November 20, 1936 FOMC Minutes

FOMC minutes

The Secretary stated that copies of the memorandum prepared by Mr. Dreibelbis, Assistant General Counsel, under date of October 13, 1936, in which the conclusion was set forth that section 12A of the Federal Reserve Act requires that the Federal Open Market Committee shall meet at least four times during each calendar year, had been sent to all members of the Committee with a request that they indicate whether they had any objection to the opinion, and that no objection had been received. All of the members present indicated that the opinion was entirely acceptable to them. There followed a general discussion of the question of open market policy, including its relation to the existing excess reserves of member banks. Consideration was given particularly to the question whether it would be preferable for the Board of Governors to use its power to further increase reserve requirements, inasmuch as it was understood that excess generally distributed among member banks and an increase reserves are fairly probably would work no hardship on any substantial in reserve requirements number of member banks, or for the Federal Open Market Committee to reduce holdings of Government securities in the System Open Market Account, the total interpreted as a reversal of the present easy money policy. which might be indicating that the time had not reference was made, as In this connection to the continuing large amount of yet arrived for a reversal of policy, is still unused productive capacity, to the fact that there unemployment, income in the United low aggregate of national and to the relatively no general indication of the fact that there is States, together with use of bank credit. Some of the members expressed unhealthy growth in the present time in the should be taken at the the opinion that no action

direction of either an increase in reserve requirements or a reduction of the System portfolio and that another meeting of the Committee should be held in January when the President's budget message had been sent to Congress, the results of the year-end return flow of currency would be known, the reserve position of the member banks would be subject to closer analysis, and the general credit and monetary situation might be more clarified. Chairman Eccles suggested that, if the Board or the Committee seriously contemplated taking action in January or February, some indication of the fact that the matter was being given serious consider ation should be given out in order that the investing public might be reminded that developments in the money market are being closely watched and that further action would be taken in the field of reserve require ments or in the form of open market operations whenever necessary. At this point in the discussion Messrs. Schaller and Hamilton left the meeting. There was also a discussion of the question whether, in the event action should be taken by the Federal Open Market Committee in January to reduce the System portfolio, the action should be in the nature of allowing maturing securities to run off without replacement or whether it would be necessary also to sell securities from the account. It was indicated as the consensus of those present that if a reduction in the be preferable to allow maturities to portfolio should be made it would run off.

At the conclusion of the discussion it was suggested that the Federal Open Market Committee take the position at this meeting that, after having reviewed the business and credit situation, the Committee is of the opinion that in the present circumstances it is not now ad visable to make any change in the System's present credit policy; that the Committee is concerned, however, over the current and potential effects on both the credit and banking situation of the continued in crease in the excess reserves of member banks; and that, therefore, it be the sense of the Committee that a meeting of the Committee should be held in January, when the situation will have been further clarified by such events as the return flow of currency and the President's budget message, to consider whether it may not then be advisable to take some action in the open market in the light of the reserve position of member banks at that time. The position set forth above was approved by all of the members present, with the exception of Mr. McKee, who stated that he believed that, prior to the issuance of any public statement by either the Board or the Federal Open Market Committee that would refer to the possibility of further increase in member bank reserves, action should be taken by the Federal Open Market Committee to reduce its portfolio by allowing maturities to run off or by direct liquidation. discussion of the question whether any state There was a further ment should be given to the press and it was pointed out that it was known to the public that the Federal Advisory Council, the Presidents' Conference and the Federal Open Market Committee had held meetings this week, and that it might be advisable for the Chairman of the Board of Governors to give a statement to the press which should state that the

Federal Reserve System is considering the problem created by the existing large amounts of excess reserves with a view to taking action at such time as it appears to be necessary in the public interest. At the conclusion of the discussion, upon motion duly made and seconded, the Chairman was authorized to issue to the press such statement as he deemed advisable. Thereupon the meeting adjourned. Secrtary. Approved: Chairman.