June 13–14, 1950 FOMC Minutes

FOMC minutes

There was a further discussion of the timing of an increase in the discount rate at the Federal Reserve Banks and, while it was the consensus that the increase should not be made effective until the short-term market rate increased somewhat, there was no decision on the question what level in the short-term rate would call for discount rate action. Mr. Sproul thought the action could be taken about the middle of July. Turning to the question of current Treasury financing needs, suggested that he and Mr. Sproul be authorized to Chairman McCabe supplement the suggestion contained in the letter to the Secretary of urging that the Treasury issue Treasury dated May 25, 1950 by the of the series A type, and that the promptly a nonmarketable bond written communication to whether there should be a further question for determination by himself and Mr. Sproul the Treasury be left the meeting with the Secretary. following The foregoing suggestion was vote. by unanimous approved be issued to the direction to the general In considering be added to the suggested that there committee, it was executive provide that the authority a sentence which would second paragraph from the Treasury of securities directly to arrange for purchases of the Federal unless the authority on June 30, 1950, would terminate by the Congress. was extended effect such transactions Reserve Banks to

With respect to the limitations contained in the direction, Mr. Rouse stated that the present limitations appeared to be satisfactory. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was ap proved unanimously with the under standing that the limitations con tained in the direction would include commitments for the System open mar ket 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 maturities 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 practical administration of the account, for the maintenance of orderly conditions in the Government security market, and for the purpose of relating the supply of funds in the market to the needs of commerce and business; provided amount of securities held in the that the aggregate the close of this date other than special account at short-term certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury shall not be increased or decreased by more than $2,000,000,000. is further directed, until The executive committee otherwise directed by the Federal Open Market Committee, purchase for the System open market to arrange for the from the Treasury of such amounts of account direct of indebtedness as may special short-term certificates from time to time for the temporary be necessary of the Treasury; provided that the total accommodation such certificates held in the account at any amount of $1,000,000,000. The direction one time shall not exceed on June 30, 1950, unless paragraph will terminate in this Reserve Banks to purchase the authority of the Federal Treasury is extended by securities directly from the the Congress.

The policy to be followed in the replacement of System maturing bill holdings was then discussed and it was agreed unanimously that no change should be made in the existing understanding that the executive committee would be guided by what would be required in the light of current conditions in the money market to carry out the general credit policy of the Federal Open Market Committee. In connection with the ranges within which bills and certificates would be purchased by the Federal Reserve Bank of New York for the System account, it was suggested that the Federal Open Market Committee continue the existing authority to the executive committee to determine from time to time the ranges within which such purchases would be made, with the understanding, however, that after July 1, 1950, the upper limit of such ranges would be increased from 1.24 to 1.36 per the authority would continue to be exercised within the cent, and that the general credit policy of the Federal Open Market framework of Committee. Upon motion duly made and sec onded and by unanimous vote, this suggestion was approved. of a statement of policy A draft the executive committee in to guide in long-term relation to transactions designed to conform to the bonds, in the discussions of views expressed earlier in this meeting, the Committee and after discussion was presented, in the follow was approved unanimously ing form:

Operating under the general direction issued by the Federal Open Market Committee to the executive committee, the executive committee is authorized to continue to sell long-term securities from the System account unless and until there is a change in the business and credit situation, or the Treasury issues new securities to finance the deficit, which would make it undesirable to pursue the policy further. Should the price on the longest restricted issue decline to between 100-1/2 to 100-3/4 the executive committee would direct only such operations as were necessary to maintain orderly market conditions pending a meeting of the Federal Open Market Committee which would be called promptly to consider, in the light of the statement approved at the meeting on June 28, 1949, how far any further decline that would be brought about by market conditions would be permitted to go. It was understood that the next meeting of the Presidents' Conference would be held in Boston on September 21 and 22 and that the next meeting of the Federal Open Market Committee and the joint meeting of the Presidents and the Board would be held in Washington on September 27 and 28, 1950, unless developments made it necessary Open Market Committee before that to call a meeting of the Federal time. Thereupon the meeting adjourned. Secretary. Chairman.