April 19, 1939 FOMC Minutes

FOMC minutes

materialized and it was likely that the level of business activity in April would be somewhat lower than March because of the strike in the coal industry. He said there was nothing in the statistics to indicate any material change in the situation but that there appeared to be a great deal more hesitancy on the part of business than was disclosed by available statistics and that there was no way of deter mining when that situation might reflect itself in reports of business activity. He added that the rather favorable inventory situation had not changed and that building activity was continuing at a somewhat better rate than had been expected. There was then taken up for consideration the question of the authority to be granted to the executive committee to effect transactions in the System open market account and Mr. Harrison moved the adoption of the following resolutions, stating that he did so for sub stantially the same reasons as prompted the adoption of similar resolutions at the three previous meetings of the Committee: That the executive committee be directed until other wise directed by the Federal Open Market Committee (1) to arrange for the replacement of maturing Treasury bills in the System open market account with other Treasury bills or Treasury notes, or, from time to time, to allow such bills to mature without replacement or pending subsequent replacement (a) when market conditions are such as to make it impossible to procure other bills or notes without paying a premium over a no-yield basis, or (b) when such notes are not obtainable without undue disturbance to the market; (2) to arrange for the replacement of maturing Treasury notes and bonds in the System open market account with other Government securities; and (3) to arrange for such shifts in maturities in the System open market account as may be necessary in the proper administration of the account; pro vided (a) that the amount of securities in the account

maturing within two years be maintained at not less than $1,000,000,0000; (b) that the amount of bonds in the account having maturities in excess of five years be maintained at not less than $500,000,000 nor more than $1,000,000,000; and (c) that, if Treasury bills in the account are allowed to mature without replacement, the total amount of securities in the account be not decreased by more than $200,000,000. That, in addition to such authority as may be contained in other resolutions of the Federal Open Market Committee and until otherwise directed by the Committee, the executive committee be authorized, upon written, telephonic or tele graphic approval of a majority of the members of the Federal Open Market Committee, to arrange for the purchase or sale (which would include authority to allow maturities to run off without replacement) of Government securities in the open market from time to time for 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 securities in the account be not increased by more than $200,000,000 nor decreased by more than $200,000,000 including such decreases as may result from allowing Treasury bills in the account to mature without replacement, 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 $1,000,000,000. Mr. Harrison's motion having been duly seconded, was put by the chair and carried, Mr. Draper voting "no". Mr. Ransom stated that, in view of the fact that the executive committee had been given the power in case of market disturbances caused by an outbreak of hostilities in Europe to make much larger changes in the System's portfolio than those authorized by the pres ent resolutions, and since flexibility of the portfolio independently of changes in general credit policy was thereby recognized as a part of the System's technique in certain circumstances, his reasons for opposing the resolutions were no longer applicable to the existing situation. Consequently he voted "aye".

4/19/9 -8- Mr. Draper stated that he voted against the adoption of the resolutions because he was opposed to authorizing the executive com mittee to allow bills to run off without replace ment but that he otherwise was in favor of the resolutions. There was also a discussion of the au thority to be granted to the executive commit tee to increase the amount of securities in the System open market account in the event of a serious disturbance to the Government securities markets as a result of armed con flict or political developments threatening armed conflict abroad and Mr. Harrison moved that the following resolution be adopted: That, in the event that armed conflict or political developments threatening armed conflict abroad result in serious disturbance to the Government securities market in this country, the executive committee be authorized, in addition to the authority granted by the resolutions set forth above and notwithstanding any limitations or restrictions in those resolutions, to increase the se curities in the account by not to exceed $500,000,000, and upon written, telephonic, or telegraphic approval of a majority of the members of the Federal Open Market Com mittee by not to exceed an additional $500,000,000, if deemed necessary for the purpose of exercising an influence toward the maintenance of orderly market conditions, and, if and when market conditions warrant, to sell securities in the amount of any securities so purchased. Any pur chases made under the authority of this resolution shall not be construed as limiting the powers granted under resolutions previously adopted at this meeting. Mr. Harrison's motion having been duly seconded, was put by the chair and carried unanimously. Mr. Draper stated that the special committee appointed at the meeting of the Federal Open Market Committee on March 6, 1939, to examine the question whether there is any responsibility on the to audit, or otherwise verify transactions in, part of the Committee

the System open market account had given consideration to the matter but was not yet ready to submit a report. Thereupon the meeting adjourned. : Approved Chairman.