March 6–7, 1939 FOMC Minutes

FOMC minutes

The meeting of the Federal Open Market Committee was reconvened in the offices of the Board of Governors of the Federal Reserve System in Washington on Tuesday, March 7, 1939, at 10:00 a.m. PRESENT: Mr. Eccles, Chairman Mr. Harrison, Vice Chairman Mr. Szymczak Mr. McKee Mr. Ransom Mr. Davis Mr. Draper Mr. Fleming Mr. Leach Mr. Martin Mr. Hamilton Mr. Carpenter, Assistant Secretary Mr. Wyatt, General Counsel Mr. Goldenweiser, Economist Mr. Williams, Associate Economist Mr. Dreibelbis, Assistant General Counsel Mr. Sproul, Manager of the System Open Market Account Mr. Thurston, Special Assistant to the Chairman of the Board of Governors At the request of the Committee, Mr. Goldenweiser referred to various factors that might be taken into consideration in determining whether a change should be made in the resolutions adopted by the Federal Open Market Committee at its meeting on December 30, 1938. He repeated that, in his opinion, the System should follow the policy of husbanding all of the means of control that it has for the reason difficulty might be experienced in the future in ex that considerable influence in the field of credit control. He ercising an effective the psychological effect of a departure from a fixed port said that one, that he would regret to see that effect folio was an important compelling reason for such action, and dissipated unless there was a

that a decrease in the portfolio should be used as a signal for a def inite change in System policy. He added that, in his opinion, there was no evidence of any occasion for reversing the policy of monetary ease which had been followed by the System and that he felt it would strengthen the position of the System in the future if the portfolio was maintained at this time. He made the further observation that with excess reserves of member banks as large as they are at present there was little or no economic significance in a reduction of $100,000,000 or $200,000,000 in excess reserves. Mr. Goldenweiser's statement was followed by a discussion of the question whether existing circumstances were such as to call for a change in the resolutions adopted at the December meeting. During the discussion Mr. McKee raised the question whether it was the intention of the Committee in December, when authorizing the executive committee to allow maturities to run off without replace ment under certain circumstances, that such maturities would be re placed in the System account as soon as the market conditions justified. A majority of the members of the Committee agreed that this was the understanding as indicated both by the resolution itself, which stated Treasury bills could be allowed to mature without re that maturing placement or pending subsequent replacement, and by the last paragraph released to the press at that time to the effect that of the statement policy was contemplated at the time maturing because no change in System to the extent that market conditions warranted. bills would be replaced

The discussion also related to the circumstances surrounding the action of the Board of Governors in April 1938 in reducing re serve requirements of member banks and the relation of that action and the Administration's policy of monetary ease to the subsequent actions of the Federal Open Market Committee. At the conclusion of the discussion the motion made by Mr. Harrison at the meeting of the Committee yesterday afternoon that the Committee adopt resolutions containing instruc tions to the executive committee in the same form as resolutions adopted at the meeting on December 30, 1938, was put by the chair and carried, Messrs. Harrison, Szymczak, McKee, Davis, Fleming, Leach, Martin, and Hamilton voting "aye", and Messrs. Eccles, Ransom, and Draper voting "no". The reasons for the adoption of these resolutions were substantially the same as the reasons for similar action taken at the meeting of the Federal Open Market Committee on December 30, 1938, which reasons were set forth, in part, in the minutes of the meet ing of December 30, 1938, in the public statement released by the Committee on that date, and in the record of discussions in cluded in the minutes of previous meetings of the Committee. In connection with his vote Mr. Draper made the following statement: vote on this resolution. In my "I wish to explain my in financial affairs, and opinion many persons interested concerns who follow officers of business many financial fix their attention Reserve weekly statements, the Federal portfolio. To upon the size of the System's particularly change in pol in its size means a definite them a change regardless of explana is true, I believe, icy. And this officials of the System to the contrary by tory statements or anyone else.

"Therefore, until we are ready to make a real change in policy, I believe it most important to maintain the portfolio at its present size. For this reason, as well as for other reasons given by Chairman Eccles and Mr. Ransom, at the meeting on December 30, 1938, I wish to vote No on the Resolution." Thereupon the meeting adjourned. Approved: Chairman.