future, syndicate price restrictions some investor selling, bill rates generally moved higher were terminated on several slow-movingrecent offerings, through October 9 (see chart). Over the next few days, triggering upward yield adjustments of as much as 70 however, demand expanded and the tone of the bill sec- basis points in the tax-exempt sector and 40 basis points tor improved briefly. A factor in this deveLopment was in the corporate bond sector. Concurrently, seasoned bond the favorable response of market participants to the yields also moved higher. The Weekly Bond Buyers index Treasury's announcement on that it would for twenty-year tax-exempt bonds soared from 4.30 per raise only $3 billion of new cash through the sale of cent in late September to 4.51 per cent in mid-October, tax anticipation bills to be auctioned on Oc- while Moody's index for seasoned Aaa-rated corporate tobcr 17 and issued on October 24. The size of the bonds rose during the first hail of October by 10 basis offering was smaller than had been anticipated by many points to 6.10 per cent. observers and, in response to this news as well as to As the month progressed and bond yields reached expanded investment demand, bill rates declined on Oc- more attractive levels, investor Interest gradually revived. tober 10 and 11. Nevertheless, the major forward impetus emerged only Subsequently, concern over the prospective course of when hopes that some progress might have been made monetary policy once more emerged as a significant re- in the Vietnam peace negotiations generated a much more straining factor in the market. Rates again began to edge optimistic tone throughout the capital markets. Conse- upward toward midmonth in quiet trading. Then, as the quently, new offerings marketed around midmonth were possibility of progress In the Vietnam peace negotiations for the most part accorded more favorable receptions, came increasingly to the forefront, demand for Treasury dealers were able to make substantial sales out of their bills expanded moderately and rates stabilized. At the inventories, and the technical position of both the cor- auction of the new tax anticipation bills, good porate and tax-exempt sectors improved considerably. interest was evident on the part of commercial banks, Investor demand contracted, however, when underwriters which were attracted by the allowance for full payment attempted to lead to lower yield levels. As the month FEDERAL RESERVE BANK OF NEW YORK 35

drew to a close, market participants again adopted an while Moody's index for seasoned Aaa-rated corporate attitude of caution and thc market tone deteriorated bonds, at 6.16 per cent, was 16 basis points higher than somewhat. a month earlier. The Blue List of advertised dealer inven- At the end of October, The Weekly Bond Buyer's yield tories of tax-exempt securities totaled $876 million at index of twenty seasoned tax-excmpt issues was quoted at the end of the month, a new high for the year and well 4.56 per cent, 26 basis points higher than a month earlier, above the $695 million en the first day of the month.

Banking and Monetary Developnients in the Third Quarter of 1968

The growth of total bank creditand total deposit liabili- slowing of money supply growth, as the risc in currency tics accelerated in the third quarter. Reserve pressures in circulation outside banks—the other component of the eased slightly during the period, banks' large-denomination money supply—also moderated. certificates of deposit (C/D's) once again became com- in the market for short-term and overall petitive funds, INTEREST RATE DEVELOPMENTS AND credit demands in the economy remained strong. The MEMBERBANK RESERVE POSITIONS Federal Reserve System in July moved through open market operations to accommodate tendencies toward less Short-term market rates of interest declined consider- firm conditions in the money market, and then in the final ably in the third quarter, with the bulk of the downward two weeks of August each of the twelve Reserve Banks adjustment taking place from mid-June to early August. lowered its discount rate by ¼ percentage point to 5¼ Thereafter, many short- and intermediate-term rates per cent. This latter action was designed to bring the dis- drifted up again, but most dosed the quarter at levels count rate into better alignment with the reduced level of significantly below those which had prevailed at the open- short-term rates that had already emerged, largely as a ing of the period. The downward from j • steep adjustment result of passage of the tax surcharge and the companion mid-June to early August reflected passage of the fiscal program of Federal spending restraint. restraint program and widcspread belief that monetary The decline of short-term interest rates gave banks policy would have to ease to prevent undue restraint on - renewed market competitiveness under the Regulation Q the economy. The subsequent upturn of rates was as- ceiling rates for large C/D's established last April. In this sociated with a growing recognition in the markets that • environment, banks were able to sell new large C/D's at the economy was continuing to expand strongly and declining interest rates to recoup deposit losses suffered that monetary policy might therefore be unlikely to ease earlier in the year, to replenish their depleted holdings of substantially. In mid-July the Federal Reserve System • liquid investments, and to meet the strong credit dc- began conducting open market operations with a view mands of a still rapidly expanding economy. Indeed, the toward accommodating the slightly easier money mar- growth of large CID's was the major factor in the stepped- ket conditions that had already developed. Then, begin- up growth of banks' deposit liabilities to private holders ning with an action on August 16 by the Federal Reserve during the third quarter, although consumer-type time de- Bank of Minneapolis, the discount rate was lowered posits also grew substantially. Privately held demand de- by ¼ percentage point to 5¼ per cent in a technical move posits, on the other hand, expanded at a rate well under designed to align the rate with the reduced rates already half the second-quarter pace. The sharp reduction in the prevailing on other money market instruments. Over the growth rate of such deposits was reflected in a marked ensuing two weeks the other Reserve Banks followed suit.