October 3, 1946 FOMC Minutes

FOMC minutes

that it might not be desirable to continue such a program into a period of recession when the emphasis would be placed on spending to maintain employment. In connection with the discussion of the question whether any action should be taken at the present time with respect to the buying rate on Treasury bills, Chairman Eccles stated that while the present retirement program continued there was no need for action on the bill rate but that it should not be continued too long. Mr. Sproul suggested that the present arrangement with respect to bills was working without disturbance to the market and that, as the amount of bills held by the Federal Reserve Banks in creased, the posted rate and repurchase option became less important and more within the control of the Federal Open Market Committee. In the course of a discussion of the steps that might be taken in connection with the elimination of the buying rate on Treasury bills, there were distributed copies of (1) a memorandum prepared by Mr. Kennedy discussing actions that might be taken with respect to Treasury bills, and (2) a memorandum prepared at Bank of New York submitting a plan for elimina the Federal Reserve rate on bills and issuing new bills under an arrange ting the buying the payment for new issues by the surrender ment which would permit issues without preferential allotment on exchange tenders. of maturing

Chairman Eccles raised a question as to the date for the next meeting of the Committee and suggested that, inasmuch as it might be desirable to take action on the posted rate on Treasury bills before the end of the year, it might also be desirable for the Committee to meet in December. In the course of a discussion of actions that might be available to the System in carrying out System credit policies, Chairman Eccles stated that, if the debt retirement program were carried into 1947, the buying rate on Treasury bills were eliminated, and reserve requirements of member banks in central reserve cities were increased to the maximum permitted under existing law, it might be possible to exert such an influence in the money market during the period of threatened inflation that further steps such as those the Board's annual report for 1945 would not be nec referred to in essary. At the conclusion of a discussion, duly made and seconded, it upon motion unanimously (1) that no action was voted be taken at this time to change should the direction issued by the Committee with respect to the on March 1, 1945, bills by the Fed purchase of Treasury and (2) to issue eral Reserve Banks, following direction to the execu the tive committee, with the understanding limit.tions contained in the that the would include commitments direction and sales of securities for purchases the System open market account; for

The executive committee be directed, until other wise 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, replace ment of maturing securities, and letting maturities run off without replacement), as may be necessary in the practical administration of the account or for the pur pose of maintaining an orderly market in Treasury secu rities and a general level of prices and yields of Gov ernment securities which will support the Treasury is suing 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 aggregate amount of secu rities held in the account at the close of this date [other than (1) bills purchased outright in the market on a discount bsis at the rate of 3/8 per cent per annum and bills redeemed at maturity end (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 direct from the Treasury of such amounts of special short-term certificates of indebted ness as may be necessary from time to time for the temporary accomodation 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. Chairman Eccles reviewed for the information of the members committee the discussion at the meeting of the executive of the full with the questions presented in committee this morning in connection staff group on foreign interests under the memorandum prepared by the relationships of the Federal Re of May 1, 1946, with respect to date It was stated that to the Bretton Woods institutions. serve System to recommend to the full committee the executive committee had voted

that it authorize direct transactions in Government securities for the System open market account with the International Monetary Fund and International Bank for Reconstruction and Development, for the purposes stated in the memorandum from the staff group, without fol lowing the usual procedure of effecting transactions in the market, and that the memorandum of the staff group be placed on the agenda for consideration at the next meeting of the full committee. After discussion, upon motion duly made and seconded, and by unanimous vote, the recommendation of the executive com mittee was approved. There was a further reference to the time of the next meeting of the Federal Open Market Committee and the members of the Committee in a suggestion by Chairman Eccles that the date for the concurred week of December 9, 1946, with be set tentatively for the meeting the executive committee, not later than the understanding that if a meeting need not be held in 15, 1946, should feel that November would be advised accord of the full Committee December, the members until after the first of meeting would not be held ingly and the next year. Thereupon the meeting adjourned. Approved: Secretary Chairman.