June 5–6, 1947 FOMC Minutes

FOMC minutes

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; provided that the amount of such certificates held in the account at any one time shall not exceed $1,500,000,000. There was a discussion of the time for the next meeting of the Federal Open Market Committee and it was tentatively agreed that the meeting should be held on October 2 and 3, 1947. The meeting then recessed and reconvened at 10:00 a.m. on Friday, June 6, 1947, with the same attendance as at the earlier session except that Mr. Townsend, Assistant General Counsel, Messrs. Neal, John H. Williams, and Thompson, Associate Economists, Mr. Parry, Director of the Division of Security Loans of the Board of Governors, and Messrs. Ralph A. Young and Morse, Assistant Directors of the Division of Research and Statistics of the Board of Governors, were also present. called for the reports of the economists and Mr. Chairman Eccles Thomas asked that Mr. Neal give the first report covering prospects for and trade. This report was followed by a dis the future in industry McCracken, a report on the agricultural outlook by Mr. cussion of the Mr. Thompson, and a statement by Mr. Stead with real estate situation by respect to employment, wages, and labor-management relations. been placed in the statements have Copies of the economists' files of the Federal Open Market Committee. painted by the four statements Thomas stated that the picture Mr. condition that the the kind of was one of inflation, of the economists

System, in considering proper fiscal and monetary policies during the war, had sought to avoid. Because of the termination of controls, he said, inflation had developed although it was not nearly as serious as it might have been if certain policies of control had not been adopted. He added that, although there were differences of opinion as to the causes of inflation, it was important to recognize that the alleged causes, such as high prices, price support activities, demands of labor, wage policies of the Government, high profit margins in the building industry, etc., were the results as well as causes and none of them would have caused the rise in prices that had taken place if it had not been for the war and the resulting shortages of goods. He also said that the question was what should be done about the existing situation, and that while it appeared that the country was approaching or had passed the peak of inflation the downturn was not evident enough at this time to justify concern about bolstering the economy against a recession. It was his opinion that throughout the war and postwar period there had been too many fears of postwar deflation, with the result that actions which should have been taken to counteract inflation were not taken, because of the fear that they would result in contraction, and that, although any downturn should be taken care of at the proper time, the important thing at the moment was to stop abnormal pressures on the inflationary side. Mr. John H. Williams shared Mr. Thomas' view, stating that this was a time when a "hands-off" policy might be pursued and that the coun try had become so fearful of deflation during the 30's that there was a tendency to adopt measures to shore up the economy whenever there was an

indication of contraction. He referred to the suggestion that national income should not be permitted to go down too fast, as the decline might get out of hand. He felt that this situation would not occur because, for one reason, the business community was never as aware of the nature of this problem as it was at the present time, and that there was a great deal of available buying power and of unfilled demand particularly for durable goods and it would not take a very substantial correction in the situation to make that demand effective. He thought that there would and should be a mild recession which would be corrective in nature and would set the stage for a long period of balanced prosperity. He made the further comment that many people were concerned about the foreign picture and how it might affect the economy of this country, but that we were faced with a similar situation following the First World War which was largely cleared up and followed by a period of prosperity. foreign situation probably would continue to It was his opinion that the for some time to come. He was very be a sustaining factor in our economy the British and German situation but he did not much concerned about its entirety would constitute a de think that the foreign picture in the economy of this country was concerned flationary factor as far as United States would be called upon to supply goods and because the which would help the economy in abroad for a long time to come services a period of adjustment. Mr. Rouse presented a supplementary which has been placed report (a copy of operations in the in the files) covering on June 4 and System open market account

5, 1947, and, upon motion duly made and seconded, and by unanimous vote, these transactions were approved, ratified, and confirmed. Thereupon the meeting adjourned. Secretary, Approved: Chairman.