June 9, 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 Wash ington on Wednesday, June 9, 1937, at 10:45 a, m. PRESENT: Mr. Eccles, Chairman Mr. Harrison, Vice Chairman Mr. Broderick Mr. Szymczak Mr. McKee Mr. Ransom Mr. Davis Mr. Sinclair Mr. McKinney Mr. Martin Mr. Day Messrs. Schaller and Peyton, Presidents of the Federal Reserve Banks of Chicago and Minneapolis, respectively Mr. Morrill, Secretary Mr. Wyatt, General Counsel Mr. Goldenweiser, Economist Mr. Williams, Associate Economist Mr. Burgess, Manager of the System Open Market Account Mr. Carpenter, Assistant Secretary of the Board of Governors of the Federal Reserve System Mr. Thurston, Special Assistant to the Chairman of the Board of Governors of the Federal Reserve System which was appointed at the Mr. Ransom stated that the committee on May 4, 1937, to consider of the Federal Open Market Committee meeting and its execu meetings of the Committee the minutes of the the form of as well as min minutes of that meeting had reviewed the tive committee and was of the executive committee meetings of utes of the subsequent and that if the satisfactory form minutes were in opinion that these the
same form is followed in the preparation of minutes of future meetings the special committee would have no suggestions to offer. Upon motion duly made and seconded, and by unanimous vote, the minutes of the meetings of the Federal Open Market Committee on April 3-4, and May 4-5, 1937, were approved. Upon motion duly made and seconded, and by unanimous vote, the actions of the executive com mittee as set forth in the minutes of the meetings of the executive committee on April 4-6, 19-20, 26, May 3-5, and June 2, 1937, were approved, ratified and confirmed. Mr. Burgess submitted and reviewed briefly a report prepared by the Federal Reserve Bank of New York covering transactions in the System open market account since the meeting of the Federal Open Market Committee on May 4, 1937. He also reported the transactions which had been effected, up to and including June 8, 1937, since the written re port had been prepared. Upon motion duly made and seconded, and by unanimous vote, the transactions referred to in the reports were approved, ratified and confirmed. should be incorporated in the minutes It was agreed that there Goldenweiser and Williams at meeting reports made by Messrs. of this Board of Governors with Presidents of the members of the the meeting At that meeting Mr. banks on June 8, 1937. of Federal reserve prepared by the Divi copies of a memorandum Goldenweiser distributed under date Board of Governors of the and Statistics sion of Research conditions and and credit subject of business 1937, on the of June 4, covered by the memorandum, the important points commented briefly on
a copy of which has been placed in the files of the Federal Open Mar ket Committee. Summaries of the comments of Messrs. Goldenweiser and Williams are set forth below. With reference to the distribution of maturities of the securi ties in the System open market account Mr. Goldenweiser suggested that, with approximately $700,000,000 of long-term bonds, $1,100,000,000 of maturities within two years, and the balance of the maturities between two and five years, the portfolio was in fairly a satisfactory condition. He felt that, in view of prospective developments in the reserve posi tion of member banks during the remainder of the year, the short-term securities now in the account would be adequate to make effective a policy of reducing reserves by allowing maturities to run off if such a policy should become desirable. On the subject of the continued in flow of gold into the United States, he expressed the opinion that, because of the large volume of gold imports, the Treasury would even tually abandon its present policy of sterilizing such imports and the Federal Reserve System would be under the necessity of taking action to counteract their effects upon the money market. He said that for that reason it was important that the Federal Reserve System be in a absorb gold imports in some manner and assist in discourag position to the gold supply and that additional powers ing further additions to suggested that study should be necessary for that purpose. He were on the amount of reserve for putting an upper limit given to a plan added that it was be as reserves. He that could be counted balances the banking system in the more apparent that unless coming more and
United States is unified and the Federal Reserve System is granted additional authority it will not be able to discharge properly the re sponsibilities now resting upon it. Following Mr. Goldenweiser's statement, Mr. Williams stated that he was impressed by the rapidity with which things had changed. Two or three months ago, he said, the System was disturbed by the speed with which the recovery movement was progressing and prices were ad vancing, whereas the indications of undue expansion, including the ac cumulation of inventories in anticipation of higher prices, had now largely disappeared. He felt that the large increase in the price of building materials which had taken place might have an adverse effect upon the volume of construction, and that the continuation of serious labor troubles would undoubtedly have a similar effect upon the progress of business recovery. He expressed the opinion that the much talked of recession in business had not materialized to any substantial ex tent and that, while some economists had concluded that there would be a recession of business in the third quarter of the year, there was the present time of such a recession, and that it little evidence at was the general expectation that in any event recovery would be resumed down of the rate of business activi by fall. He added that the slowing decreased substantially the possibil ty was salutary in effect and had in the progress of business recovery, and ity of any major disorders and the possible ef inflow of gold in his opinion the continued that, the most im conditions constituted movement upon credit fects of that the present time. System at the Federal Reserve problem before portant
It was the unanimous agreement of the members present that the reasons for the authority granted to the executive committee by the full Committee at its meeting on May 5, 1937, to replace maturing se curities and to make shifts between maturities of securities in the Sys tem open market account still applied and that such authority should be renewed. Upon motion duly made and seconded, and by unanimous vote, the Committee instructed the ex ecutive committee to direct the replacement of maturing securities in the System open market ac count with other Government securities and to make such shifts between maturities in the account as may be necessary in the proper administration of the account, provided that the amount of securities maturing within two years be maintained at not less than $1,000,000,00 and that the amount of bonds having maturities in excess of five years be not over $850,000,000 nor less than $500,000,000. Reference was made to questions which had been raised with re spect to the forms of resolutions adopted by the Committee and it was suggested that a special committee be appointed to consider the forms of resolutions and submit a recommendation at the next meeting. Mr. Harrison moved that the Chairman appoint of three for the purpose stated. a committee This motion, having been duly seconded, was put by the chair and carried unanimously. authority to the executive commit Thereupon it was agreed that amount of securities in the System tee to increase or decrease the total reasons as had prompted similar be renewed for the same account should full Committee on May 5, 1937. action at the meeting of the duly made and seconded, and by Upon motion directed the executive vote, the Committee unanimous
committee to make purchases and sales (including authority to allow maturities to run off without replacement) of United States Government securities for the System open market account, to such extent as may be necessary before the adjournment of the next meeting of the Federal Open Market Committee, for the purpose of preventing disorderly market con ditions, provided tnat the aggregate amount of se curities held in the account shall not be increased or decreased from the amount now held in the account by more than $250,000,000; the kinds and maturities of the securities acquired or sold to be determined in the light of current market developments. Mr. Harrison stated that at the meeting of the Presidents'Con ference on June 7, 1937, following consideration of the report submit ted by Messrs. Smead and Burgess with respect to the formula used for the quarterly readjustment of the participations of the Federal reserve securities held in the System open market ac banks in the Government that, provided there is no substan count, the Conference had recommended in the account as of July 1, 1937, the par tial amount of depreciation in the account be readjusted the Federal reserve banks ticipations of in the readjustment on the same basis as that used as of that date on Mr. Harrison stated, The Conference also recommended, April 1, 1937. to determine wheth continue their studies Smead and Burgess that Messrs. could be devised. for such adjustments satisfactory formula er a more amount of there is a small the present time that at Mr. Burgess stated appreciation in the account. seconded, and by duly made and Upon motion was au committee the executive vote, unanimous of the a quarterly readjustment thorized to make banks in the Federal reserve of the participations in accordance July 1, 1937, as of System account, as that followed and procedure same plan with the
in connection with the adjustment made as of April 1, 1937, which contemplates that before it is ac tually made the proposed readjustment will be sub mitted to the Federal reserve banks for any comments that they may desire to make. The meeting recessed at 1:05 p.m. and reconvened at 2:45 p.m. with the same attendance as at the morning session except that Messrs. Schaller and Peyton were not present. Chairman Eccles suggested that consideration be given at this meeting to the proposal that the Federal Open Market Committee adopt a plan for purchases by Federal reserve banks of Treasury bills offered to them by member banks. The proposal had been discussed informally by the members of the Board of Governors and had been considered by and the Board at a meeting yesterday. Chair the Presidents'Conference man Eccles outlined the reasons why in his opinion it would be desir able to adopt such a plan and during a discussion of these reasons of the Committee raised questions which had occurred various members respect to the objective, effects, and operation of the to them with plan. that it would be desirable if the pro Mr. Harrison suggested standpoint of its effect by the members from the posal could be studied well as upon the credit policy as situation and the entire credit upon outlining the details that purpose a memorandum and that for bill market He also of the Committee. for the consideration the plan be prepared of the Treasury Depart discussed with matter had been whether the inquired that he had not been except that it had Eccles stated ment and Chairman
mentioned it briefly to Mr. Wayne C. Taylor, Assistant Secretary of the Treasury, whom he had told that he (Chairman Eccles) proposed to submit it to the Federal Open Market Committee for consideration. Mr. Ransom suggested that the executive committee be requested to study the entire matter and submit a report thereon for the con sideration of the full Committee. There followed a brief discussion of a question raised by Mr. McKee whether the executive committee should not confine its activities to the performance of administrative functions only and not be expected to consider questions of policy, Mr. Ransom moved that it be the sense of the Federal Open Market Committee that the executive committee should consider matters of policy from time to time, whenever it is requested or desires to do so, and submit recommendations to the full Committee with respect thereto. This motion having been duly seconded was put by the chair and carried unanimously. duly made and seconded, and by Upon motion the executive committee was requested unanimous vote, proposal presented by Chairman Eccles to study the send to the members of the full and to prepare and prior to a meeting of the Federal Open Committee, be held on August 5, 1937, a Market Committee to plan in detail, including outlining the memorandum and possible effects, its objectives, mechanics that the ex any views or suggestions together with to present for the committee might desire ecutive of the full Committee. consideration the meeting adjourned. Thereupon Approved:
Also: Record of Policy Actions·Minutes of the Executive Committee, June 2, 1937·Minutes of the Executive Committee, June 9, 1937