June 22, 1942 FOMC Minutes

FOMC minutes

Mr. Ransom suggested that consideration be given to the pos sibility of maintaining present rates for the duration of the war. The discussion did not develop an agreement on this point. At Chairman Eccles' request, copies of a memorandum prepared by Mr. Kennedy of the Board's staff on the subject of distribution of Treasury bills were handed to the Presidents at this point. Mr. Goldenweiser referred to a chart showing the decline in recent years in the proportion of short-term Government securities to the total out standing direct debt and suggested that there was ample justification for increasing the proportion of such securities. With respect to proposals to increase to $5,000 the amount of Series A tax anticipation notes which could be purchased in any one calendar year and to increase the rate of interest paid on Series B tax anticipation notes to .60 per cent, it was agreed that the in crease in the limit on the Series A notes might be recommended to the Treasury and the suggestion made that consideration be given to in creasing the rate on the Series B notes at the proper time. There was a discussion of whether the short-term open-end registered issue which had been suggested to the Treasury should be made available to banks as a means of meeting the objection that the banks were the best customers of the Treasury, that they were denied the opportunity of subscribing for riskless issues offered by the Treasury, and that they could buy only market issues on which they agreement that the short market risks. There was general assumed term open-end issue was desirable, that the executive committee

should continue to urge its use, and that as a means of making the is sue more attractive it should be made eligible as collateral for bor rowing from banks. Chairman Eccles stated that it was contemplated that the Treas ury would be faced with the necessity of doing about $4,000,000,000 of new financing in July and August in addition to savings bonds and tax anticipation notes. He said that it was expected that the 2-1/2 per cent registered bond would be reopened and the weekly offering of bills increased, but that there would still be approximately $3,000,000,000 which would have to be financed by market issues, and that he was of the opinion that, if the short-term open-end issue were offered and the Victory Fund Committees given the responsibility for selling it, as much as $1,500,000,000 or $2,000,000,000 could be reached by that means. He inquired whether the Presidents thought the Victory Fund sell as much as $1,500,000,000 of the short-term is Committees could replied in the affirmative while others sue. Some of the Presidents had no basis for estimating the amount which might be sold. felt they that it was important that the Victory They also expressed the opinion something specific to do, and the suggestion Fund Committees be given in its separate session to was made that the Presidents' Conference, that effect which could be transmitted adopt a statement to morrow, Messrs. Sproul and Davis suggested that since to the Treasury. Mr. in the conferences with the Treas Alfred H. Williams had participated such a statement for of a draft of undertake the preparation ury they consideration by the Presidents' Conference.

In connection with a discussion of the desirability of split offerings and serial issues, Mr. Davis inquired whether the Board had made an analysis of the latter. Chairman Eccles stated that Mr. Piser discussed this proposal in a memorandum dated May 27, 1942, and copies of the memorandum were distributed to the Presidents during the meet ing. It appeared to be the sense of the meeting that, because of the difficulty of pricing split offerings, they should be avoided as much as possible and that the objections to serial issues outweighed the advantages they might have. Question was raised whether the 2-1/2 per cent registered is sue should be reopened in connection with the forthcoming financing in July and August. The opinion appeared to be that this was desirable and that the announcement of such offering should be made before July 6 when the 60-day period during which the outstanding issue could not be traded would expire, so that trading in the issue would not begin at a premium which would be eliminated if the reopening of the issue were subsequently announced. Mr. Sproul suggested that the issue might be for a considerable time and that it should be made eligible kept open estate and inheritance taxes. This suggestion for use in payment of appeared to be concurred in by the Presidents. the responsibility of the with a discussion of In connection with respect to Series F and G war savings Victory Fund Committees Chairman Eccles stated that, although it was now understood bonds, whatever they could to the Committees would do by the Treasury that

assist in the sales of these securities, the matter required some clarification, as its present status was not satisfactory from the standpoint of the Committees. Thereupon, the meeting adjourned. Secretary.