October 17, 1945 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Wash ington on Wednesday, October 17, 1945, at 10:15 a.m. PRESENT: Mr. Eccles, Chairman Mr. Sproul, Vice Chairman Mr. Szymczak Mr. McKee Mr. Ransom Mr. Draper Mr. Evans Mr. Alfred H. Williams Mr. Gidney Mr. Leedy Mr. Gilbert Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Goldenweiser, Economist Messrs. Hardy, Hostetler, Irons, Sienkiewicz, Thomas, and John H. Williams, Associate Economists Mr. Wyatt, General Counsel Mr. Vest, Assistant General Counsel Mr. Rouse, Manager of the System Open Market Account Messrs. Piser and Kennedy, Chief and Assist ant Chief, respectively, of the Government Securities Section, Division of Research and Statistics of the Board of Governors Mr. Connell, General Assistant, Office of the Secretary of the Board of Governors Messrs. Flanders, Young, McLarin, and Day, alter nate members of the Federal Open Market Com mittee Messrs. Leach and Peyton, Presidents of the Fed eral Reserve Banks of Richmond and Minneapolis, respectively necessary for him to leave stated that it would be Chairman Eccles the meeting at 10:50 a.m. to attend a meeting of the Finance Subcommittee
of the National Advisory Council on International Monetary and Financial Problems which had under consideration important aspects of the financial assistance to be given by this country to Great Britain. At his request, it was understood that a discussion of Treasury financing and open market policies would be deferred until the afternoon session of this meeting. On July 5, 1945, in view of the appointment of Mr. Morrill, formerly Secretary of the Board of Governors, as Special Adviser to the Board, the members of the Federal Open Market Committee agreed that, not withstanding the applicable provisions of the by-laws of the Federal Open Market Committee, Mr. Morrill should be continued as Secretary of the Committee pending the next meeting when the necessary formal action could be taken. Upon motion duly made and seconded, it was voted unanimously (1) to approve, ratify, and confirm the informal action of the members of the Federal Open Market Committee on July 5, the Secretary of the with respect to 1945, Committee, and (2) to continue Mr. Morrill as Secretary until the first meeting of the Fed eral Open Market Committee after February 28, the first sentence of 1946, notwithstanding II of the by-laws of the section 2 of article Federal Open Market Committee which provides the Secretary of the Board of Governors that shall be Secretary of the Committee. duly made and seconded, and Upon motion vote, the minutes of the meeting by unanimous Committee held on Federal Open Market of the 20, 1945, were approved. June made and seconded, and Upon motion duly vote, the actions of the execu by unanimous the Federal Open Market Com tive committee of the minutes of the mittee as set forth in committee on June 20, meeting of the executive and confirmed. ratified, were approved, 1945,
Mr. Rouse discussed the important points in a report of open mar ket operations prepared by the Federal Reserve Bank of New York covering the period from June 21, 1945, to October 11, 1945, inclusive. During the meeting copies of the report were distributed. Mr. Rouse also re viewed briefly a supplementary report prepared by the Federal Reserve Bank of New York covering operations during the period October 12-16, 1945, inclusive. Copies of both reports have been placed in the files of the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the transactions in the System account during the period from June 20, 1945, to October 16, 1945, inclusive, were approved, ratified, and confirmed. Mr. McKee referred to the outstanding permissions granted by the Board of Governors to certain member banks to accept drafts and bills of exchange up to 100 per cent of their unimpaired capital and surplus, and inquired whether it would be advisable at this time, when few if any banks had acceptances outstanding in an amount in excess of 50 per cent of their unimpaired capital and surplus, to revoke the outstanding permission and require new applications for authority to accept up to 100 per cent of capital and surplus, which would be considered by the Board on the basis of the surrounding circumstances in each individual case. Mr. Rouse said that the Committee on Bankers' Acceptances of the Presidents' Conference had been studying the question what should be done with respect to bankers' acceptances and the acceptance market and that a submitted to the Presidents' Conference which could also report would be be sent to the Board of Governors.
All of the members of the Federal Open Market Committee and the Presidents of the Federal Reserve Banks were in agreement that the pres ent was an appropriate time to review the whole situation and determine what, if any, action should be taken. In August 1945 Mr. Rouse received a telephone request from Mr. Bell, Under Secretary of the Treasury, that the name of Fiscal Assistant Secretary of the Treasury Bartelt be added to the list receiving the weekly report of open market operations and money market conditions pre pared by the Federal Reserve Bank of New York. Since the Federal Open Market Committee at its meeting on May 15, 1943, decided that the report should be sent only to a restricted list, the request was cleared with Mr. Ransom in the absence of Messrs. Eccles and Sproul, and the name of Mr. Bartelt was added to the list. Upon motion duly made and seconded, and by unanimous vote, the addition of Mr. Bartelt to the list receiving the weekly report was approved, ratified, and confirmed. Chairman Eccles then called for the reports of the Economists and Mr. Goldenweiser stated that, inasmuch as he had been out of the country for approximately three months and was somewhat out of touch with the ex isting situation, he had asked Mr. Thomas to make the principal statement. a statement on Federal Reserve policies in Mr. Thomas presented statement was followed by comments by Messrs. the transition period and his Goldenweiser, John H. Williams, Hardy, and Sienkiewicz. Copies of all of placed in the files of the Federal Open Market the statements have been Committee.
During the course of Mr. Thomas' statement Chairman Eccles left the meeting. Following a general discussion of questions raised by the Econo mists' statements, the meeting recessed and reconvened at 2:15 p.m. with the same attendance as at the beginning of the morning session and, in addition, Mr. Thurston, Assistant to the Chairman of the Board of Gov ernors. Chairman Eccles reviewed the discussions which members of the executive committee had had with representatives of the Treasury since the meeting of the Federal Open Market Committee on June 20, 1945, including the discussions which preceded the submission of the memorandum on Treasury financing which was sent to Secretary Morgenthau on July 9, 1945, and the suggestions that were made to the Secretary of the Treasury by Messrs. Eccles and Sproul on August 22, 1945, with respect to arrange ments to be made and the securities to be offered in connection with the Victory Drive. Chairman Eccles stated that at the meeting of the executive com mittee this morning all of the members of the committee felt that no change could be made in Treasury financing policies or System monetary and credit policies until after the Victory Drive, but that it should be understood that after the Drive the executive committee would continue its discussions with the Treasury on the question of policies which should be adopted for the reconversion and postwar periods. Chairman Eccles also said that he was satisfied that sometime after the Victory Drive was over
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.
Also: Record of Policy Actions·Minutes of the Executive Committee, October 17, 1945