March 1, 1946 FOMC Minutes

FOMC minutes

the Committee on November 30, 1937, that, since securities acquired by Federal Reserve Banks in settlement of claims account closed banks would be so small as to be unimportant from the standpoint of credit control, the Committee would interpose no objection to Federal Reserve Banks hold ing such securities or to the sale of such securities whenever deemed to be advisable by the holding bank. At the meeting of the Committee on March 1, 1945, considera tion was given to the termintion of the authority inasmuch as it had not been used for a considerable period. At that time Mr. Gidney expressed the opinion that the authority should be continued as none of the Federal Reserve Banks could foresee when they might be called upon to use it in connection with securities held as collateral for advances to a member bank which had become insolvent. At this meeting Mr. Gidney said that he continued to be of the same opinion. It was agreed unanimously that no action should be taken at this time to terminate or amend the authority. a discussion of credit policy and the policies of the Turning to debt, Chairman Eccles stated that Treasury with respect to the Government between the nature of the discus it would be difficult to distinguish representatives of the Treasury with sions that had already been had with which might be held in the future policy and the discussions respect to program that had in mind the however, that, having future. He felt, near

been proposed in connection with the retirement of the public debt over the next few months, consideration might be given to what should be done iith respect to the preferential discount rate of 1/2 per cent now in ef fect at the Federal Reserve Banks and the rate of 3/8 per cent at which the Federal Reserve Banks buy Treasury bills. It was his view that it would be preferable to withhold action on these matters until a decision was made by the Treasury on the amount of certificates maturing in April that were to be retired, as the possible effects of the elimination of the two rates at this time were not as important as the continuation of the program of retirement of the Government debt under which from one to two billion dollars of April certificates would be paid off. It was the general consensus that informal consideration should be given by the Presidents and the Board of Governors, as such, to the action that should be taken on the preferential discount rate and the meeting recessed for that purpose. Following the informal discussion of the Presidents and the mem of the Federal Open Market Committee re bers of the Board the meeting purpose of considering the action to be taken with re convened for the 3/8 per cent on Treasury bills. spect to the rate of of the Presidents and of the informal discussion A memorandum in the files of the Board of Governors. the Board has been placed that no immediate action It being understood upon with respect to the elimination had been decided discount rate, there was unanimous of the preferential action should be taken at this time agreement that no

to change the direction issued to the Federal Reserve Banks at the meeting of the Federal Open Market Com mittee on March 1, 1945, relating to the purchase by the Banks of Treasury bills. It was also agreed that, as was understood at the meeting of the Federal Open Market Committee on October 17, 1945, the executive committee would continue to have such discussions with represent atives of the Treasury as conditions might require on questions as to policies that should be adopted for the future. In connection with the authority to be granted to the execu tive committee to execute transactions for the System open market account, Chairman Eccles suggested that, in view of the large transactions that would take place in the account arising from the needs for reserve funds in connection with the program for retirement of the public debt and the redemption of securities in the System account, the limitation on the authority to the executive committee to increase or decrease the total amount of securities in the System account should be fixed at $3 billion instead of $2 billion. Thereupon, upon motion duly made and seconded, and by unanimous vote, the following direction to the executive committee was ap proved, with the understanding that the limita tions contained in the direction would include commitments for purchases and sales of securi ties for the System account: be directed, until otherwise di The executive committee Market Committee, to arrange for rected by the Federal Open System open market account, either such transactions for the directly with the Treasury (including in the open market or of maturing securi sales, exchanges, replacement purchases, run off without replacement), as ties, and letting maturities administration of the ac be necessary in the practical may about the present the purpose of maintaining count, or for

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 securi ties 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 (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 $3,000,000,000. 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 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; pro vided that the amount of such certificates held in the account at any one time shall not exceed $1,500,000,000. Mr. McLarin stated that he still felt that, for the reasons which he gave at the meeting of the Federal Open Market Committee on March 1, 1945, the Reserve Banks should have authority to maintain a Government securities to enable the Banks to pur small portfolio of directly from, and sell securities directly to, the chase securities proper time he would like to member banks, and that at the smaller discussion by the Committee. the matter up for further bring next meeting of the agreed that the It was tentatively be held during the week beginning Open Market Committee would Federal June 3, 1946. the meeting adjourned. Thereupon Secretary. Approved: Chairman.