September 21–22, 1944 FOMC Minutes

FOMC minutes

deposit that should be used for this purpose would be undesirable for the reason that it might result in further hoarding of currency. 8. Permission for banks to purchase restricted securi ties in an amount not exceeding a stated portion of their savings deposits should be continued as in the last two drives, for the reason that it would permit the smaller banks which have the lowest earnings to increase their investments in the higher yield securi ties. 9. In order to place dealer banks on the same basis as other dealers in Government securities, such banks should be permitted to deal in restricted issues, pro vided that they did not hold at any one time an amount of securities in excess of the amount that they would be authorized to subscribe for in relation to their savings deposits. 10. For the reasons previously stated, there should be no increase in the weekly offering of Treasury bills. During the discussion of the above matters, there was a ques tion on the part of some of the Presidents as to the desirability of the suggestion contained in the memorandum of August 11, 1944, that the use of war loan deposits above a minimum percentage be denied to all depositaries which ignore the Treasury's request concerning specu lative loans. At the conclusion of the discussion of the Treasury questions, attention was turned to the consideration of open market policy, and there was unanimous agreement that, inasmuch as the decision had been reached to continue the option accounts, should be made at this time in no change the direction issued to the Federal Reserve Banks at the meeting of the Federal Open Market Committee on March 1, 1944, with

respect to the purchase of Treasury bills at a discount rate of 3/8 per cent per annum. Upon motion duly made and seconded, and by unanimous vote, the following direc tion to the executive committee was approved, with the understanding that the limitations contained in the direction would include commitments for purchases and sales of se curities for the System account. "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, replacement of ma turing securities, and letting maturities run off without replacement), as may be necessary in the practical adminis tration 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 (1) bills purchased outright in the market on a discount basis at the rate of 3/8 per cent per annum and bills redeemed at maturity and short-term certificates of indebtedness pur (2) special 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 short-term certificates of indebtedness as may of special be necessary from time to time for the temporary accommoda Treasury; provided that the amount of such cer tion of the tificates held in the account at any one time shall not ex ceed $1,500,000,000." whether the System account should Chairman Eccles questioned continue to purchase certificates at a premium. He pointed out that to a considerable extent these securities had taken the place of bills

as the instrument used by banks to adjust their reserves, and that corporations, which purchased certificates during the drives for the purpose of enabling their communities to meet their quotas and sold them again so that they could purchase additional certificates in the succeeding drive, were not greatly concerned with the rate of return on the securities. In these circumstances he thought there was little, if any, justification for the System account paying a premium for the certificates purchased by it. Mr. Rouse stated that the amount of money involved in the by the System account was so small that it was not im premiums paid portant, and that if Chairman Eccles' suggestion were adopted interest in the certificate market would decline materially with possibly serious effects on the whole method of financing. opinion that there was a large volume Mr. Sproul expressed the which had been purchased on the assumption of certificates outstanding be maintained and that, if certificates that the pattern of rates would the market would "play the pattern of were allowed to decline to par, of profits was issues where the possibility rates" in the longer-term greater. Chairman Eccles of the above matter, During the discussion Morgenthau would not from the Treasury that Secretary received word Eccles) and Mr. Sproul left to Washington before he (Chairman return was agreement that the circumstances, there for the West. In these

executive committee would be free to supplement the memoranda pre viously sent to the Treasury to such extent as the committee thought desirable in the light of the discussions at this meeting. In connection with the discussion of the date for the next meeting of the full Committee, there was a tentative decision that the next meeting should be held on Monday, December 11, 1944. The meeting then recessed and reconvened on the morning of 22, 1944, at 9:30 a.m., with the same attendance as Friday, September on September 21, except that Mr. Davis and during the morning session Mr. Upgren were not present. informal statements were made by Messrs. At this session Williams, which were supplemented by brief Goldenweiser and John H. Kincaid, and Edmiston, on the problems comments by Messrs. Langum, the reconversion period in would be faced during and following which production, and monetary fields. the employment, of the questions presented At the conclusion of a discussion the meeting adjourned. in the economists' statements Secretary. Approved: Chairman.