The Post--John Berry's "large sales of bonds recently for reasons that are not clear."
"Unemployment at 6-Year High"
http://www.washingtonpost.com/wp-dyn/articles/A11120-2001Dec7.html
"How the Fed Guides Monetary Policy"
http://www.frbsf.org/publications/federalreserve/fedinbrief/guides.html
NY Fed--List of Primary Govt. Securities Dealers:
http://www.newyorkfed.org/pihome/news/opnmktops/2001/an011031.html
=============================
INFORMATIONAL PURPOSES ONLY.
Rearranged, boldface is mine.
>>>How the Fed Guides Monetary Policy
The Fed's monetary policy actions affect prices, employment, and economic growth by influencing the availability and cost of money and credit in the economy. This in turn influences consumers' and businesses' willingness to spend money on goods and services.
The Fed uses three monetary policy tools to influence the availability and cost of money and credit: open market operations, the discount rate, and reserve requirements.
OPEN MARKET OPERATIONS
The Fed's most flexible and often-used tool of monetary policy is its open market operations for buying or selling government securities.
The Federal Open Market Committee (FOMC) sets the Fed's monetary policy, which is carried out through the trading desk of the Federal Reserve Bank of New York.
If the FOMC decides that MORE money and credit should be available,
... it directs the trading desk in New York to BUY securities from the open market.
... The Fed pays for these securities by crediting the reserve accounts of banks involved with the sale.
... With more money in these reserve accounts,
........ banks have more money to lend,
........ interest rates may fall, and
........ consumer and business spending may increase, encouraging economic expansion.
To TIGHTEN money and credit in the economy,
... the FOMC directs the New York trading desk to SELL government securities, collecting payments from banks by reducing their reserve accounts.
... With less money in these reserve accounts,
........ banks have less money to lend,
........ interest rates may increase,
........ consumer and business spending may decrease, and
........ economic activity may slow down.
THE DISCOUNT RATE
The discount rate is the interest rate a Reserve Bank charges eligible financial institutions to borrow funds on a short-term basis.
Unlike open market operations, which interact with financial market forces to influence short-term interest rates, the discount rate is set by the boards of directors of the Federal Reserve Banks, and it is subject to approval by the Board of Governors.
...Under some circumstances, changes in the discount rate can affect other open market interest rates in the economy.
...Changes in the discount rate also can have an announcement effect, causing financial markets to respond to a potential change in the direction of monetary policy.
...A higher discount rate can indicate a more restrictive policy,
... while a lower rate may be used to signal a more expansive policy.
RESERVE REQUIREMENTS
By law, financial institutions, whether or not they are members of the Federal Reserve System, must set aside a percentage of their deposits as reserves to be held either as cash on hand or as reserve account balances at a Reserve Bank.
The Federal Reserve sets reserve requirements for all commercial banks, savings banks, savings and loans, credit unions, and U.S. branches and agencies of foreign banks.
Depository institutions use their reserve accounts at Federal Reserve Banks
... not only to satisfy reserve requirements,
... but also to process many financial transactions through the Federal Reserve, such as check and electronic payments and currency and coin services.
Altering reserve requirements is rarely used as a monetary policy tool.
However, reserve requirements
... support the implementation of monetary policy by providing a more predictable demand for bank reserves, which increases the Fed's influence over short-term interest rate changes when implementing open market operations. <<<
======================
>>>Unemployment at 6-Year High
Analysts Expect Hiring to Trail Economic Recovery
By John M. Berry
Washington Post Staff Writer
Saturday, December 8, 2001; Page A01
The nation's jobless rate jumped to 5.7 percent last month, the highest level in more than six years, as the recession drove employers in most industries to shed workers and cut costs.
Nearly a half million people joined the ranks of the unemployed in November, bringing the total to 8.2 million, the Labor Department reported yesterday.
The increase from 5.4 percent in October was evidence of the continued sharp deterioration of the job market since the Sept. 11 terrorist attacks. As the economy slowed over the past year, unemployment had been rising slowly, from a three-decade low of 3.9 percent in October 2000, before shooting up in the past two months, when 1.1 million more people lost their jobs.
The layoffs continued even as signs mounted that the recession that began last spring may be close to running its course, according to several forecasters, some of whom have begun predicting that the economy may start growing again early next year.
Even if the recession does end soon, many forecasters expect the unemployment rate to continue rising for several months, reaching 6.5 percent or so next year before it begins to come down. That's because at the end of a slump, as demand picks up, employers can usually boost production without having to hire more workers, which they usually don't want to do until they are sure how strong the recovery will be.
"If the economy were turning, the last place you would expect to see it is in the labor market," said economist James Glassman of J.P. Morgan Chase Securities.
The unemployment figures come from the department's monthly survey of U.S. households. A separate survey of employers provided equally bad news last month. The number of jobs on private and government payrolls fell 331,000, following an even greater 468,000-job loss in October.
The weak employment picture further convinced most analysts and some investors that Federal Reserve officials will cut short-term interest rates for an 11th time this year when they meet Tuesday. Most observers predicted the Fed will lower its target for overnight interest rates by at least a quarter-percentage point, but a few predicted another half-point cut. A quarter-point cut would lower the target to 1.75 percent, from 6.5 percent at the beginning of the year.
In a series of recent public appearances and in several interviews, senior Fed officials have stressed what they regard as the high level of uncertainty in current forecasts. However, they all generally expect the economy to begin to recover no later than the middle of next year and perhaps sooner.
"What we are starting to see is the resilience of the U.S. economy," Anthony M. Santomero, president of the Philadelphia Federal Reserve Bank, said last week. "There continues to be softness in some parts of the economy, but there has been less [impact from the terrorist attacks] than might have been expected. . . . We are starting to see some improvement in the high-tech area and we are running out of inventories" to be cut.
A number of forecasters now predict that the economy will start growing again in the first three months of 2002. And some economists have said there is a chance that enough of the October surge in retail sales, including a record number of motor-vehicle purchases, will continue through the end of the year to cause the overall economy to expand in the current quarter.
Investors in the stock market seem to be BETTING that a recovery will begin SOON. Although prices fell modestly yesterday, all the major markets indexes have risen strongly since the large sell-off after the terrorist attacks.
"In the equity market, you are supposed to anticipate a recovery when the Fed has been as accommodative as it has been, energy costs are falling and consumer spending is holding up well," said J.P. Morgan Chase's Glassman.
Long-term interest rates have gone up sharply in recent weeks -- and bond prices have fallen, since they move inversely with yields -- which some analysts say is also in response to expectations of a vigorous recovery that would cause the Fed to begin raising short-term rates within a matter of months. But Glassman said bond traders at his firm aren't sure that's why bond prices have dropped. There have been some large sales of bonds recently for reasons that are not clear.
Despite the rise in unemployment this fall, consumer attitudes are improving, the University of Michigan said yesterday as it released the preliminary results of its December survey.
The university's consumer sentiment index rose to 85.8 from 83.9 last month, the third consecutive monthly gain in the measure since it hit a low of 81.8 following the attacks. Most of the improvement has been in households' expectations about what the economy will be like a year from now rather than their assessment of current conditions, although analysts regard expectations as having more influence on consumer spending.
The improvement in consumer sentiment surprised many analysts, given the increases in unemployment.
As has been the case for more than a year, the brunt of payroll job losses last month was felt in manufacturing. The industry lost 163,000 workers last month and 1 million during the past 12 months. Employment at firms that supply temporary workers, many of whom work for manufacturing companies, also fell sharply and is down by 188,000 during the past two months.
And with job losses so heavy among factory workers, the unemployment rate for adult men rose a half percentage point, to 5.3 percent, a greater increase than among other demographic groups. Joblessness among adult women ticked up to 4.9 percent from 4.8 percent, and among teens it rose to 15.9 percent from 15.5 percent.
The unemployment rate for whites rose to 5.1 percent from 4.8 percent, for blacks it was up to 10.1 percent from 9.7 percent, and for persons of Hispanic origin it increased to 7.6 percent from 7.2 percent.
Through October, the latest figures available, the Washington metropolitan area fared far better on the job front than most of the rest of the nation. One key reason is the relatively small role manufacturing plays in the regional economy.
Even though there were thousands of layoffs in the technology and hospitality sectors, the area's jobless rate rose only by one-tenth of a point, to 3.4 percent, in October compared with the half-point increase nationally.
Staff writer Neil Irwin contributed to this report.
© 2001 The Washington Post Company<<<
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>>>LIST OF THE PRIMARY GOVERNMENT SECURITIES DEALERS REPORTING TO THE SECURITIES REPORTS DIVISION OF THE FEDERAL RESERVE BANK OF NEW YORK
ABN AMRO Incorporated
BMO Nesbitt Burns Corp.
BNP Paribas Securities Corp.
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
CIBC World Markets Corp.
Credit Suisse First Boston Corporation
Daiwa Securities America Inc.
Deutsche Banc Alex. Brown Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Fuji Securities Inc.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities, Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International, Inc.
Salomon Smith Barney Inc.
UBS Warburg LLC.
Zions First National Bank
NOTE: This list has been compiled and made available for statistical purposes only and has no significance with respect to other relationships between dealers and the Federal Reserve Bank of New York. Qualification for the reporting list is based on the achievement and maintenance of the standards outlined in the Federal Reserve Bank of New York's memorandum of January 22, 1992.
Securities Reports Division
Federal Reserve Bank of New York
October 31, 2001<<<
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