October 18, 1943 FOMC Minutes

FOMC minutes

replacement bills would be made for the System account. There was a discussion of the necessity for a press statement in the event arrangements were made for direct replacement of bill ma turities, and it appeared to be the general consensus that a complete statement on the matter should be made, pointing out, however, that the operation involved merely the replacement of maturing securities held by the System. At the conclusion of the discussion, upon motion duly made and seconded and by unanimous vote, the executive committee was directed to work out with the Treasury and put into effect an arrangement under which a tender would be made each week for new bills in an amount not exceeding the total amount of maturing bills in the System and option accounts. This action was taken with the under standing that when the arrangement went in to effect the executive committee was au thorized to issue a statement to the press form as in its judgment the circum in such stances required. the direction to be issued to was then given to Consideration to effect transactions in the System account the executive committee which it was felt would meeting of the full Committee pending another in January of next year. Messrs. be necessary before sometime not the renewal of the exist expressed the opinion that Sproul and Rouse any situation that might be would be adequate to meet ing authority as a substantial amount of to arise in that period, inasmuch expected option accounts of the to be purchased in the bills would continue

Federal Reserve Banks. Thereupon, upon motion duly made and seconded and by unanimous vote, the follow ing direction was approved: 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 ac count, either in the open market or directly with the Treasury (including purchases, sales, exchanges, replace ment of maturing securities, and letting maturities run off without replacement), as may be necessary in the practical administration of the account, or for the pur pose 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 securi ties held in the account at the close of this date (other than special short-term certificates of indebtedness pur chased from time to time for the temporary accommodation of the Treasury) shall not be increased or decreased by more than $1,500,000,000. That the executive committee be further directed, until otherwise directed by the Federal Open Market Com mittee, 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 ac commodation of the Treasury; provided that the amount of such certificates held in the account at any one time shall not exceed $1,500,000,000. This action was taken with the un derstanding (1) that the limitations con tained in the direction were understood to include commitments for purchases or sales of securities for the System account and (2) that, in the event the arrangement worked out for the direct replacement of maturing bills provided for the transfer of such bills held in the option accounts to the System account and the holding of the bills taken in replacement in the Sys tem account, the limitations contained in the direction would not apply to such trans fers or replacements.

Reference was made to the informal discussions, which had taken place in connection with the possible issuance of a 3/4 per cent Treasury bill, with respect to the question whether any change should be made in the discount rates now in effect at the Federal Re serve Banks on advances secured by Government obligations, and there was unanimous agreement that no suggestion should be made by the Fed eral Open Market Committee on this matter at this time. Inquiry was made whether, in the event of a decision of the Treasury to increase the rate on existing bills or to issue 5/8 per cent or 3/4 per cent bills, any change should be made in the outstand ing direction to the Federal Reserve Banks to purchase Treasury bills, and it was suggested that, while no action need be taken on the matter at this time, it would be necessary to issue a revised direction at the time action was taken by the Treasury. Thereupon, upon motion duly made and seconded and by unanimous vote, it was de cided that, in the event action were taken by the Treasury prior to the next meeting of the Committee, the members of the Commit tee would approve by wire the issuance of a direction to the Federal Reserve Banks to purchase all Treasury bills that might be offered to such Banks on a discount ba sis at the rate at which such bills were the Treasury, any such purchases issued by upon the condition that the Federal to be Reserve Bank, upon the request of the sell the maturity of the bills, would er before Treasury bills of like amount sell to him at the same rate of discount. and maturity

Thereupon the meeting adjourned. Secretary. Approved: Chairman.