September 11–12, 1937 FOMC Minutes

FOMC minutes

inactive account, the time and method of such desterilization to be determined by the Secretary of the Treasury in consultation and cooperation with the executive committee of the Federal Open Market Committee. Upon motion duly made and seconded, the foregoing resolutions were adopted by unanimous vote. The meeting then recessed with the understanding that the Board of Governors would convene to consider the request of the Fed eral Open Market Committee that the Board request the Treasury to de sterilize $300,000,000 of gold. Following this recess the Committee reconvened with the same attendance as at the earlier session and the Chairman stated that the Board of Governors had voted unanimously to act in accordance with the request of the Federal Open Market Committee. Thereupon consideration was given to the form of statement to be issued to the press regarding the action taken by the System, and the following statement was approved unani mously for release in the morning papers of September 13, 1937, with the understanding that before such release the Chairman would ascertain that the Secretary of the Treasury approved the portion of the statement regard ing the agreement on his part to release gold from the inactive account: "The Federal Open Market Committee met in Washington reviewed the business and credit on September 11 and 12 and expected seasonal demands on the situation. In view of the during the coming weeks for currency and credit banks the Committee authorized its Executive Committee to pur sufficient amounts time to time open market from chase in the

"of short term U. S. Government obligations to provide funds to meet seasonal withdrawals of currency from the banks and other seasonal requirements. Reduction of the additional holdings in the open market portfolio is con templated when the seasonal influences are reversed or other circumstances make their retention unnecessary. "The purpose of this action is to maintain at member banks an aggregate volume of excess reserves adequate for the continuation of the System's policy of monetary ease for the furtherance of economic recovery. "As a further means of making this policy effective, the Open Market Committee recommended that the Board of Governors of the Federal Reserve System request the Secre tary of the Treasury to release approximately $300,000,000 of gold from the Treasury's inactive account. The Board of Governors acted upon this recommendation and the Secre tary of the Treasury agreed to release at once the desired amount of gold. This will place an equivalent amount of funds at the disposal of the banks and correspondingly in crease their available reserves. "This action is in conformity with the usual policy of the System to facilitate the financing of orderly mar keting of crops and of autumn trade. Together with the recent reductions of discount rates at the several Federal Reserve banks, it will enable the banks to meet readily any increased seasonal demands for credit and currency and of easy credit conditions." contribute to the continuation in the opinion that the of the Committee concurred The members to the executive committee authority previously granted reasons for the of securities in the securities and to make shifts to replace maturing account were still present and that the authority System open market 9, 1937, should be re of the Committee on June granted at the meeting newed. made and seconded, and by Upon motion duly the ex the Committee instructed unanimous vote, the replacement of ecutive committee to direct the System open market acmaturing securities in

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 $1,000,000,000 and that the amount of bonds having maturities in excess of five years be not over $850,000,00 nor less than $500,000,000. Reference was made to the question of quarterly readjust ments of participations of the Federal reserve banks in the securi ties held in the System open market account and to the consideration which had been given to the matter by the executive committee since the meeting of the full Committee on June 9, 1937. It was agreed unanimously that further con sideration of the matter by the Federal Open Mar ket Committee should be deferred until the next meeting of the committee. The Chairman withdrew from the meeting at this point to ad vise the Secretary of the Treasury of the action taken by the Fed eral Open Market Committee and the Board of Governors with respect of gold and by the Committee with respect to to the desterilization to offset seasonal influences. purchase of Government securities the had read to the Secre stated that he his return, the Chairman Upon statement and that the Treasury the proposed press tary of the to him and that it was very satisfactory Secretary had stated reserve banks gold at once with the Federal that he would deposit with the expectation in the amount of $300,000,000, certificates banks in the from the Reserve would be withdrawn that the funds used to meet Treasury or three weeks and of the next two course

expenditures. In the circumstances, Chairman Eccles said, the Secretary suggested that it would not be necessary for the executive committee to confer with him regarding the matter. The procedure outlined by the Secre tary of the Treasury was approved unani mously. Thereupon the meeting adjourned. Secretary. Approved: Chairman.