June 10, 1941 FOMC Minutes

FOMC minutes

The statement submitted by Messrs. Williams and Rouse contained a discussion of reasons for their belief that the program suggested in Mr. Goldenweiser's memorandum should be regarded as a series of topics for informal discussion with the Treasury rather than as a statement of a program to be submitted to the Treasury, and that what was needed was a series of meetings with the Treasury and if possible a standardized procedure for regular conferences, at which consideration would be given not only to the technique of Treasury financing but also to the entire field of fiscal and monetary policy. At 12:55 p.m. the meeting recessed and reconvened at 2:10 p.m. with the same attendance as at the morning session and in addition Mr. Thurston, Special Assistant to the Chairman of the Board of Gov ernors. Mr. Sproul stated that the question raised by the memoranda before the Committee was whether it should undertake to formulate a definite plan for Treasury financing which would be submitted to the Treasury in the form of a memorandum or whether the Committee should seek an opportunity for a series of conferences with representatives of the Treasury at which all of the points that might be suggested by representatives of the System would be taken up, and that he was satis fied that the best approach from the standpoint of the most satisfactory solution of the problem would be the latter course. Mr. Davis pointed out that the two memoranda expressed dif ferences as to procedure rather than policy and inquired whether there

were any differences of opinion other than those disclosed in the two memoranda and whether, if the subject of continuing conferences with the Treasury were agreed upon, there would be other differences which would prevent the members of the executive committee from agreeing upon the suggestions to be presented for discussion. Chairman Eccles and Mr. Sproul responded that there were such differences and Chairman Eccles said that in his opinion there would be no useful purpose of discussing the matter with representatives of the Treasury unless the Committee had a program to present as a statement of its views which it wished to submit to the Treasury for the purpose of discussion. In accordance with a suggestion by Mr. McKee, each of the Presidents was then called upon to express his views. These state ments indicated differences of opinion as to the procedure that should be followed. The Presidents' comments and the intervening discussion raised numerous questions particularly with respect to the need for substantial changes in present methods of financing; whether, if a change in procedure were desirable, it should be made at this time when the Treasury was faced with the necessity of issuing large amounts of new securities; the alternatives that might be available in addi tion to those suggested in Mr. Goldenweiser's memorandum; what was meant by a tap issue; whether the program contemplated the offering of a tap issue and other issues at the same time and, if so, whether this was practicable; the effect of a tap issue on the market and on

outstanding issues; the desirability of a statement by the Treasury as to the rate at which its long-term financing would be done; the extent to which any commitment by the System to stabilize the market should go; and whether it would be more desirable for the Treasury to undertake the necessary stabilization operations or for the System to accept responsibility for such operations either entirely or in cooperation with the Treasury. Toward the end of the Presidents' statements Mr. Alfred H. Williams left the meeting. Several of the Presidents suggested that the Federal Reserve Banks could be of very material assistance to the Treasury in further ing the savings bond campaign and, while there was some question whether the Treasury would welcome an offer of such assistance because of its position that the sale of savings bonds should be entirely voluntary, the Presidents and members of the Board felt that the System is in posi tion to give such assistance, and that an offer of help beyond the mere handling and sale of the securities should be made to the Treasury. Chairman Eccles suggested that the Presidents, in their separate meeting tomorrow, give consideration to the desirability of formulating a proposal for presentation to the Treasury under which the Federal Reserve Banks would use their facilities in furthering the campaign, and to the appointment of a committee to consider the matter further with the Board and the Treasury. In connection with this matter, Mr. Davis suggested that com-

mercial banks be permitted to purchase Series F and G Savings Bonds in any one year on the theory that this up to the limit of say $10,000 would add a relatively small amount to bank deposits and would be in the nature of compensation to the banks for services rendered in con with the sale of savings bonds. nection In a further discussion the suggestion was made that the whole problem of Treasury financing be referred back to the executive commit tee with the understanding that the committee would be free to discuss the matter with representatives of the Treasury, and Mr. Davis suggested that the executive committee be instructed to prepare a statement of the points on which agreement of the members of the Board and the Pres idents had been indicated as a starting point for further consideration. At the conclusion of the discussion of these suggestions, upon motion duly made and seconded, and by unanimous vote, the whole matter was referred again to the executive committee for further study. Thereupon the meeting adjourned. Secretary. Approved: Chairman.