March 1, 1944 FOMC Minutes

FOMC minutes

In response to an inquiry from Mr. Gilbert, Chairman Eccles stated that the above action would not affect in any way the proposed discussions of this matter with representatives of the Treasury by the Presidents' Conference Committee on Fiscal Agency Operations. Mr. Sproul then read the following statement of the consider ation given by the Presidents in their conference to the redemption of war savings bonds by commercial banks and said that it was being brought to the attention of the Federal Open Market Committee for its informa tion only as it did not call for action by that Committee: "Consideration was given to the desirability of putting into effect as soon as possible a plan provid ing for redemption of war savings bonds by commercial banks in anticipation of the time when increased redemp tions will make such decentralized redemption necessary for the public convenience, and to avoid undue expansion and contraction of the redemption facilities of the Fed eral Reserve Banks. The question of compensation to banks for this service was raised but it was thought best to consider the matter of expense in the light of subsequent developments. "Without taking formal action, this subject was re ferred to the Committee on Fiscal Agency Operations with the understanding that the committee would discuss the matter with the Treasury, suggesting that the plan be put into operation as soon as practicable." Subsequently and in accordance with action taken at this meeting, the statement for presenting Federal Reserve of procedure recommendations to the Treasury in regard to important matters of Government financing was approved by the members of the executive in the form of a letter to the committee of the Treasury as follows: Secretary the procedure for presenting Fed "In order to improve the Treasury in regard to Reserve recommendations to eral

"important matters of Government financing, the members of the Federal Open Market Committee have agreed unani mously that such recommendations should be presented to you through the Chairman and Vice Chairman of the Com mittee. "It was felt that this procedure would be helpful from the standpoint of the Secretary of the Treasury as well as that of the Federal Reserve, and that the Sys tem's responsibilities under the law in connection with open-market policy could best be met if, before reaching final decisions on financing matters, the Secretary of the Treasury were to give the Federal Open Market Com mittee, or its Executive Committee, an opportunity to consider the recommendations obtained from staff and outside sources before presentation of Federal Reserve views. It was agreed that, whenever practicable, Fed eral Reserve recommendations should be submitted in or following conferences between the Secretary and the Under Secretary of the Treasury and the Chairman and Vice Chair man of the Federal Open Market Committee, which should be held after staff meetings and after meetings with private bankers and others. "The considerations underlying the recommendation of this procedure may be summarized as follows: "The Federal Open Market Committee is a statutory body created by Congress and empowered to direct and regulate the open market operations of the Federal Re serve Banks. Under the law, the time, character and volume of these open market operations must be governed a view to accommodating commerce and business and with with regard to their bearing upon the general credit situation of the country. No Federal Reserve Bank may carry on open market operations except in accordance with the directions of the Committee. conditions, the objectives of open "Under existing be and are to provide the reserve market policy must funds required for the orderly functioning of our money and to maintain a general credit situa and banking system Treasury borrowing necessary tion which will facilitate war. The System has undertaken to main to finance the Government security market which tain conditions in the to the continued success of Treasury will be conducive the present general basis of yields. The financing on of accomplishing these objectives are ordinarily means securities in the and sale of Government the purchase

"open market. "The Federal Open Market Committee, in discharging its responsibilities, is, therefore, of necessity a par ticipant with the Treasury in the maintenance of the market for Government securities and in the problems of war financing. Its responsibility is that of a public body which has a greater concern than any group or per sons outside of the Treasury in the timing of Treasury offerings, the types of securities offered, and their terms and conditions because of the importance of relat ing current financing to credit and monetary policies. "It has been customary for the Secretary and Under Secretary of the Treasury to request the members of the Executive Committee of the Federal Open Market Committee to confer with them, or with members of the Treasury staff, on matters of financing policy and procedure. These have invariably been informal meetings with the individual members of the Executive Committee rather than formal meetings with the Executive Committee as such. In these conferences the members of the Executive Committee at times have given their individual views and recommendations, at times they have spoken for the Ex ecutive Committee, and at other times for the Federal Open Market Committee. In addition the Treasury at times has requested the individual views of Federal Reserve Bank presidents. "In view of the System's statutory responsibility and the importance of the matters involved, the Committee felt that the discussions with the Treasury should be defined basis, and that this would be on a more clearly by having the Chairman and Vice Chairman accomplished Federal Open Market Committee recognized as the of the whom to present all representatives through appropriate recommendations, written or oral, to the Federal Reserve important matters of financing policy. It Treasury on also that better results would be obtained by was felt in conferences with the presenting such recommendations Secretary of the Treasury alone, after Secretary and Under are held by the Treasury with others whatever conferences and after whatever meet staff or technical level, at the Secretary and Under Secretary with ings are held by the as private bankers and Gov advisers or consultants, such who are without direct public ernment security dealers, making their recommendations, the responsibility. In

"Federal Reserve representatives would thus be able to take account of information obtained from these sources. "The Federal Open Market Committee authorized its Executive Committee, through its Chairman and Vice Chair man, in so far as it is practicable, to follow the pro cedure outlined above. If you so desire, Mr. Sproul and I will be glad to discuss this procedure with you at your convenience." Thereupon the meeting adjourned. .Secretary. Approved: Chairman.