December 11, 1944 FOMC Minutes

FOMC minutes

present general level of prices and yields and that the Treasury had applied that to a pattern beginning at 3/8 per cent for Treasury bills but that the Federal Open Market Committee had never agreed to that interpretation of its commitment. He felt that, in order to avoid the charge of the Committee failing to live up to its commitment, the mat ter should be taken up with the Treasury so that it would know what the decision of the Committee was in connection with it. At the conclusion of the discussion, upon motion duly made and seconded, and by unanimous vote, it was decided to make no change in the policy which had been fol lowed in the recent past with respect to purchases of Treasury certificates. In taking this action it was under stood that the executive committee would advise the Federal Reserve Bank of New York of the Committee's decision and that Chairman Eccles would advise Under Secre tary of the Treasury Bell of the decision and the reasons therefor. Upon motion duly made and seconded, unanimous vote, the executive com and by mittee was requested to meet after the first of the year for the purpose of con sidering the proposals contained in the memorandum presented by Chairman Eccles at this meeting in and the comments made and, if the executive connection with them, could agree upon a recommenda committee it to the Treasury for con tion, to submit sideration. of the general open Following a review in effect there was market policies now agreement that there was nothing unanimous situation that called for in the existing these policies at this time any change in

and that, therefore, no change should be made in the direction issued to the Fed eral Reserve Banks at the meeting of the Federal Open Market Committee on March 1, 1944, with respect to the purchase of Treas ury bills at a discount rate of 3/8 per cent per annum. Upon motion duly made and seconded, and by unanimous vote, the following di rection to the executive committee was ap proved, with the understanding that the limitations contained in the direction would include commitments for purchases and sales of securities 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 Treas ury (including purchases, sales, exchanges, replacement of maturing securities, and letting maturities run off with out replacement), as may be necessary in the practical ad ministration of the account, or for the purpose of main taining 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 that (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 (2) special short-term certificates of in debtedness purchased 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, un til otherwise directed by the Federal Open Market Committee, to arrange for the purchase for the System open market ac count 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 $1,500,000,000.

At this point Mr. Rouse reported that he had just had a fur ther telephone conversation with the Federal Reserve Bank of New York and had learned that it had been necessary to purchase a total of $90,000,000 of Treasury certificates so far today. He also said that he had given instructions to continue to purchase freely any certif icates that were pressing for sale at present prices. There was a brief discussion of Mr. Rouse's report and it was agreed that his in structions were in line with the present policy of preventing a fur ther rise in certificate yields. Reference was then made to the agreement reached at the last meeting of the Committee in connection with the adoption of the re vised formula for the allocation of securities in the System account, action by the Federal Open Market Committee, that pending further Treasury bills should not be allocated to any Federal Reserve Bank in an amount that would reduce its reserve ratio below 45 per cent on statement and reallocation dates. It was stated that the present the Federal Reserve Banks was between 49 per cent combined ratio of decline further before the next meet and 50 per cent, that it would be desirable at this time to of the Committee, and that it might ing the allocation of bills in the provide for some further leeway for System account. the allocation procedure was working Mr. Rouse stated that problem before the next meeting. and would not become a smoothly

Mr. Sproul suggested that the matter be referred to the execu tive committee with the understanding that the present basis of alloca tion would be continued until it appeared to the executive committee desirable to make a change, when the executive committee would advise the Federal Reserve Banks that, pending further action, bills would not be allocated to any Federal Reserve Bank in accordance with the existing formula in an amount which would reduce its reserve ratio below 43 per cent. Upon motion duly made and seconded, and by unanimous vote, Mr. Sproul's sug gestion was approved. of possible dates for the next meeting Following a discussion Federal Open Market Committee, there was unanimous agreement of the next meeting should be held on February 28, 1945, followed that the in accordance with the procedure fol by a meeting on March 1, 1945, lowed last year. Thereupon the meeting adjourned. Secretary. Approved: Chairman.