January 25–26, 1943 FOMC Minutes

FOMC minutes

testifying on the bill he had not stated that the authority would be used only for the purpose of purchasing special short-term certificates of indebtedness from the Treasury but rather that it would not be used as a means of financing Treasury requirements. He distinguished between direct purchases for the purpose of supplying funds to the market and for the purpose of replacing maturing securities. In the discussion of this point, reference was made to the opinions submitted by the Committee's Counsel last year that, to the extent that allotments of new securities were permitted to be paid for by the delivery of maturing securities, the transaction would, in fact, be an exchange and should not be charged to the System's authority to purchase direct from the Treas ury. At the conclusion of the discussion, during which it was evi dent that there was a division of opinion as to the course to be followed, Chairman Eccles stated that under the directions issued to the executive had authority to arrange with the Treasury for direct re committee it placement of maturing securities and that he had referred to the matter order to ascertain whether any change should be made in at this time in the executive committee's authority. Governor of the Farm Credit Morrill stated that Mr. Black, Mr. that it would be desir suggested to Mr. Evans Administration, recently were extended to rate on Treasury bills the 3/8 per cent posted able if for the reason that in credit bank debentures cover Federal intermediate handicapped in debentures were somewhat circumstances the the present preference for bills. the market by the

In this connection, Mr. Leedy stated that complaint had been made in his district because the preferential rate of 1/2 per cent established by the Federal Reserve Banks on advances to member banks on short-term Government securities was not extended to advances se cured by Federal intermediate credit bank debentures, the statement being made that this was the first time any distinction had been made on the basis of rate. It was pointed out that the 3/8 rate on Treasury bills and the preferential rate on advances to member banks were established as aids to the war financing program and that therefore there was no reason for applying these privileges to Federal intermediate credit bank de bentures. There was unanimous agreement that no change should be made in the direction issued to the Federal Reserve Banks at the meeting of the Federal Open Market Committee on Sep tember 28, 1942, to purchase all bills offered at the posted rate of 3/8 per cent. All of the members of the Committee were in agreement that the renewal of the authority granted to the executive committee at the last Market Committee would be ample to meet the meeting of the Federal Open the next meeting of the Committee. situation pending upon motion duly made and sec Thereupon, onded, the following resolution was adopted by unanimous vote: be directed, until otherwise That the executive committee to arrange for Open Market Committee, directed by the Federal open market account, either transactions for the System such the Treasury (including or directly with in the open market replacement of maturing securities, purchases, sales, exchanges,

and letting maturities run off without replacement), as may be necessary in the practical administration of the account, or for the purpose of maintaining about the present general level of prices and yields of Government securities, or for the purpose of maintaining an adequate supply of funds in the market; provided that the aggregate amount of securities held in the account at the close of this date (other than special short-term certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury and Treasury bills purchased pursuant to the direc tion of the Federal Open Market Committee issued under date of September 28, 1942) shall not be increased or decreased by more than $1,000,000,000. That the executive committee be further directed, until otherwise directed by the Federal Open Market Committee, to arrange for the purchase for the System open market account direct from the Treasury of such amounts of special short term certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the amount of such certificates held in the account at any one time shall not exceed $1,000,000,000. Mr. McKee suggested that it be understood that under the author ity granted to the executive committee it would undertake to arrange with the Treasury for an amendment to the terms under which the various securities are offered so as to permit full allot issues of Government System of securities issued to refund all maturing direct ment to the to the extent that replacement of such maturing securities obligations, appeared to the executive committee to be held in the System account desirable. Upon motion duly made and seconded, this suggestion was adopted, Messrs. Sproul and Williams voting "no", the terms of the present representa statement was made that The would expire on Febru the Federal Open Market Committee tive members of of the Presidents' Con indicated that a meeting ary 28, 1943. It was therefore some of at that time and would not be held ference probably

the Presidents who were now members of the Committee would not be in Washington unless their presence was deemed necessary. It was agreed that, inasmuch as the last day of February would fall on Sunday, the next meeting of the Committee should be held on Mon day, March 1, and that the Secretary should obtain from the members whose terms would ex pire at that time advice of their approval of the transactions up to that date, which should be reported at the meeting. Chairman Eccles stated that the special committee of the Ameri can Bankers Association on Treasury financing was anxious to meet with him, Mr. Bell, and some of the Chairmen of the Victory Fund Committees, that the committee had discussed the matter with Mr. Bell, and that it was suggested that the group arrange to meet with the committee some time next week. It was understood that Messrs. Eccles, Sproul, Williams, and Young would attend the meeting. Thereupon the meeting adjourned. Secretary. Approved: Chairman,