February 28, 1950 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 Tuesday, February 28, 1950, at 9:40 a.m. PRESENT: Mr. McCabe, Chairman Mr. Sproul, Vice Chairman Mr. Draper Mr. Earhart Mr. Eccles Mr. Gidney Mr. Leach Mr. McLarin Mr. Szymczak Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Vest, General Counsel Mr. Thomas, Economist Messrs. Thompson, C. W. Williams, and John H. Williams, Associate Economists Mr. Rouse, Manager of the System Open Market Account Mr. Thurston, Assistant to the Board of Governors Mr. Riefler, Assistant to the Chairman, Board of Governors Mr. Sherman, Assistant Secretary, Board of Governors Young, Director, Division of Research Mr. and Statistics, Board of Governors Youngdahl, Chief, Government Finance Mr. Section, Division of Research and Statistics, Board of Governors Mr. Arthur Willis, Special Assistant, Department, Federal Reserve Securities Bank of New York Young, Davis, and Peyton, Messrs. Erickson, of the Federal Open alternate members Market Committee and Leedy, Presidents Williams, Gilbert, Messrs. of the Federal Reserve Banks of Philadelphia, and Kansas City, respectively Dallas,
Mr. Stead, Vice President, Federal Reserve Bank of St. Louis Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Committee held on December 13, 1949, were approved. Upon motion duly made and seconded, and by unanimous vote, the actions of the execu tive committee of the Federal Open Market Committee as set forth in the minutes of the meetings of the executive committee held on December 13, 1949, and January 6 and February 6, 1950, were approved, ratified, and con firmed. Before this meeting there had been sent to each member of the Committee a report, prepared at the Federal Reserve Bank of New York, of operations in the System open market account covering the period December 13, 1949, to February 21, 1950, inclusive. At Mr. Rouse presented a supplementary report covering this meeting commitments executed during the period February 23 to 27, 1950, inclusive. Upon motion duly made and seconded, and by unanimous vote, the transactions in the System account for the period December 13, 1950, inclusive, were 1949, to February 27, approved, ratified, and confirmed. reviewed discussions with the Secretary of Chairman McCabe the executive committee to the meeting of the Treasury subsequent leading up to the 6, 1950, and other developments held on February by the Treasury of the terms of the refunding of announcement during March and April 1950. securities maturing
Chairman McCabe also said that while the Committee on Government Borrowing of the American Bankers Association was in Washington for the purpose of discussing the March and April financ ing and making recommendations to the Treasury thereon, he (Chairman McCabe) met with the Committee at its urgent invitation to discuss the financing. After commenting on the questions which he had con sidered as to the advisability of accepting the invitation and its possible implications, as well as the nature of the discussion at the meeting, he asked for the opinion of the other members of the Federal Open Market Committee as to whether he should continue to meet with the Committee when it came to Washington. He stated that while there were some advantages in talking with the Committee, such an arrangement could be the cause of difficulties in the He added that he had met with the Committee on this future. occasion only because some of the members urged that he do so. During a discussion of the matter, it was pointed out that to the members of the Committee did the Treasury's presentation and credit situation, that the not attempt to cover the business equipped than any other group in Washington Board's staff was better conditions, and that the current economic and credit to review for its discussions of Committee should have that background Committee might be It was suggested that the Treasury financing. during which offices for such a presentation invited to the Board's
the financing could be discussed in general terms without disclosing any conclusions that might have been reached by the executive committee or the Federal Open Market Committee. The further comment was made that the recent Treasury presentation to the Committee created the impression that any funds raised in new financing this year would have to come from banks as it appeared that there was no substantial amount of nonbank funds available for investment in Government securities, while the staff of the Board and the Federal Open Market Committee felt that substantial amounts of nonbank funds could be attracted if the right kind of securities were offered by the Treasury. conclusion of the discussion, no objection was expressed At the McCabe with the Committee if he felt it to further meetings by Chairman understood that he would give further considera advisable, and it was be followed in this connection in tion to the procedure that should the future. Mr. Vest withdrew from the Chairman McCabe and At this point the statement to be made by meeting for the purpose of completing Senate Banking and morning before the Chairman McCabe tomorrow the bank holding company bill. Currency Committee on for a report on the upon Mr. Thomas Mr. Sproul then called economic situation. to the following memoranda Mr. Thomas referred In his remarks,
sent to members of the Committee before this meeting, copies of which have been placed in the files of the Federal Open Market Committee: (a) Current Economic Trends and Prospects, prepared in the Division of Research and Statistics of the Board under date of February 24, 1950, (b) Outlook for bank reserves and Treasury cash requirements dated February 21, 1950, and (c) New Treasury Financing in 1950, prepared by an ad hoc research committee of the System Research Advisory Committee under date of February 23, 1950. Mr. Thomas stated that developments in 1949 had lessened the major fears of inflation and depression, that the principal postwar readjustments had been almost completed, that the economy was now closer to "normalcy" than at any time since prewar and probably since the 1920's, and that the prospects for 1950 were on the whole for continuation of economic activity at moderately high levels with and the likelihood of some decreases toward the some uncertainties end of the year. Mr. Thomas also referred to some of the problems perhaps in the latter part of 1950, when the that might develop, of business and consumers that were backlog of demands on the part including eventual termination now in the picture were satisfied, automobiles and housing and a smaller of the unusual demands for reduced or ended. Mr. Thomas when foreign aid was export balance Federal cash deficit would probably pointed out that the prospective calendar year 1950 and that nearly exceed $7 billion for the
$2 billion would be needed to cover cash redemptions of maturing marketable securities. About $2 billion might be met by drawing down the cash balance of the Treasury and over $2 billion might be raised from sale of savings bonds and notes in excess of redemptions. Additional new financing would need to be around $5 billion. Since new corporate security issues and the increase in mortgages would probably be somewhat less than in 1949 and the volume of lendable funds larger, nonbank investors should be able to absorb all of the additional borrowing by the Treasury. He also stated that demand for bank credit would probably increase somewhat, apart from any increase in holdings of Government securities by banks, with a resulting expansion in bank deposits. Mr. Thomas indicated that under the circumstances the would seem to be one of neutrality Federal Reserve policy appropriate with easy money definitely not needed as to the supply of reserves, measures probably unnecessary, but with and vigorous restrictive in interest rates. The the demands for credit reflected changes in policies, he stated, which called for debt management situation Treasury issues into inter continue to refund maturing would (a) supply of bills increasing the outstanding mediate issues, (b) avoid only bank funds and issues which would attract or other short-term Federal Reserve support, (c) particularly any that would require issues when necessary to toward higher rates on short-term move
discourage their sales to the Reserve System in connection with shifts to longer-term securities, and (d) raise new money needed by offering long-term nonmarketable issues attractive to nonbank investors. In response to a suggestion from Mr. Sproul, each of the Presidents of the Federal Reserve Banks commented on conditions in his district and, while there were variations in some districts, their comments on regional conditions largely corroborated Mr. Thomas' statement with respect to the national outlook. There followed a discussion of the question whether the present relatively high level of economic activity was being maintained largely because of deficit financing by the Federal Government and of what might be expected to sustain effective demand if unemployment increased further, agricultural prices and income declined further, and consumer credit ceased to expand. then called on Mr. John H. Williams for a state Mr. Sproul to the recent trip which he made to Europe at ment with respect of European Economic Cooperation the request of the Organization of the second interim report (OEEC) to assist in the preparation and which was one of the which had since been published of OEEC for the Economic for the request for appropriations bases fiscal year on which for the next Cooperation Administration A copy of Mr. Williams' held in the Congress. hearings were being
statement has been placed in the files of the Federal Open Market Committee. Following Mr. Williams' statement, there was a discussion of problems facing the United States between now and the end of the of which are expected to continue after ECA program in 1952, some that date. At the conclusion of the discussion, the meeting adjourned. Secretary. Approved: Chairman.
Also: Minutes of the Executive Committee, January 6, 1950·Minutes of the Executive Committee, February 6, 1950