October 17, 1945 FOMC Minutes

FOMC minutes

members or committees of Congress would want to look into the effects of war financing on the credit and monetary situation of this country and particularly on the earning position of banks, and that the Federal Open Market Committee should continue the studies which were being made so that it would be in a position to suggest a practicable solution to the difficult problems which will lie ahead because of the large volume of Government securities outstanding. There was unanimous agreement on the part of the members of the Committee that the course suggested by the executive committee should be followed. Mr. Sproul inquired whether there was anything that could be learned from the experiences of foreign central banking and governmental authorities that would be helpful in the solution of the problems facing the Treasury and the System. Mr. Goldenweiser said that steps taken by certain European countries had been effective but that they were much more drastic than could be undertaken here. to an inquiry from Mr. McKee as to the steps to be In response Federal Reserve Banks to prevent speculative purchases of taken by the Mr. Sproul stated that the Presi securities during the Victory Drive, with Mr. Bell at the meeting of the Presi dents had discussed this matter that at that time Mr. Bell was asked whether dents' Conference yesterday, with respect to any definite instructions he could give the Presidents Federal Reserve Banks to job the Treasury wanted the the kind of policing to make a definite was not in a position but that Mr. Bell undertake,

reply. Mr. Sproul also said that it appeared that the Federal Reserve Banks were in about the same position as in the Seventh War Loan. Drive and were faced with a policing problem which, because of reliance on a certain amount of roll-over purchases and indirect bank buying in order to make the Drive a success, was an impossible task. Inasmuch as it was felt that no change should be made in Treasury financing or Sys tem open market policies until after the Victory Drive was over, there was unanimous agreement that no action should be taken at this time to change the direction issued to the Federal Reserve Banks at the meeting of the Federal Open Market Committee on March 1, 1945, with respect to the purchase of Treas ury bills at a discount rate of 3/8 per cent per annum. In connection with the authority to be granted to the executive committee to execute transactions for the System open market account, Mr. Rouse stated that it was expected that it would be necessary between now and the end of the Victory Drive for the System to purchase $1,500,000,000 or more of securities for the purpose of providing necessary bank reserves and that if the existing authority to the executive committee were re newed it was believed that that would be all that would be required to meet the situation until the next meeting of the Committee even if the meeting were not held until the end of February of next year. There was no disagreement with Mr. Rouse's suggestion and upon motion duly made and seconded, and by unanimous vote, the following direction to the executive committee was approved with the understand ing that the limitations contained in the direction would include commitments for of securities for the purchases and sales System account:

That the executive committee be directed, until otherwise directed by the Federal Open Market Committee, to arrange for such transactions for the System open market account, either in the open market or directly with the Treasury (including purchases, sales, exchanges, replacement of maturing securities, 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 pur pose 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 pur chased 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 indebtedness purchased from time to time for the temporary accommodation of the Treasury] shall not be increased or decreased by more than $2,000,000,000. 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 di rect 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. Reference was made to the fact that the amendment to Section 14(b) of the Federal Reserve Act which was contained in the Second War Powers authorized the Federal Reserve Banks to purchase directly Act and which from the Treasury up to $5 billion of Government securities, would expire at the end of this year, and inquiry was made as to what steps were being taken to have the authority renewed. it was understood that Mr. Snyder, Direc Mr. Morrill stated that would go before the Judiciary tor of War Mobilization and Reconversion, near future and re in the very of the House of Representatives Committee War Powers Act provisions of the Second of certain of the quest a renewal it might not be to and that while provision above referred including the

possible to get the authority extended for an entire year it was likely that something less than that would be acceptable. Chairman Eccles stated that if necessary he would also discuss the matter with Secretary of the Treasury Vinson. It was agreed unanimously by the members of the Committee that in the absence of unforeseen developments it was not likely that another meeting of the full Committee would be necessary before February 28 and March 1 of next year, that it should be understood that the executive com mittee would continue its discussions with the Treasury as agreed upon earlier during this meeting, and that, if at any time the executive com mittee felt that a meeting of the full Committee should be held, such a meeting would be called. Thereupon the meeting adjourned. Secretary. Approved: Chairman.