May 27–28, 1940 FOMC Minutes

FOMC minutes

the executive committee were broad enough to permit sales under the conditions indicated by Mr. Harrison when in the judgment of the ex ecutive committee sales were desirable or advisable. Mr. Harrison said that if it were understood that the existing instructions were sufficiently broad to authorize the New York Bank to sell securities, which had been purchased in a period of market weakness for the pur pose of exercising a stabilizing influence, whenever there was a strong buying market and there were not sufficient offerings, he felt the resolution of the full Committee would be satisfactory in its present form. All of the members of the Federal Open Market Com mittee present indicated agreement that the resolution should be so interpreted. Thereupon, Mr. Harrison moved that the following resolution, which is in the same form as the resolution adopted at the meeting of the Federal Open Market Commit tee on March 20, 1940, be adopted. "That the executive committee be directed until otherwise directed by the Federal Open Market Committee to arrange for such transactions for the System Open Market Account (including purchases, sales, exchanges, replacement of maturing securities, and letting maturi ties run off without replacement) as in its judgment from time to time may be necessary for the purpose of exercis ing an influence toward maintaining orderly market con ditions; provided that the aggregate amount of securities held in the Account at the close of this date shall not be increased nor decreased by more than $500,000,000." Mr. Harrison's motion, having been duly seconded, was put by the chair and carried unanimously. Mr. Harrison referred to the question recently submitted by

the Board of Governors to the Federal Advisory Council and to the boards of directors of the Federal Reserve Banks on the subject of easy money and stated that at the meeting of the Presidents of the Federal Reserve Banks yesterday the statement prepared by the Federal Advisory Council was read for the confidential information of all of the Presidents, and that since any comments in that or other state ments of the Council relating to open market policy would apply to the Federal Open Market Committee to the extent that it had played a part in the easy money policy of the System, he would like to get the reaction of the Board to the replies that had been made. At Chairman Eccles' suggestion it was agreed that a meeting of the Board of Gov ernors with the Presidents of the Federal Reserve Banks should be held following this meeting for the purpose of discuss ing that matter as well as the question raised by Chairman Eccles at the meeting of the Federal Open Market Committee yes terday afternoon with respect to the place of the Federal Reserve System in the bank ing and monetary problems of the country. one of the questions assigned to the Mr. Harrison said that appointed at the last meeting of the Federal Open committee which was (Messrs. Ransom, Harrison and Davis) and which was Market Committee yesterday, was the relation of the dealers discharged at the meeting market and that, as he had stated at a to the Government securities Market Committee, the Federal Re meeting of the Federal Open previous serve Bank of New York had made a study of that problem and had pre it, copies of which had been handed to pared a memorandum regarding

Messrs. Ransom and Davis. Copies of the memorandum were distributed during this meeting to the other members of the Committee and to the Presidents of the Federal Reserve Banks who were not members of the Committee, except Messrs. Young and Parker who were absent, and it was understood that Mr. Rouse would send copies to them. Mr. Ransom referred to the banking studies which were pre pared by the staff of the Board of Governors and sent to the Presidents of all Federal Reserve Banks for their comments. He stated that the studies were in the process of being edited and it would be helpful if the Board could have any further suggestions that the Presidents may have to make as promptly as possible. Mr. Harrison stated that at the meeting of the Presidents yesterday the legislative committee appointed by the Presidents' Con ference handed to the Presidents several memoranda which had been prepared by the committee on questions which it had had under consid eration prior to receipt by the Federal Reserve Banks of the question naire prepared by the Senate Committee on Banking and Currency in connection with the Wagner Resolution and that copies had not been submitted to the Board for the reason that it was felt that before that was done the memoranda should be reviewed by all of the Presi dents. In a discussion of the Wagner questionnaire, Mr. Ransom stated that no one on the Board or its staff had anything to do with the prep aration of the questionnaire and that the best information available

to the Board was that it was prepared by parties outside the service of the Government. The suggestion was made by Chairman Eccles that in view of the developments which have taken place since the questionnaire was prepared it was possible that the studies contemplated by the Wagner Resolution would be postponed indefinitely and that it was possible that an emergency might arise which would make it necessary for Con gress to pass banking legislation without prolonged study of the subject. Thereupon the meeting adjourned. Secretary. Approved: Chairman.