March 17, 1941 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 Monday, March 17, 1941, at 10:00 a.m. PRESENT: Mr. Eccles, Chairman Mr. Szymczak Mr. McKee Mr. Ransom Mr. Davis Mr. Draper Mr. Sproul Mr. Fleming Mr. Leach Mr. Peyton Mr. C. S. Young (alternate for Mr. Davis) Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Wyatt, General Counsel Mr. Goldenweiser, Economist Mr. Williams, Associate Economist Mr. Dreibelbis, Assistant General Counsel Mr. Rouse, Manager of the System Open Market Account Mr. Thurston, Special Assistant to the Chairman of the Board of Governors Mr. Piser, Senior Economist in the Divi sion of Research and Statistics of the Board of Governors Roy A. Young, Sinclair, and Gilbert, Messrs. Alternate Members of the Federal Open Mar ket Committee President of the Federal Reserve Bank Mr. Day, of San Francisco, and Messrs. McLarin, Hitt, and Leedy, First Vice Presidents of the Reserve Banks of Atlanta, St. Louis, Federal and Kansas City, respectively Secretary of the Presidents' Mr. Sienkiewicz, Conference up other business it would It was agreed that before taking to hear the reports of Messrs. Goldenweiser and Williams be desirable
as Economist and Associate Economist of the Committee. After reviewing the existing business situation, Mr. Golden weiser discussed the prospective upward trend of business activity and the problems of credit control and suggested that consideration should be given by the System to plans for selective credit controls, particularly in the field of installment credit. He also referred to an analysis prepared by the Board's staff of the reserve position of member banks as of the week ending January 15, 1941, and said that the analysis had led him to feel that any new powers to increase re serve requirements for the purpose of absorbing excess reserves of member banks should be under the so-called "ceiling plan" rather than by specific percentage increases in reserve requirements which would apply indiscriminately to all banks or to certain classes of banks. He referred to the problem facing the Treasury in connection with fi nancing the defense program and suggested that a System committee be appointed to work out a plan for reducing the types of Government se curities outstanding and simplifying financing procedure which could be submitted to the Treasury with a plan for cooperation by the System with the Treasury in financing the defense program. Mr. Williams expressed the opinion that the more pressing problems at the moment were shortages in certain materials which must be met by action outside of the Federal Reserve System and the need for a clarification of the fiscal program of the Treasury with an in dication of the Treasury's financing needs over the next fifteen months,
3/17/1 -3 and that the policy of the System should be one of cooperating in the solution of these problems and of letting it be known that it did not contemplate action in the monetary field at this time. Copies of the statements made by Messrs. Goldenweiser and Williams have been placed in the Committee's files. There ensued a discussion of several of the questions raised by Messrs. Goldenweiser and Williams and particularly of the problems involved in financing the defense program and how the System could cooperate in the solution of these problems. During this discussion the suggestion was made that the executive committee of the Federal Open Market Committee be asked to serve as the committee suggested by Mr. Goldenweiser for the development of a plan of Government financ ing for submission to the Treasury. While the discussion was in progress Mr. Dreibelbis left the meeting. At 12:50 p.m. the meeting recessed and reconvened at 2:30 p.m. with Messrs. Eccles, Szymczak, McKee, Ransom, Davis, Draper, Sproul, Fleming, Leach, Peyton, C. S. Young, Morrill, Carpenter, Goldenweiser, Williams, Wyatt, Dreibelbis, Rouse, and Thurston in attendance. that records of the election of members Mr. Morrill reported members of the Federal Open Market Committee represent and alternate ing the Federal Reserve Banks for the year beginning March 1, 1941, been received in the office of the Secretary of the Committee, had and alternate member had executed the that each newly elected member
office (with the exception of Mr. Davis, who had not required oath of yet resigned as a member of the Board of Governors and assumed his duties as President of the Federal Reserve Bank of St. Louis), and that it was the opinion of Counsel on the basis of the records of that had been received (1) that the following members and election alternate members were legally qualified to serve at the present time, his duties as President of the Federal Re (2) that, upon assuming serve Bank of St. Louis, Mr. Davis would be qualified to take the oath his duties as a representative member of the Com of office and assume that when the person to be appointed as President of mittee, and (3) Bank of Kansas City assumed the duties of that of the Federal Reserve take the oath of office and assume his fice he would be qualified to duties as an alternate for Mr. Peyton: Sproul, President of the Federal Reserve Bank Allan with Roy A. Young, President of the Federal of New York, Reserve Bank of Boston, as alternate member; M. J. Fleming, President of the Federal Reserve Bank John S. Sinclair, President of the Fed of Cleveland, with Bank of Philadelphia, as alternate member; eral Reserve President of the Federal Reserve Bank of Hugh Leach, Gilbert, President of the Federal Re Richmond, with R. R. serve Bank of Dallas, as alternate member; President of the Federal Reserve Bank of C. S. Young, Chicago, as alternate for Mr. Davis; and President of the Federal Reserve Bank John N. Peyton, of Minneapolis. Upon motion duly made and seconded, officers of the Federal Open the following Market Committee were elected by unanimous to serve until the election of their votes at the first meeting of the successors Committee after March 1, 1942:
Marriner S. Eccles, Chairman Allan Sproul, Vice Chairman S. R. Carpenter, Assistant Secretary E. A. Goldenweiser, Economist John H. Williams, Associate Economist Walter yatt, General Counsel J. P. Dreibelbis, Assistant General Counsel Upon motion duly made and seconded, and by unanimous vote, the Committee selected the Federal Reserve Bank of New York to ex ecute transactions for the System open mar ket account until the adjournment of the first meeting of the Committee after March 1, 1942. Mr. Sproul stated that the board of directors of the Federal Reserve Bank of New York had selected R. G. Rouse as Manager of the System open market account, subject to the New York Bank being se lected as the Bank to execute transactions for the System open market account and to his approval by the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the selection of Mr. Rouse as Manager of the System account was approved. Upon motion duly made and seconded, and by unanimous vote, the following were selected to serve with the Chairman of the Federal Open Market Committee (who, under of the bylaws, is also chair the provisions the executive committee) as members and man of members of the executive committee alternate of their successors at the until the selection of the Federal Open Market Com first meeting after March 1, 1942: mittee Alternate Members Members Ernest G. Draper Ronald Ransom
Members: (Continued) Alternate Members John K. McKee M. S. Szymczak Allan Sproul (To serve in the order Hugh Leach named as alternates for Messrs. Eccles, Ransom, and McKee) M. J. Fleming John N. Peyton (To serve in the order named as alternates for Messrs. Sproul and Leach) Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Commit tee held on December 18, 1940, were ap proved. Upon motion duly made and seconded, and by unanimous vote, the actions of the executive committee of the Federal Open Market Committee as set forth in the min utes of the meeting of the executive com mittee on December 18, 1940, were ap proved, ratified, and confirmed. During the meeting Mr. Rouse distributed copies of a report of open market operations prepared at the Federal Reserve Bank of New York covering the period from December 17, 1940, to March 15, 1941, inclusive, and at this point he reviewed the principal features of the report. During Mr. Rouse's statement Mr. Piser, Senior Economist in the Division of Research and Statistics of the Board of Governors, en tered the room. Upon motion duly made and seconded, and by unanimous vote, the transactions
in the System open market account for the period from December 17, 1940, to March 15, 1941, inclusive, were approved, ratified, and confirmed. There ensued a discussion of the instructions to be issued to the executive committee with respect to transactions in the System open market account and there was agreement that there was no occa sion at this time for a change in the form of resolution adopted at the last meeting of the Federal Open Market Committee. Mr. Sproul raised the question whether, in view of the possible emergencies that might develop before another meeting of the Committee is held, the limit of 200,000,000 contained in the resolution on increases or de creases in the amount of securities held in the account should be in creased. It was agreed, however, that if it should appear likely that occasion would arise for the purchase or sale of securities for the System account beyond the limit fixed by the resolution, another meet ing of the Federal Open Market Committee should be called. Thereupon, upon motion duly made and seconded, the following resolution, which was in the same form as the resolution adopted at the meeting of the Committee on December 18, 1940, was adopted by unanimous vote: That the executive committee be directed until otherwise directed by the Federal Open Market Com arrange for such transactions for the Sys mittee to tem open market account (including purchases, sales, of maturing securities, and exchanges, replacement letting maturities run off without replacement) as from time to time may be advisable in its judgment conditions; provided that in the light of existing
the aggregate amount of securities held in the account at the close of this date shall not be increased or decreased by more than $200,000,000. Mr. Morrill stated that under date of December 16, 1940, a request was received from the Treasury Department for authority (1) to publish in the annual report of the Secretary of the Treasury schedules of the holdings of the Federal Reserve Banks as of June 30, 1940, which would show separately the holdings of direct and guaran teed obligations, and (2) to continue to publish in a table in the Treasury monthly bulletin the amount of direct obligations held by the Federal Reserve Banks as well as the holdings of guaranteed obli gations, the latter being grouped with similar holdings of Government trust funds and agencies. The request of the Treasury, Mr. Morrill said, was taken up with the Federal Reserve Bank of New York and un der date of December 23, 1940, a letter was received from Mr. Rouse in which it was stated that it would appear desirable to authorize the Treasury to publish the information in the Secretary's annual re port but that the question of the publication of separate figures on direct and guaranteed obligations in the Treasury's monthly bulletin was of a somewhat different nature in that it supplied the market with recent information not otherwise available, and that, while at the present time it was not of importance, conditions could be visualized in which it might not be desirable to have the information available so quickly. Mr. Rouse's letter suggested that the Treasury be allowed to use the figures in the monthly bulletin provided the amount of
direct obligations be omitted from the bulletin table as a separate item and lumped with those of "other holders" or those of Government agencies and trust funds in the same manner as guaranteed obligations were shown. Inasmuch as the annual report of the Secretary of the Treasury was ready to go to the press when the matter came up the question was presented to Chairman Eccles, as Chairman of the Federal Open Market Committee, who authorized the Secretary's office to advise the Treasury that no objection would be made to the publication of the information in the annual report of the Secretary of the Treasury. Mr. Rouse stated that the question involved was one of prin ciple whether the Committee wished to authorize the Treasury to pub lish information with respect to the System account before it was published by the Federal Reserve System itself, that the matter was of no particular importance at this time because of the small amount of holdings of guaranteed obligations, but that if at any time there should be a considerable volume of transactions involving guaranteed issues and information with respect to these transactions were cur rently released it might have an undesirable effect on the market and the information might be taken advantage of by speculators. In the discussion which ensued, Mr. McKee moved that the action taken by Chair man Eccles in this matter be ratified, that the Committee recommend to the Board of Governors that separate figures with respect to direct and guaranteed holdings of the Federal Reserve Banks be shown in the weekly statements of condition of Federal Reserve Banks published by the Board and in the
Federal Reserve Bulletin, and that the Treasury be advised that no objection would be made to the publication in the Treasury monthly bulletin of data with respect to direct and guaranteed holdings of the Fed eral Reserve Banks in the manner in which they were shown in the table on page of the January 1941 Treasury bulletin. During the discussion of Mr. McKee's motion, Mr. Sproul sug gested that the publication by the Federal Reserve System of separate figures with respect to direct and guaranteed holdings of the Federal Reserve Banks be in the Federal Reserve Bulletin and not in the weekly statement of condition of Federal Reserve Banks for the reason that if publication in the latter form were adopted it would be difficult, if not impossible, to discontinue the weekly publication of the fig ures and it might be found, should it become necessary again to carry out substantial operations in guaranteed obligations, that current publication of such information would be undesirable. At the conclusion of the discussion, Mr. McKee's motion, which was duly seconded, was adopted by unanimous vote. At this point Messrs. Roy A. Young, Sinclair, Gilbert, Day, McLarin, Hitt, Leedy, and Sienkiewicz reentered the room and Mr. Rouse reviewed for their information the conditions in the Government security market during the recent period. Chairman Eccles suggested for discussion the question of the place of the Federal Reserve System as a central banking system in the existing situation, particularly in view of the lack of adequate
authority in the System to control the credit situation. He also suggested that consideration should be given to the part that the System should play in assisting the Treasury in regard to the financ ing operations of the Government. There followed a discussion of the questions raised by Chair man Eccles and of changes that might be made in the procedure for issuing Government securities. Chairman Eccles suggested that the executive committee be requested to have some preliminary studies prepared which could be presented to, and discussed with, the Presi dents of all Federal Reserve Banks before taking the matter up with the Treasury. Mr. McKee suggested a review of the available information as to the financing procedure followed during the last war. At the conclusion of the discussion, Mr. Sproul moved that the executive commit tee have studies prepared along the lines suggested during the discussion and that, when a draft of program had been prepared, the Presidents be called to Washington for the purpose of discussing the program with the understanding that, if a program could be agreed upon, it would be presented to the Treasury for consideration. Mr. Sproul's motion, having been duly seconded, was put by the Chair and carried unanimously. Mr. Fleming suggested that if possible, copies of the draft of program prepared for discussion with the Presidents be sent to them before a meeting is called so that they will have an opportunity to study it.
In a further discussion, the suggestion was made by Mr. Davis that the program prepared by the executive committee should be formu economic situation rather than on lated in the light of the entire basis of the problems immediately connected with Govern the narrower ment financing. Thereupon the meeting adjourned. Secretary. Approved: Chairman.
Also: Record of Policy Actions·Minutes of the Executive Committee, March 17, 1941·Minutes of the Executive Committee, March 17, 1941