May 20, 1948 FOMC Minutes

FOMC minutes

Therefore, he was inclined to let the market for the long bonds re flect the demand, based on the continuation of the short-term rate, until such time as agreement could be reached to raise the short term rate. During the ensuing discussion Mr. Rouse outlined what had been done during the last few days with respect to offering for sale securities from the System account and Treasury trust accounts. The discussion resulted in an agreement that, if the bond market continued to be strong, the Federal Reserve Bank of New York, acting under the direction to be issued by the executive committee of the Federal Open Market Committee following this meeting, would sell bonds from the System account in such amounts as to resist a rise in prices, it being understood that selling would be accelerated as prices went up without at any time stopping the rise and that if the movement were reversed and the rise were later resumed, selling would be resumed at the lower point and would again follow the rise upward. With respect to the policy to be followed after July 1, 1948, Mr. Szymczak suggested that the full Committee determine what its po committee would be able to would be so that the executive sition It was his view that the full discuss the matter with the Treasury. that, if inflationary pressures should take the position Committee to rise in the should be permitted the short-term rate continued,

market so that when the September refunding was undertaken it would be at a 1-1/4 per cent rate. In a discussion of Mr. Szymczak's suggestion, it was made clear that the question of an increase in the market rate would be discussed with representatives of the Treasury, and that, if the Treasury raised objection, and the inflationary situation continued to justify an increase in the short-term rate, another meeting of the full Committee would be called to consider what the Committee's re sponsibilities were and what action should be taken in the circumstances. At the conclusion of the discussion, upon motion duly made and seconded, it was agreed unanimously that the procedure outlined by Mr. Szymczak and during the ensuing discussion should be followed. In response to an inquiry from Mr. Szymczak as to what fur ther action should be taken by the Committee with respect to a new issue of savings notes, Chairman McCabe suggested that the Committee continue to urge such an offering. duly made and seconded the Upon motion staff was requested to prepare a draft of the Treasury, to be sent with letter to the approval of the members of the execu renewing the suggestion tive committee, issue of savings notes be of that a new fered and that the annual limit of F and G savings bonds for pension fund invest ment be increased from $100,000 to $200,000 or $250,000. be issued to the ex the instructions to In connection with in view of financing operations it was suggested that, ecutive committee

and other factors that would affect the market during the next few months, the existing limitation on the authority to make changes in holdings of the System account was larger than would be needed and that the amount could be reduced to $1.5 billion. Thereupon, upon motion duly made and seconded, and by unanimous vote, the following direction to the execu tive committee was approved, with the understanding that the limitations contained in the direction would in clude commitments for the System open market account: The executive committee is 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 with out replacement), as may be necessary, in the light of situation of the country, for the the general credit practical administration of the account, for the main tenance of stable and orderly conditions in the Govern security market, and for the purpose of relating ment market to the needs of com the supply of funds in the provided that the aggregate amount merce and business; held in the account at the close of this of securities than special short-term certificates of in date other to time for the temporary purchased from time debtedness shall not be increased or accommodation of the Treasury decreased by more than $1,500,000,000. is further directed, until The executive committee Federal Open Market Committee, directed by the otherwise the System open market for the purchase for to arrange of such amounts of from the Treasury account direct of indebtedness as may special short-term certificates temporary accom to time for the from time be necessary the total amount provided that of the Treasury; modation account at any one time held in the of such certificates not exceed $1,500,000,000. shall

It was agreed that the next meeting of the Federal Open Market Committee should be set tentatively for the week of October 4, Thereupon the meeting adjourned, Secretary. Approved: Chairman.