June 10, 1946 FOMC Minutes

FOMC minutes

After some further discussion, Chairman Eccles stated that the Presidents had received copies of the correspondence with the Treasury since the last meeting of the Federal Open Market Committee with re spect to the elimination of the preferential discount rate, the retire ment of Government debt, and the authority granted by the Treasury to commercial banks to hold a limited amount of restricted issues for trading purposes, and that there were no other developments with re spect to these matters since the last meeting that should be reported at this time. Consideration was then given to what if any action should be taken with respect to the direction issued at the meeting of the Commit tee on March 1, 1945, relating to the purchase of Treasury bills at a discount rate of 3/8 per cent per annum. Chairman Eccles expressed the belief that the direction should be continued for the time being but that, inasmuch as bills had ceased to be a market instrument, the dis continuance of the direction might be discussed with the Treasury when the current program for retirement of debt had been completed, at which be worked out which would avoid the neces time he hoped a program could the weekly offering of bills which were taken from the dealers sity for by the Federal Reserve Banks. the market for bills had Sproul inquired whether, since Mr. would be any point in eliminating the buying almost disappeared, there and raising the question of direct financing rate and repurchase option This point was discussed and Treasury by the central banks. of the

Mr. Gilbert raised the question whether it would be desirable to dis continue the option on the part of sellers of bills to repurchase bills at the same discount rate. In the discussion of this point it was the consensus that the existing direction should be continued in its pres ent form until it was eliminated altogether. Thereupon, it was agreed unanimously that no action should be taken at this time to change the direction issued by the Committee on March 1, In a discussion of the authority to be granted to the executive committee to execute transactions for the System account, it was sug gested that, in view of the change which had taken place in the policy with respect to the maintenance of market prices, the pertinent portion of the direction issued to the executive committee should be changed so as to authorize such transactions for the System account as might be necessary for the purpose of maintaining an orderly market in Treasury securities and a general level of prices and yields of Government secu rities which would support the Treasury issuing rates of 7/8 per cent for one-year certificates and 2-1/2 per cent for 27-year bonds re stricted as to ownership. Mr. Rouse stated that, while the operations in the account be of the Committee including redemption of securities fore another meeting it was believed that a limitation of being retired would be substantial, committee to in of the executive dollars on the authority 2 billion in the account would total amount of securities crease or decrease the

be adequate to meet the situation, assuming that the next meeting would be held in September. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was ap proved unanimously, with the under standing that the limitations contained in the direction would include commit ments for purchases and sales of securities for the System account: The executive committee be directed, until otherwise di rected 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 pur chases, 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 an orderly market in Treasury securi ties and a general level of prices and yields of Government securities which will support the Treasury issuing rates of 7/8 per cent for one-year certificates and 2-1/2 per cent for 27 year bonds restricted as to ownership; provided that the aggre gate amount of securities 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 certifi cates of indebtedness purchased from time to time for the of the Treasury] shall not be increased temporary accommodation or decreased by more than $2,000000,00,0. That the executive committee be further directed, until otherwise directed by the Federal Open Market Committee, to ar purchase for the System open market account direct range for the of such amounts of special short-term certifi from the Treasury be necessary from time to time for cates of indebtedness as may the Treasury; provided that the the temporary accommodation of in the account at any one time amount of such certificates held shall not exceed $1,500,000,000. Treasury had been giving consid Eccles stated that the Chairman 6-months coupon on Treas of eliminating the eration to the desirability time of redemption. If the interest at the ury certificates and paying

this change were made, he said, there would be no change in the 7/8 per cent rate, although it was recognized that it would reduce the yield slightly, but it would eliminate a great deal of unnecessary work and expense in issuing the coupon certificate and paying the coupon when it became due. All of the members of the Committee concurred in the opinion that the change would be a desirable one. It was also suggested that it would be desirable for the Treas ury to provide for a one million dollar denomination in all issues of Government securities and Mr. Kennedy stated that that was being done. Turning to the date for the next meeting of the Federal Open Market Committee, Mr. Sproul stated that the annual convention of the American Bankers Association would be held in Chicago on September 22-25, that some of the Presidents would like to attend the Convention, and that it had been suggested that, in the absence of developments calling for earlier meetings, the meetings of the Presidents' Conference and the Federal Open Market Committee be held following September 25. There was agreement that the date for the next meeting of the Federal Open Market Committee should be set tentatively for Thursday, October 3. Thereupon the meeting adjourned. Secretary. Approv Chairman.