April 3–4, 1937 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington on Tuesday, May 4, 1937, at 11:00 a. m. PRESENT: Mr. Harrison, Vice Chairman Mr. Broderick Mr. Szymczak Mr. McKee Mr. Ransom Mr. Davis Mr. Sinclair Mr. McKinney Mr. Martin Mr. Day Mr. Morrill, Secretary Mr. Wyatt, General Counsel Mr. Dreibelbis, Assistant General Counsel Mr. Williams, Associate Economist Mr. Carpenter, Assistant Secretary of the Board of Governors Mr. Thurston, Special Assistant to the Chairman of the Board of Governors The Secretary reported that Mr. Day, who was attending a meeting of the Federal Open Market Committee for the first time, had filed the required oath of office as a member of the Federal Open Market Committee and that it was the opinion of the Committee's counsel that Mr. Day had duly qualified to participate in the meeting. Consideration was given to suggestions which had been made with respect to the form of the minutes of the Federal Open Market Committee and particularly to the suggestions that the Committee agree that the minutes be prepared in less detail, that whenever an agreement is reached or a position taken by the Committee the agreement or action be expressed or resolution and voted upon, so that it may be so as a formal motion recorded in the minutes, and that individual statements of opinion or
position be omitted from the record, unless the person making the state ments requests that it be incorporated in the minutes in which case the authorship should be shown. During the discussion the Committee considered the questions (1) whether the present form of minutes should be continued, (2) whether the changes referred to above should be made in the present form, (3) whether the minutes should be prepared in a brief form which would state only the actions taken with the votes thereon followed by the reasons and any explanatory discussion that might be necessary, and (4) whether a full stenographic report should be made of the Committee's proceedings. At the conclusion of the discussion Mr. McKee moved that the vice chairman appoint a committee to consider the entire matter and submit a recom mendation to the Federal Open Market Committee. This motion having been duly seconded was put by the chair and carried by unanimous vote. In accordance with this action Mr. Harrison appointed Messrs. Ransom, Davis and Sinclair as members of the committee. duly made and seconded and by Upon motion unanimous vote, the minutes of the meeting of the Committee held on March 15, Federal Open Market 1937, were approved. and seconded and by Upon motion duly made actions of the executive com unanimous vote the Market Committee as mittee of the Federal Open of the meetings of the set forth in the minutes on March 13, 15, and 22-23, executive committee and confirmed. approved, ratified 1937, were the Federal Reserve prepared by submitted a report Mr. Harrison account since System open market operations in the of New York of Bank operations had 3-4, 1937, which Committee on April the meeting of the made by the bank. the weekly reports in detail in been reported
Upon motion duly made and seconded and by unanimous vote the transactions referred to in the report were approved, ratified and confirmed. The question was raised whether the Committee should take any action at this time with respect to directing a quarterly readjustment, as of July 1, 1937, of the participations of the Federal reserve banks in the System open market account and in that connection reference was made to the report of Mr. Burgess, Manager of the System Open Market Account, at the last meeting of the Federal Open Market Committee, that, in the event of further depreciation in the System account, some of the Federal reserve banks might desire that the entire matter of adjust ment of participations in the account be reconsidered before the next quarterly readjustment date. Upon motion duly made and seconded and by unanimous vote, action on the matter was deferred with the understanding that Mr. Smead, Chief of the Division of Bank Operations of the Board of Governors, and Mr. Burgess or Mr. Sproul, of the Federal Reserve Bank of New York, would be re to study the questions which might arise quested in connection with the next quarterly readjustment and to submit a report which would be sent by the Presidents' Conference for con Secretary to the and a recommendation as to the action sideration to be taken. m. the meeting recessed and reconvened at 2:35 p.m. At 12:10 p. with the same attendance as at the morning session and, in addition, Economist for the Federal Open Chairman Eccles and Mr. Goldenweiser, Market Committee. as to present business a request for a statement In response to that conditions had undergone Mr. Williams said and credit conditions which tie he in March at of the Committee since the meeting a change
was fearful that the recovery movement was proceeding too rapidly and that it might turn into a disorderly upward movement which might result in price spirals and dislocations which would be distinctly harmful. He stated that, during the interim since the last meeting of the Committee, the movement had leveled out with some reduction in prices both at home and abroad and a more orderly condition had appeared, so that there seemed to be much less likelihood of a runaway movement than was the case a month or two ago. He referred to statements made by some economists that the present uninterrupted recovery movement was the longest on record and that, therefore, a recession could be expected, and stated that while the records of past recoveries and reactions might indicate that a decline in business activity could be expected he did not feel that such a conclusion should be drawn from the present situation. He because of the many uncertain factors in the situation it stated that to forecast what the future would was difficult, if not impossible, to be a strong under felt, because of what appeared bring, but that he goods, that the continuation particularly durable lying demand for goods, might reasonably be expected. of recovery draw from this situation, conclusion that he would The general present time for was no need at the said, was that there Mr. Williams by the Fed policy by the adoption the present easy money a change in nor for any action restrictive measures System of any eral Reserve of business activity. in further stimulation which would result had been a that there the fact that, notwithstanding He stated had been little there business improvement, period of sustained long
progress made in reducing expenditures and that, if the budget were not balanced under the existing favorable conditions and a reaction should set in which would increase the relief burden and reduce revenue, a serious situation might result, and that therefore he welcomed the present movement toward reduction in Government expenditures. He added that, inasmuch as the period of adjustment to the May 1 increase in reserve requirements was past, or nearly so, he did not see any necessity for continuing purchases of Government securities, that such action would result in further easing the situation which he did not feel was justified at this time, and that the question before the Committee was whether it would take the position that further stimulation, which might prove to be dangerous to the progress of orderly recovery, would be justified in order to prevent disorderly securities market should such conditions conditions in the Government follow a middle course which He felt that the System should develop. movement nor add further no restriction to the present would result in stimulation to it. he was in general agreement with Mr. Goldenweiser stated that opinion that, as the business and expressed the Mr. Williams' position and responded more quickly world was much more sensitive and financial the case in the past, the conditions than had been to changing control were much at hand for credit which the System had instruments situation at the business and credit in influencing the more effective ago. As an the case some years would have been present time than recent rumor concerning he referred to a of this fact, illustration resulted in of gold which in the price of a reduction the possibility
a substantial decline in the prices of commodities traded in on the international markets and a recession in world business activity. In these circumstances, he said, he felt more hopeful that the instruments available to the System would be effective in the field of credit control and that in view of this situation he felt the System should not give too much attention to records of past movements but should analyze existing conditions carefully and reach a decision on that basis as to what should be done. In connection with the question of Government expenditures, he agreed with Mr. Williams that it was desirable to balance the budget, but he felt that the entire matter of Government expenditures should be reviewed for the purpose of determining in what fields money should be spent. He said that the emphasis should be shifted from the total volume of expenditures, which may have been justified in the period of "pump-priming", to the nature of expenditures. He thought, on the other hand, that if it were found that a large volume of funds were needed to meet the relief problem adequately, this could be accomplished without inflation if such expenditures were met by increased taxation. any great possibility at this time of a new period of He did not see debt at a high level, and he setting in with the Government depression that the budget situation, with the possi expressed a further opinion relatively small deficit for the fiscal year 1938, was a bility of a was not in any real danger of a definite indication that the country of general inflation. period inasmuch as it has been by emphasizing that, He concluded an influence on been used to exert which had that the powers shown
credit conditions had worked more effectively than some had anticipated, he felt that the responsibility of the System to use its powers wisely was greatly increased. After a statement by Mr. Williams with respect to the present position of gold in the world monetary picture there was a general dis cussion of the effect of the continued inflow of gold into the United States on the monetary and credit situation, the reasons for the con tinued inflow, and steps that might be taken to meet the problem. There was also a discussion of the questions which would arise if the Treasury should consider it necessary or desirable to discontinue the present policy of sterilizing gold. At the conclusion of the discussion the meeting recessed to convene again on May 5, 1937. Secretary. Approved: Chairman,
Also: Record of Policy Actions·Minutes of the Executive Committee, March 22, 1937·Minutes of the Executive Committee, March 23, 1937