March 15, 1937 FOMC Minutes

FOMC minutes

what action had been taken and that he (Chairman Eccles) advised the Secretary that the Federal Open Market Committee had been in session all day, that it had heard reviews of the present busi ness and economic situation by Messrs. Goldenweiser and Williams, that the entire situation had been discussed thoroughly, and that every effort had been made not to overlook any monetary or eco nomic factor which would influence the judgment of the Committee. He reviewed for the Secretary the transactions which had taken place in the System account today and advised him that the Com mittee had adopted a resolution authorizing the executive com mittee to direct shifts of securities in the System account, that under this authority the amount of bonds in the account with matur ities in excess of five years could be increased by approximately $250,000,000, that if such an increase were made it would reduce the amount of securities in the account having maturities within two years to approximately $800,000,000 with approximately $500,000,000 and that it was felt that it would not falling due within one year, maturities go below these amounts, as be good policy to let these System in a position where, in reduction would place the a further not be able to make a restrictive pol case of necessity, it might System account to run maturities in the icy effective by allowing replacement. The Secretary, Chairman Eccles said, con off without position on this point. curred with the Committee's he advised the Secretary also reported that Chairman Eccles executive committee authorizing the of a resolution of the adoption decrease the System to increase or event of an emergency in the

account by $250,000,000 without a further meeting of the full Com mittee. He reviewed for the information of the Secretary the con siderations which had been discussed as justifying such a resolu tion and expressed the opinion of the Committee that the present situation in the Government bond market was the result of a gen eral trend, that contributing factors were labor difficulties, armament programs and lack of confidence that the budget would be balanced, that England and Canada had gone through an adjustment resulting in increases in the yields on English and Canadian bonds to 1/2%, 3 and that the prices of corporate securities in the United States had been declining since last fall, all of which convinced the Committee that an attempt to maintain the present prices of Government securities would be a mistake, particularly in view of the fact that the trend was in the face of an abundance of funds for business purposes and was not the result of a monetary situation. Mr. Eccles said that he stated that the Committee felt that it should continue to operate through shifts of securities in the System ac count to maintain an orderly market and that the portfolio should as a last resort in an emergency which would jus be increased only and would prevent the action being interpreted as tify such action taken for the purpose of supporting the Government bond having been might have an adverse effect instead market, which interpretation the market. He also referred to the of a favorable effect upon permitted to fall too low interest rates had been possibility that whether any effort should be and stated that it was questionable which had been issued at the price of securities made to maintain

these extremely low rates, except action to prevent a disorderly market during the period of adjustment, that it was his opinion that Government securities continued to be an excellent investment with satisfactory yield and the safest investment that could be made, and that, while the investor could not be insured against the effects of wars and unforeseen conditions, if the Government would balance the budget and deal effectively with labor and arma ment problems which result in abnormal price increases, there was no question in his mind that the price of Government securities would increase instead of decline. The Secretary, Chairman Eccles said, did not disagree with this opinion and appeared to be satis fied with the position which the Committee had taken. Reference was then made to the authority granted to the executive committee at earlier meetings of the full committee to permit fluctuations in the total amount of the securities held in dates and it was agreed that the System account between statement should be renewed for reasons previously stated. this authority Upon motion duly made and seconded, and by vote, the Committee authorized the exec unanimous utive committee to permit such fluctuations, within the amount of holdings of Gov reasonable limits, in in the System open market account ernment securities statement dates as may be desirable between weekly of the account in for the practical administration between and replacements of securi making shifts authority granted by pursuant to the general ties the Federal Open Market Committee.

Thereupon at 7:00 p.m. the meeting adjourned. Approved: Chairman.