March 1, 1949 FOMC Minutes

FOMC minutes

Mr. Clayton stated that, while a good case could be made for an increase in the short-term rate from the standpoint of monetary and credit policy, he was convinced that, in view of the cessation of credit expansion and the growing opinion that the economy might be facing a depression, there would be no favorable response to a pro posal to increase the short-term rate. Mr. Eccles stated that in connection with the June refunding consideration might be given to an offering at rates which would per mit the new issues to be sold at a premium so that they would not de cline below par if, at a subsequent date, the short-term rate were in creased. suggested that, when he and Mr. Sproul met with Chairman McCabe they take the position that had been taken once Secretary Snyder again, would not urge an increase in the or twice before that the Committee other times in the past, but as strongly as it had at short-term rate facing the Treasury over the that in view of the refunding problem effective debt management gen years and in the interest of next four in the short-term rate would was believed that an increase erally it expressed in the recent past. be advisable for the reasons Mr. Rouse suggested the refunding program, In commenting on as to the types of keep an open mind members of the Committee that the for the reason in the June financing that might be offered securities the decision on that happen to change number of things might that a have to be made. that decision would date arrived when point before the advised that in the Treasury be suggested that Mr. Clayton

the past the Committee had urged an increase in the short-term rate on the grounds that it would be an anti-inflationary meas ure, that it would assist in refunding the public debt, and that it would help in bringing about a more natural interest rate struc ture, and that, while the first reason was not now applicable, it would be of real assistance to the Treasury in its refunding pro gram if a better interest rate structure could be brought about. After some further discussion, the suggestions made by Chairman McCabe and Mr. Clayton were approved unanimously. In taking this action, it was also agreed unanimously that the suggestion made by Mr. Sproul with respect to Sys tem bids for, and purchases and sales of, Treasury bills would be carried out under the authority of the general di rections issued by the Federal Open Market Committee and its executive com mittee. During a discussion of the direction to be issued to the executive committee to arrange for transactions for the System open market account, Mr. Rouse suggested that, while the policies of the Committee as discussed at this meeting could be carried out under the existing direction, consideration be given to changing the direction so as to make it clear that present policies are be out in the light of changing economic conditions. It ing carried change should be made, and that the amended was agreed that the for the same limitations on transactions direction should provide in the direction issued at the in the account as were contained

meeting on November 30, 1949. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was approved, with the understanding that the limitations con tained in the direction would include com mitments for the System open market account: The executive committee is 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, re placement of maturing securities, and letting maturi ties run off without replacement), as may be necessary, in the light of changing economic conditions and the general credit situation of the country, for the prac tical administration of the account, for the mainte nance of stable and orderly conditions in the Govern ment security market, and for the purpose of relating the supply of funds in the market to the needs of com merce and business; provided that the aggregate amount of securities held in the account at the close of this date other than special short-term certificates of in debtedness purchased from time to time for the tempor ary accommodation of the Treasury shall not be increased or decreased by more than $2,000,000,000. The executive committee is further directed, un til otherwise directed by the Federal Open Market Com mittee, to arrange for the purchase for the System open account direct from the Treasury of such amounts market of special short-term certificates of indebtedness as necessary from time to time for the temporary may be Treasury; provided that the total accommodation of the held in the account at any amount of such certificates one time shall not exceed $1,500,000,000. meeting of the Fed agreed that the next It was tentatively the week of May 2, would be held during eral Open Market Committee the meeting adjourned. Thereupon

Secretary. Approved: Chairman.