March 2, 1942 FOMC Minutes

FOMC minutes

made. Mr. Gilbert stated that it would be desirable if the present rate on Treasury bills were increased somewhat for the reason that a higher rate would broaden the distribution of bills and effect a better distribution of bank reserves. During the Presidents' statements, reference was made to the suggestion that the Federal Reserve Banks offer to handle the sale of the special issues proposed in the memorandum of January 28, 1942, and Chairman Eccles stated that he felt that such an offer would be ac ceptable to the Treasury and would facilitate the adoption of a pro gram. Chairman Eccles then inquired whether the Presidents felt that there was any other form of open market security that could be offered by the Treasury that would meet the needs of investors as well as a long-term tap issue which, in effect, would be an extension of the Series G issue on somewhat less favorable terms and would enable in vestors to avoid the speculative element of market issues, the padding of subscriptions to get a desired amount, or the payment of premiums in the open market. Mr. Davis stated, and other Presidents indicated agreement, that the position was implicit in the program that had been offered to the Treasury that market issues could not meet the needs of certain investors as well as the suggested special issues. Eccles stated that it would be of considerable assist Chairman ance to the members of the executive committee in their further discussions

with the Treasury if the Presidents' Conference would adopt a state ment along the lines that had been proposed, and that the statement might well include the Presidents' reasons for supporting the program and a statement of the willingness of the Federal Reserve Banks to un dertake the distribution of the special issues contemplated in the program. Mr. Day, as Chairman of the Presidents' Conference, stated that the Presidents would meet in a separate session to consider the matter. Reference was then made to the open market policy that should be followed pending another meeting of the Federal Open Market Commit tee, and Mr. Sproul stated that this question was so closely related to the financing policies adopted by the Treasury that, until a de cision was reached by the Treasury on what its future financing pro gram would be, the Federal Open Market Committee had little choice other than to continue the open market policy now in effect, and that, therefore, he would suggest the renewal of the resolution adopted at the last meeting of the Committee. Wyatt whether the limitation of 5 Mr. Ransom inquired of Mr. dollars, which had been approved by the House of Representa billion of the Federal Reserve Banks to pur tives, on the proposed authority chase securities directly from the Treasury, should be taken into consideration by the Federal Open Market Committee in connection with

the renewal of the authority granted to the executive committee to ef fect transactions in the System account. Mr. Wyatt replied that, since the War Powers Bill which contained the amendment had not yet been passed by Congress and it was expected that the limitation would not be in the amendment in its final form, the limitation would have no effect on the authority of the Federal Open Market Committee to take the suggested action. Thereupon, upon motion duly made and seconded, the following resolution was adopted by unanimous vote: That the executive committee be directed until other wise directed by the Federal Open Market Committee to ar range for such transactions for the System open market account (including purchases, sales, exchanges, replace ment of maturing securities, and letting maturities run off without replacement) as in its judgment from time to time may be advisable in the light of existing conditions; provided that the aggregate amount of securities held in the account at the close of this date shall not be increased or decreased by more than $500,000,000. Federal Advisory Council at its The resolution adopted by the was suggested that consideration be given to last meeting, in which it the amount of weekly Treasury bill the desirability of an increase in stated that copies of this reso was then read. Mr. Morrill offering, the Federal Advisory Coun resolution adopted by lution and of a second reserve requirements of position was taken that cil, in which the had been sent by as stable as possible, banks should be kept member confidential informa Treasury for its of Governors to the the Board tion.

Thereupon the meeting adjourned. Secretary.