September 21, 1938 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 Wednesday, September 21, 1938, at 2:30 p.m. PRESENT: Mr. Harrison, Vice Chairman Mr. Szymczak Mr. McKee Mr. Ransom Mr. Davis Mr. Sinclair Mr. Newton Mr. Schaller Mr. Peyton Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Wyatt, General Counsel Mr. Goldenweiser, Economist Mr. Williams, Associate Economist Mr. Dreibelbis, Assistant General Counsel Mr. Thurston, Special Assistant to the Chairman of the Board of Governors of the Federal Reserve System Messrs. Leach, Martin, Hamilton, McKinney and Day, Presidents of the Federal Re serve Banks of Richmond, St. Louis, Kansas City, Dallas and San Francisco, respectively Upon motion duly made and seconded, and by minutes of the meeting of the unanimous vote, the Federal Open Market Committee held on August 2, 1938, were approved. duly made and seconded, and by Upon motion the actions of the executive unanimous vote, Federal Open Market Committee committee of the forth in the minutes of the meeting of as set on August 2, 1938, were the executive committee and confirmed. ratified approved, of the members the informal understanding was made to Reference meeting of since the last Committee reached Federal Open Market of the
the Committee that, in the absence of Chairman Eccles, Mr. Ransom will serve as an alternate member of the executive committee. Upon motion duly made and seconded, and by unanimous vote, the service of Mr. Ransom as an alternate member of the executive committee dur ing the current absence of Chairman Eccles was approved, ratified and confirmed and he was se lected to serve as an alternate member of the com mittee in future absences of the Chairman, it being understood that this selection would not affect the order of service of alternate members of the executive committee in the absence of other regular members of the committee or in the absence of both Chairman Eccles and Mr. Ransom. Mr. Harrison referred to the resignation of W. Randolph Burgess as Vice President of the Federal Reserve Bank of New York and as Manager of the System Open Market Account and stated that the board of directors of the Federal Reserve Bank of New York had selected Allan Sproul, First Vice President of the bank, to succeed Mr. Burgess as Manager of the System Open Market Account subject to his selection being satisfactory Market Committee. Mr. Harrison suggested that, in to the Federal Open of Article II of the by-laws of the Committee accordance with Section 5 of the System Open Market Account shall which provides that the Manager Committee and shall serve at to the Federal Open Market be satisfactory by the Federal Open Mar Committee, action be taken the pleasure of the on the selection of Mr. Sproul. ket Committee at this time duly made and seconded, and by Upon motion of Mr. Sproul was vote, the selection unanimous approved. system open market in the reviewed the operations Mr. Harrison
account since the last meeting of the Committee, as outlined in the weekly reports sent by the Federal Reserve Bank of New York to the members of the Committee. He also reviewed the transactions which had been effected in the account during the last few days because of the unsettled market conditions resulting from developments in Europe and stated that since commitments to date would reduce the amount of bonds in the account to approximately $778,000,000 he felt it would be desirable for the execu tive committee, when renewing its authority to the Federal Reserve Bank of New York to execute transactions for the system account, to lower holdings of bonds might not be reduced. the amount below which the system Upon motion duly made and seconded, and by unanimous vote, the transactions in the system account for the period from August open market 2, to September 19, 1938, inclusive, were ap proved, ratified and confirmed. Senior Economist in the report Mr. Piser, During Mr. Harrison's Board of Governors, joined and Statistics of the Division of Research the meeting. of the Federal Open of future policy There ensued a discussion domestic business of continued improved in the light Market Committee immediate possibili to be the diminished and what appeared conditions, by the English upon the recommendations war in Europe consequent ties of to the annexa that it agree to Czechoslovakia and French governments It in Czechoslovakia. German territory of the Sudeten tion by Germany European situa in the of tension while a relaxation that was suggested less imminent, market conditions seriously disturbed tion would make
there was still considerable danger and uncertainty in the situation which might result in the necessity for emergency action, and that, in these circumstances, the authority granted to the executive committee to increase or decrease the system account upon written, telephonic, or telegraphic approval of a majority of the members of the Committee should be enlarged. Mr. Harrison suggested that at the appropriate time the Committee give further consideration to the conditions under which it would reduce the system account. At the conclusion of the discussion, upon motion duly made and seconded, the fol lowing resolutions were adopted by unanimous vote: That the executive committee be directed, until other wise directed by the Federal Open Market Committee, to arrange for the replacement of maturing securities in the system open market account with other Government securities and for such shifts in maturities as may be necessary in the proper administration of the account, provided (1) that maturing Treasury bills shall be replaced only with Treasury bills or notes to the extent that they can be purchased without paying a premium over a no-yield basis; (2) that, subject to the foregoing limitation, the amount of securities in the account maturing within two years be maintained at not less than $1,000,000,000; and (3) that the amount of bonds in the account having maturities in years be maintained at not less than excess of five $500,000,000 nor more than $900,000,000. authority as may be con That, in addition to such in other resolutions of the Federal Open Market tained Committee and until otherwise directed by the Committee, be authorized, upon written, tele the executive committee of a majority of the members phonic or telegraphic approval Market Committee, to arrange for the of the Federal Open include authority to allow or sale (which would purchase replacement) of Government maturities to run off without to time for the market from time in the open securities
system open market account to such extent as the executive committee shall find to be necessary for the purpose of exercising an influence toward maintaining orderly market conditions, provided (1) that the total amount of securi ties in the account be not increased or decreased by more than 200,000,000, and (2) that the amount of bonds in the account having maturities over five years be maintained at not less than $500,000,000 nor more than $900,000,000. On behalf of the special committee (Messrs. Davis, Ransom and Sinclair) appointed to consider Section 6 of Article I of the by-laws of the Federal Open Market Committee and to submit a report and recom mendation thereon, Mr. Davis stated that the committee wished to submit the following recommendation: "That the last sentence of Section 6 of Article I, which reads as follows, be eliminated: 'Except as herein provided, no reports on the meetings of the Committee shall be made to any person or persons whatsoever.' "The committee has concluded that the foregoing sentence, apart from being somewhat redundant, is unnecessarily re strictive and, when literally construed with the preceding sentence of Section 6, prevents the members of the Committee from reviewing with officials and directors of the Federal Banks the background and reasons for past actions Reserve or meetings and tends to restrict the members of the Com obtaining from these sources valuable back mittee from on matters to be deliberated by the ground information the sentence will not re The elimination of Committee. nature of the matters considered and move the confidential acted on by the Committee." Mr. Davis stated that, if In explanation of the recommendation be authorized to the Committee would the members of it were approved, reserve banks of the Federal and directors with the officers discuss Committee but not Federal Open Market actions of the wholly completed
the actions which are currently effective or continuing matters of policy. He said that the special committee did not feel that a reso lution could be written which would define satisfactorily the matters that properly could be discussed, but that if it were clearly understood that the members of the Committee were expected to regard as strictly confidential actions and policies of the Committee which were still currently effective or continuing matters of policy, the Committee could rely on the judgment of its members to determine what constituted past and completed actions of the Committee which they would be at liberty to discuss with officers and directors of Federal reserve banks. Upon motion duly made and seconded, and by unanimous vote, the recommendation of the committee was approved, and the by-laws were amended accordingly. Mr, Davis stated that at the meeting of the executive committee of the Federal Open Market Committee on September 15, 1938, an informal request was made that he and Mr. Sinclair prepare a draft of a letter to Mr. Burgess with respect to his service as Manager of the System that the following letter was submitted for Open Market Account and the consideration of the Committee: "The members of the Federal Open Market Committee of your resignation as Vice have learned with regret Bank of New York and as of the Federal Reserve President of the System Open Market Account. Manager System has had a one in the Federal Reserve "No the development of you have had with closer contact than meeting its responsibilities of the System for the facilities
"in the important field of credit control or a more in timate relation with the execution of the policies which have been adopted in the discharge of these responsibili ties. The mature judgment which you were thus able to bring to the councils of the present Federal Open Market Committee as the newest instrument provided by the Congress to carry out the System's task in this field has made your service as Manager of the System Open Market Account an invaluable one. "The close ties of friendship which were formed when you were associated with the members of the Federal Open Market Committee in meeting common problems is of great worth to them and they all join in wishing you every pos sible success in your new undertaking." Upon motion duly made and seconded, the letter was approved by unanimous vote. Mr. Harrison stated that on two or three occasions recently he and Mr. Ransom had had an opportunity to discuss with the Secretary of the Treasury the policy of the Treasury Department with respect to discussion of the matter was had at the gold imports, that a further this morning when reference was made to the fact Treasury Department that the rapid increase to the present figure of $844,000,000 in the the general fund, of which $683,000,000 was free amount of gold held in public attention and comment in the gold, had attracted considerable of the Treasury with respect as to what the policy press and otherwise view of present indications particularly in the gold was to be, to in the near future substantially increased the account would be that advised, Mr. Harrison said, gold imports. The Secretary by further banks from time the Federal reserve to deposit with that he planned the round offset gold imports, gold to amounts enough time in round to with a result actual imports slightly above to be amounts deposited
that there would be a small reduction in the amount of gold held in the account as long as the program was continued. Following Mr. Harrison's statement the meeting adjourned. Secretary. Approved: Vice Chairman.
Also: Record of Policy Actions·Minutes of the Executive Committee, September 15, 1938·Minutes of the Executive Committee, September 21, 1938