March 1, 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 Friday, March 1, 1946, at 10:10 a.m. PRESENT: Mr. Eccles, Chairman Mr. Sproul, Vice Chairman Mr. Szymczak Mr. McKee Mr. Ransom Mr. Draper Mr. Evans Mr. Leach Mr. McLarin Mr. Young Mr. Clerk Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Thomas and Mr. John H. Williams, Associate Economists Mr. Rouse, Manager of the System Open Market Account Mr. Thurston, Assistant to the Chairman of the Board of Governors Messrs. Piser and Kennedy, Chief and Assistant 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. Whittemore, Gidney, Davis, and Peyton, alternate members of the Federal Open Market Committee Messrs. Alfred H. Williams, Leedy and Gilbert, Presidents of the Federal Reserve Banks of Philadelphia, Kansas City, and Dallas, re spectively. The Secretary reported that advices of the election for a period 1, 1946, of members and alternate me bers of one year commencing March m
of the Federal Open Market Committee representing the Federal Reserve Banks had been received, that each newly elected member and alternate member had executed the required oath of office, and that it was the opinion of the Committee's counsel on the basis of the advices received that the following members and alternate members were legally qualified to serve: Allan Sproul, President of the Federal Reserve Bank of New York, with L. R. Rounds, First Vice President of the Federal Reserve Bank of New York, as alter nate member; Hugh Leach, President of the Federal Reserve Bank of Richmond, with Laurence F. Whittemore, President of the Federal Reserve Bank of Boston, as alternate member; C. S. Young, President of the Federal Reserve Bank of Chicago, with Ray M. Gidney, President of the Fed eral Reserve Bank of Cleveland, as alternate member; W. S. McLarin, Jr., President of the Federal Reserve Bank of Atlanta, with Chester C. Davis, President of the Federal Reserve Bank of St. Louis, as alternate mem ber; and Ira Clerk, President of the Federal Reserve Bank of San Francisco, with J. N. Peyton, President of the Fed eral Reserve Bank of Minneapolis, as alternate mem ber. Upon motions duly made and seconded, and by unanimous votes, the following officers of the Federal Open Market Committee were elected to serve until the election of their successors first meeting of the Committee after at the February 28, 1947, with the understanding that in the event of discontinuance of their official Board or a Federal Reserve connection with the be, they would cease to Bank, as the case might connection with the Federal have any official In connection with the Open Market Committee. Mr. Morrill it was agreed unani election of mously that the by-laws of the Federal Open Committee, which provide that the Market
Secretary of the Board of Governors shall be Secretary of the Committee, should not be changed, but that Mr. Morrill should con tinue to serve as Secretary notwithstanding the applicable provision of the by-laws: Marriner S. Eccles, Chairman Allan Sproul, Vice Chairman Chester Morrill, Secretary S. R. Carpenter, Assistant Secretary Woodlief Thomas, Economist E. A. Kincaid, John K. Langum, Earle L. Rauber, 0. P. Wheeler, and John H. Williams, Associate Economists George B. Vest, General Counsel J. Leonard Townsend, Assistant General Counsel Mr. Vest entered the meeting at this point. Upon motion duly made and seconded, and by unanimous vote, the Federal Reserve Bank of New York was selected to execute trans actions for the System open market account until the adjournment of the first meeting of the Committee after February 28, 1947. Mr. Sproul stated that the board of directors of the Federal Reserve Bank of New York had selected Mr. Rouse as Manager of the System of the Federal Reserve Bank Account, subject to the selection Open Market as the Bank to execute Federal Open Market Committee of New York by the the System account and his approval by the Federal Open transactions for Market Committee. Upon motion duly made and seconded, and of Mr. Rouse vote, the selection by unanimous Manager of the System Open Market Account as was approved.
Upon motions duly made and seconded, and by unanimous votes, the following were selected to serve with the Chairman of the Federal Open Market Committee (who, under the provisions of the by-laws, is also Chairman of the executive committee) as members and alternate members of the executive committee until the selection of their successors at the first meeting of the Federal Open Market Committee after February 28, 1947, except that Mr. McKee was selected to serve as an alternate only during the period in which he continued to serve as a member of the Board of Governors; and his successor, effective as of the date he qualifies as a member of the Board, was appointed to serve in the position of alternate in the place of Mr. McKee: Members Alternate Members Ernest G. Draper M. S. Szymczak M. Evans John K. McKee R. Ronald Ransom (To serve in the order named as alternates for Messrs. Eccles, Draper, and Evans, ex cept that, in the absence of Chairman Eccles, Mr. Ransom would serve as the first alter nate.) W. S. McLarin, Jr. C. S. Young and Allan Sproul in the order named as (To serve Hugh Leach alternates for Messrs. Sproul and Leach.) of the Federal the Board of Directors Consultant to Mr. Flanders, the Federal Reserve President of Mr. Hardy, Vice Bank of Boston, Reserve Department, Federal Manager, Research City, Mr. Hostetler, Bank of Kansas Federal Reserve Vice President, Mr. Sienkiewicz, Bank of Cleveland, Reserve Federal Reserve of Research, Mr. Irons, Director Bank of Philadelphia, of Research and Director, Division Mr. Morse, Assistant Bank of Dallas,
Statistics, Board of Governors, and Mr. Townsend, Assistant General Counsel, joined the meeting at this point. Chairman Eccles then called for the reports of the economists and, at Mr. Thomas' request, Mr. Hardy summarized the observations in his paper "Prospects for Inflation in the Transition Period" which is to be included in the postwar economic studies being published by the Board of Governors. His statement was followed by comments by Messrs. Thomas and John H. Williams. Summaries of these two statements are at tached and copies have been placed in the files of the Federal Open Mar ket Committee. Following a brief discussion of some of the problems presented by the economists, particularly with respect to production, prices, and wages, their effect on the economy, and the policies that should be adopted with respect to them, the meeting recessed and reconvened at 2:10 p.m., with the same attendance as at the beginning of the morning session except that Messrs. Davis and Peyton were not present and Messrs. Vest and Townsend were in attendance. Reference was made to the resolution adopted by the Federal Open Market Committee on November 20, 1936, authorizing the Federal Reserve Banks, subject to the provisions of Section 14 of the Federal Reserve Act, as amended, and the regulations, conditions, and limitations of the Board of Governors prescribed thereunder, but without further direction from the Federal Open Market Committee, to purchase and or authorization
sell at home or abroad cable transfers, and bills of exchange and bankers' acceptances payable in foreign currencies, to the extent that such pur chases and sales might be deemed to be necessary or advisable in connec tion with the establishment, maintenance, operation, increase, reduction, or discontinuance of accounts of Federal Reserve Banks in foreign coun tries. As stated at the meeting of the Committee on March 1, 1945, when this resolution was last considered, the purpose of this action was to simplify the procedure in connection with the handling of accounts with foreign central banks which were subject to special supervision by the Board of Governors of the Federal Reserve System under Section 14 of the Federal Reserve Act. Mr. Sproul stated that this authority permitted purchases and sales necessary to the maintenance of four accounts which the Federal Reserve Bank of New York had with the Bank of Canada, the Bank of England, and the Bank for International Settlements, that the the Bank of France, accounts were relatively very small, that the need for amounts in these still existed, and that if it were dis the continuation of the authority to obtain specific approval of the Federal continued it would be necessary in the management of of small transactions executed Open Market Committee the accounts. agreement that no There was unanimous with respect to the action should be taken resolution at this time. reachedat the meeting of was also made to the decision Reference
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.
Also: Record of Policy Actions·Minutes of the Executive Committee, March 1, 1946