February 28, 1946 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 Washington on Thursday, February 28, 1946, at 10:30 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 Messrs. Hardy, 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 Assistant Chief, respectively, of the Government Securities Section, Division of Research and Statistics of the Board of Governors Connell, General Assistant, Office Mr. of the Secretary of the Board of Governors McLarin, alternate mem Messrs. Young and Open Market Committee bers of the Federal Davis, Peyton, and Clerk, Presidents Messrs. Leach, of the Federal Reserve Banks of Richmond, St. and San Francisco, re Louis, Minneapolis, spectively
Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Com mittee held on October 17, 1945, were approved. Upon motion duly made and seconded and by unanimous vote, the actions of the executive committee of the Federal Open Market Committee as set forth in the min utes of the meetings of the executive com mittee on October 17 and December 5, 1945, and January 23, 1946, were approved, rati fied, and confirmed, Mr. Rouse discussed the important points in the report of open market operations, prepared by the Federal Reserve Bank of New York, covering the period from October 18, 1945, to February 23, 1946, inclusive. Copies of the report were distributed during the meeting. Mr. Rouse also reviewed briefly a supplemental report prepared by the Federal Reserve Bank of New York covering operations during the period February 25-27, 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 account during the period from the System October 18, 1945, to February 27, 1946, were approved, ratified and inclusive, confirmed. Mr. McKee as to the possible to an inquiry from In response and credit situation during 1946 of effects on the domestic monetary liquid funds in the hands of foreigners spending in this country of the Chairman Eccles the United States, foreign loans by the proceeds of and in the Interrespect to membership situation with outlined the present
national Monetary Fund and the International Bank for Reconstruction and Development and the plans for the meeting in connection with the organization of the Fund and the Bank to be held in Savannah, Georgia, next month. He also referred to the hearings which were to begin on March 5, 1946, on the British loan and stated that the prospects for the approval of the loan by Congress were improving. While the British loan was essential to the successful establishment of the Bretton Woods organizations, he thought that the effects of the loan on the domestic situation would not be very great as it would not involve immediate purchases of goods in this country and the funds would be spent over a period of years. He also said that there had recently been prepared by the Board's staff a statement entitled "Repercussions on Reserve System of Bretton Woods Institutions", and that copies of the memorandum would be given to the Presidents of all of the Reserve Banks. Copies of the memorandum were distributed during the meeting and a copy has been placed in the files of the Federal Open Market Committee. Chairman Eccles went on to say that it was expected that a re port prepared by the National Advisory Council with respect to foreign credits other than the British loan would be submitted by the President shortly. He added that the report would indicate to Congress that the additional loans contemplated would be comparatively small in total amount through the fiscal year 1947 and that the loans would be made through of the loans, he said, would be small the Import-Export Bank. The total so far as their effect on the domestic picture was concerned, and gold imports and foreign credits made available by the International Bank
probably would be of much greater importance in their effect on our monetary and credit situation. In a further comment, Chairman Eccles said that another factor that might become of some importance in our market was the freedom with which foreign balances could be transferred between the Federal Reserve Banks and private banks, that this could be a disturbing element in carrying out the System's credit policies, that with the closer relation ships with foreign central banks that might follow the establishment of the Bretton Woods organizations it might be possible to solve this prob lem, and that he did not think there should be any request for legislation until the results of the operations under the Bretton Woods organizations could be determined. Before this meeting each member of the Committee had received a copy of the report of examination submitted by the examiner in charge of Governors covering the examination of the System open for the Board as of November 17, 1945, made in connection with the reg market account of the Federal Reserve Bank of New York. The report ular examination contained no criticisms or recommendations: Upon motion duly made and seconded, vote, the report was re and by unanimous ceived and ordered filed. which had the matters Sproul reviewed Eccles and Mr. Chairman meeting of the since the last executive committee by the been discussed of the Treas with the Secretary as the discussion as well full Committee there was at which time 30, 1946, on January of his staff ury and members
submitted to the Treasury a memorandum which, while not adopted by the executive committee, could be used as a basis for discussion and which set forth a four-point program providing for (1) the elimination of the preferential discount rate, (2) reduction in the volume of outstanding Treasury bills and the discontinuance of the posted rate, (3) a program over the next few months for the retirement of public debt, and (4) legislation to require banks to hold specified amounts of short-term Government securities. Chairman Eccles read the memorandum above referred to and there was discussion of the proposals contained therein, during which Mr. Sproul made a statement of the extent to which he had been in disagree ment with the proposals. alternate member of the Committee, joined the Mr. Flanders, an me ting during the discussion. memorandum prepared by Mr. Vest as Chairman Eccles referred to a under date of January 23, 1946, with re General Attorney for the Board of the System in the credit to the independent responsibilities spect but that the System did have that there was no question field and stated It was the Chairman's opinion for independent action. a responsibility with the existing situation ample authority to deal that the System had but that in view of the vastly which would increase rates, by actions which were not con at the present time different conditions existing by the System to increase was given, action templated when the authority the Board of Governors He felt that be entirely unjustified. rates would
as the agent of Congress had no other choice than to report to the Congress that the powers of the System were inadequate to cope with the other than by an increase in rates, and what the existing situation, alternatives might be. There was a further discussion of certain of the matters re Sproul in their views, after which the ferred to by Messrs. Eccles and meeting adjourned. Secretary Approved: Chairman.
Also: Minutes of the Executive Committee, December 5, 1945·Minutes of the Executive Committee, January 23, 1946·Minutes of the Executive Committee, February 28, 1946