March 1, 1947 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 Saturday, March 1, 1947, at 10:10 a.m. PRESENT: Mr. Eccles, Chairman Mr. Sproul, Vice Chairman Mr. Draper Mr. Evans Mr. Vardaman Mr. Clayton Mr. Whittemore Mr. Gidney Mr. Davis Mr. Peyton Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Thomas, Economist Mr. Vest, General Counsel Mr. Rouse, Manager of the System Open Market Account Mr. John H. Williams, Associate Economist Mr. Sherman, Assistant Secretary to the Board of Governors Mr. Musgrave, Chief, and Mr. Smith, Economist, Government Finance Section, Division of Research and Statistics of the Board of Governors Messrs. Alfred H. Williams and Gilbert, alternate members of the Federal Open Market Committee Mr. Stead, Vice President of the Federal Reserve Bank of St. Louis The Secretary reported that advices of the election for a period of one year commencing March 1, 1947, of members and alter nate members 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 of fice, 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 alternate member; Laurence F. Whittemore, President of the Federal Reserve Bank of Boston, with Alfred H. Williams, President of the Federal Reserve Bank of Philadelphia, as alternate member; Ray M. Gidney, President of the Federal Reserve Bank of Cleveland, with C. S. Young, President of the Federal Reserve Bank of Chicago, as alternate member; Chester C. Davis, President of the Federal Reserve Bank of St. Louis, with R. R. Gilbert, President of the Federal of Dallas, as alternate member; and Reserve Bank of the Federal Reserve Bank of J. N. Peyton, President with H. G. Leedy, President of the Federal Minneapolis, City, as alternate member. Reserve Bank of Kansas made and seconded, and Upon motion duly the following officers of by unanimous votes, Committee were elected the Federal Open Market the election of their successors to serve until of the Committee after at the first meeting the understanding that February 29, 1948, with discontinuance of their in the event of the Board or a Federal connection with the official case might be, they would Reserve Bank, as the with the any official connection cease to have In connection Open Market Committee. Federal Morrill, it was agreed the election of Mr. with of the Federal Open unanimously that the bylaws that the Secretary which provide Market Committee be Secretary of of Governors shall of the Board but that Mr. not be changed, Committee should the to serve as Secretary should continue Morrill of the provision the applicable notwithstanding bylaws
Marriner S. Eccles, Chairman Allan Sproul, Vice Chairman Chester Morrill, Secretary S. R. Carpenter, Assistant Secretary Woodlief Thomas, Economist John H. Williams, Alfred C. Neal, Donald S. Thompson, William H. Stead, and Paul W. McCracken, Associate Economists George B. Vest, General Counsel J. Leonard Townsend, Assistant Gen eral Counsel Upon motion duly made and seconded, and by unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System open market account until the adjournment of the first meeting of the Committee after February 29, 1948. Mr. Sproul stated that the Board of Directors of the Federal Reserve Bank of New York had selected Mr. Rouse as Manager of the Sys tem Open Market Account, subject to the selection of the Federal Re York by the Federal Open Market Committee as the serve Bank of New execute transactions for the System account and his approval Bank to by the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the selection of Mr. Rouse as Manager of the System Open Market Account was approved. Upon motion duly made and seconded, and by unanimous votes the following were to serve with the Chairman of selected the Federal Open Market Committee (who, under the provisions of the bylaws, 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 29, 1948: Members Alternate Members Ernest G. Draper M. S. Szymczak James K. Vardaman, Jr. Lawrence Clayton R. M. Evans (To serve in the order named as alternates for Messrs. Eccles, Draper, and Vardaman, except that upon Mr. Ransom's return, he will serve as the first alternate in the absence of Chairman Eccles and as the third alter nate in the absence of Messrs. Draper and Vardaman.) Allan Sproul Ray M. Gidney Chester C. Davis J. N. Peyton (To serve in the order named as alternates for Messrs. Sproul and Davis.) Mr. Carpenter stated that the existing authority for distri bution of the weekly open market report prepared by the Federal Re serve Bank of New York did not include Mr. Roelse, as Vice President in charge of the Research Department, and that it was suggested that the authority be changed to include that position. In accordance with this suggestion, upon motion duly made and seconded, and by unanimous vote, the distribution of the to the following was approved: weekly report 1. The members of the Board of Governors.
2. The Presidents of the 12 Federal Reserve Banks. 3. The Secretary, the Economist, and the Associate Economists of the Federal Open Market Committee. 4. The Secretary of the Treasury. 5. The Under Secretary of the Treasury. 6. The Fiscal Assistant Secretary of the Treasury. 7. The Chief of the Division of Bank Operations of the Board of Governors. 8. Mr. Rounds, alternate member of the Federal Open Market Committee; the Assistant Vice President of the Federal Reserve Bank of New York working under the Manager of the System Account; the Manager of the Securities Department of the New York Bank; the Vice President in charge, and the Manager, of the Research Department of the New York Bank; and the confidential files of the New York Bank as agent for the Federal Open Market Committee. 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 Fed eral Reserve Act as amended and the regulations, conditions, and limitations of the Board of Governors prescribed thereunder, but without further direction or authorization from the Federal Open to purchase and sell at home or abroad cable trans Market Committee, bankers' acceptances payable in for fers and bills of exchange and that such purchases and sales might eign currencies to the extent in connection with the es to be necessary or advisable be deemed increase, reduction, or dis maintenance, operation, tablishment, Banks in foreign coun accounts of Federal Reserve continuance of of the Committee on March 1, 1946, tries. As stated at the meeting
when this resolution was last considered, the purpose of this action was to simplify the procedure in connection with the handling of ac counts with foreign central banks which were subject to special super vision by the Board of Governors of the Federal Reserve System under section 14 of the Federal Reserve Act, Mr. Sproul stated that accounts were maintained by the Fed eral Reserve Bank with the Bank of Canada, the Bank of England, and the Bank of France, that the amounts in these three accounts were relatively very small, totaling at present about $102,000, and that the need for continuance of the authority which would permit pur chases and sales necessary to the maintenance of these accounts still existed, unless it was desired that specific approval of the Federal Open Market Committee be obtained covering small transactions exe cuted in the management of the accounts. There was unanimous agreement that no action should be taken with respect to the resolution at this time. read an excerpt from the minutes of the meet Mr. Carpenter November 30, 1937, in which it was stated ing of the Committee on by Federal Reserve Banks in settle that since securities acquired would be so small as to be un ment of claims account closed banks credit control, the Committee would important from the standpoint of holding such securities Reserve Banks no objection to Federal interpose
or to the sale of such securities whenever deemed to be desirable by the holding Bank. Chairman Eccles asked whether there was any need for contin uing the authority or whether it would be better to allow it to lapse and, if conditions arose which might make such authority desirable again, to consider the question at that time. Mr. Gidney stated that the conditions had not changed since consideration was given to termination of the authority on March 1, 1946, that it had not been used for a considerable period of time, that its use was not anticipated, but that if a condition arose where the use of such authority might be desirable, the necessity for quick action to protect the interests of a Federal Reserve Bank would make it desirable to have the authority in effect. It was agreed unanimously that no action should be taken at this time to terminate or amend the authority. There were then distributed copies of a memorandum dated Feb ruary 25, 1947, on the outlook for the debt retirement program. It appeared from the information contained in the memorandum that a sub stantial Treasury balance would be available for continuing the debt retirement program during April and perhaps during June and July, and there was a discussion of the recommendation to be made to the Treas request for the Committee's views in ury upon receipt of the usual
connection with the certificates maturing on April 1. Consideration was given to the suggestion that the Treasury retire $1.5 billion of the April 1 maturity and whether anything should be said at this time with respect to retirements in June and July. It was the consensus that because of the uncertainty regarding Treasury balances the Com mittee should recommend the retirement of only $1 billion of the April maturities and that recommendations with respect to June and July ma turities should be deferred until later when it would be apparent wheth er the high level of Treasury receipts was being maintained. At the conclusion of the discussion, upon motion duly made and seconded, and by unanimous vote, it was agreed that upon receipt of the usual request from Mr. Bartelt, the following letter should be sent to the Secretary of the Treasury: "In response to Mr. Bartelt's request, I am transmit ting to you the recommendations of the Federal Open Market Committee with respect to April financing. The Committee recommends that one billion dollars of April 1 certificates be retired, in order to continue the program of orderly debt reduction which has been so successfully followed in the recent past, and to obtain the modest interest saving in volved. "Because receipts have been and appear likely to be had been expected, it is now esti considerably higher than at the end of March will be mated that the Treasury balance the 800 million of free over 5 billion dollars, including It is also from Monetary Fund transactions. gold derived the end of April will be at that the balance at estimated of April 1 certifi assuming one billion least 3.8 billion, than 3 billion on and will not be less cates are retired, excess of expenditures during June 30 despite the expected the last quarter of the fiscal year.
"It will be possible to finance the March 15 and the proposed April 1 retirements out of the Treasury balances with the Federal Reserve Banks plus a call on war loan deposits of 500 to 800 million dollars on March 15. A call of approximately this amount at this time would be desirable to reduce the easing of the money market that will result from the March 15 payment of maturing notes." In connection with the direction issued by the Federal Open Market Committee on March 1, 1945, with respect to purchases and sales of bills by the Federal Reserve Banks, Chairman Eccles stated that it did not appear that there was any action to be taken toward changing the direction until the question of future policy with re spect to Treasury bills had been more fully determined. Upon motion duly made and seconded, and by unanimous vote, it was agreed that no action should be taken at this time to change the direction issued at the meeting of the Federal Open Market Committee on March 1, 1945, with respect to the purchase of Treasury bills by the twelve Federal Reserve Banks. be granted to the ex the authority to In connection with the System open market transactions for committee to execute ecutive somewhat reduced size that because of the account, it was suggested program for the retire connection with the operations in of Treasury of the ex limitation on the authority the public debt, the ment of amount of securi the total increase or decrease committee to ecutive instead fixed at $1,500,000,000 should be the System account ties in of $2,000,000,000.
Thereupon, upon motion duly made and seconded and by unanimous vote, the fol lowing direction to the executive committee was approved, with the understanding that the limitations contained in the direction would include commitments for purchases and sales of securities for the System open mar ket account: The executive committee be directed, until otherwise 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, replacement of maturing securities, and letting maturities run off without replacement), as may be necessary in the practical adminis tration of the account or for the purpose of maintaining an orderly market in Treasury securities 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 re stricted as to ownership; provided that the aggregate amount of securities held in the account at the close of this date outright in the market on a [other than (1) bills purchased discount basis at the rate of 3/8 per cent per annum and bills redeemed at maturity and (2) special short-term cer tificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury] shall not be increased or decreased by more than $1,500,000,000. That the executive committee be further directed, until otherwise directed by the Federal Open Market Committee, to for the purchase for the System open market account arrange the Treasury of such amounts of special short direct from of indebtedness as may be necessary from term certificates for the temporary accommodation of the Treasury; time to time certificates held in the ac provided that the amount of such count at any one time shall not exceed $1,500,000,000. meeting of the Federal agreed that the next It was tentatively during the week beginning June 2, Open Market Committee would be held
Thereupon the meeting adjourned. Secretary. Approved. Chairman.
Also: Record of Policy Actions·Minutes of the Executive Committee, March 1, 1947