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To: bill meehan who wrote (21133)	2/23/1999 3:24:00 PM
From: accountclosed	Respond to of 86076

M3 expanded 11 percent last year, and its velocity fell 5-1/4 percent, the largest drop in many years. The rapid growth in this aggregate owed in large part to a substantial rise in institutional money funds. These funds have been expanding rapidly in recent years as nonfinancial firms increasingly employ them to provide cash management services. Investments in these funds provide businesses with greater liquidity than direct holdings of money market instruments, and by substituting for such direct holdings, they boost M3. M3 was also buoyed last year by a large advance in the managed liabilities banks used to fund rapid growth in bank credit. In part, the growth in bank credit reflected demand by borrowers shifting from the securities markets, and with these markets again receptive to new issues, bank credit growth this year is expected to slow to a pace more in line with broader debt aggregates However, institutional money funds are likely to continue their robust gains, contributing to a further diminution in M3 velocity and, possibly, to growth of this aggregate above its price-stability range. bog.frb.fed.us Is this velocity reduction a major factor in saving their butts from inflation? And what control do they have over that? What is to stop velocity from picking up?