October 11, 1950 FOMC Minutes

FOMC minutes

and savings. This activity, he said, was resulting in an expansion of incomes which would be added to the increased Government expendi tures yet to come, and this expansion was creating the familiar re sults of an inflationary spiral. He felt that the danger in the situ ation was not that restrictions to be put into effect would be too drastic, but rather that more would be needed than were available in order to be adequate, Chairman McCabe then called upon each member of the Commit tee to express his views with respect to the action to be taken by the Committee at this time. During their statements and the discus sions that followed, all of the members indicated that, in the light of current and prospective economic conditions and of the policy of the Administration as announced in The Midyear Economic Report of the President with respect to reliance on fiscal and credit measures to restrain inflation, and having in mind the continuing expansion of bank loans including further expansion during the period since the action of the Committee on September 28, they saw no reason for changing the instruction given to the executive committee at the meeting of the Committee on September 28. It was also noted that the only reason given by Secretary Snyder for not going ahead with program was the fear that it might be unsettling the more restrictive securities market and might interfere with the suc to the Government cess of savings bond sales.

Thereupon, upon motion duly made and seconded, the following direction to the executive committee was approved unanimously with the understanding that the limitations contained in the direc tion would include commitments for the System open market account: The executive committee is directed, until otherwise di rected 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 securi ties, and letting maturities run off without replacement), as may be necessary, in the light of current and prospective economic conditions and the general credit situation of the country, with a view to exercising restraint upon inflationary developments, to maintaining orderly conditions in the Govern ment security market, to relating the supply of funds in the market to the needs of commerce and business, and to the practical administration of the account; provided that the aggregate amount of securities held in the account at the close of this date other than special snort-term certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury shall not be increased or de creased by more than $4,000,000,000. The executive committee is further directed, until other wise 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 certi ficates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that tne total amount of such certificates held in the account at any one time shall not exceed $1,000,000,000. Upon motion duly made and seconded, it in accordance with voted unaninously that was tne policy announced by the Federal Open Mar ket Committee and the Board of Governors on August 18, 1950, it be understood that (1) the executive committee, acting under the general issued at this meeting will take such direction action as may be necessary over such period as may be desirable to allow the market yields on a one-year basis to for Treasury securities

move up to the highest point, not exceeding the Federal Reserve Bank discount rate of 1-3/ per cent, which will not result in such pres sure on the longest term restricted bond as will cause continuing purchases in substantial amounts of long-term bonds for the System ac count, (2) the longest term restricted bond will not be allowed to decline beyond a point slightly above par, and (3) an orderly market will be maintained; That it be further understood that the foregoing motion is predicated on the under standing that as promptly as practicable in the discretion of the Board of Governors af ter short-term rates increased in accordance with number (1) above (but not necessarily waiting until such increase reached the high est authorized point) the Board would announce an increase in reserve requirements of all member banks by two percentage points on de mand deposits and one percentage point on time deposits, to be effective at such times as the Board determined to be advisable; and That it be further understood that a statement would be prepared setting forth fully the reasons for the Committee's views in a form satisfactory to the executive com mittee and the Board of Governors and suit able for the policy record. in replacement of to the policy to be followed With respect that the executive bill holdings, it was understood System maturing would be required in the light of should be guided by what committee to carry out the general cre conditions in the money market current the Federal Open Market Committee, dit policy of whether it was raised the question Committee's Secretary The of the Committee to con Chairman or Vice Chairman necessary for the Committee since copies of the meetings of the tinue to sign the minutes

were sent to them as well as to other members of the Committee for review and comment prior to approval at a subsequent meeting. It was unanimously agreed that, effective following this meeting, it would no longer be necessary for the Chairman to sign the minutes, that min utes of future meetings would be signed only by the Secretary, and tnat the existing procedure for submitting copies to the members of the Committee for comment prior to approval would be continued. Thereupon the meeting adjourned. Secretary. Approved: Chairman.