November 27, 1950 FOMC Minutes

FOMC minutes

Reference was also made to a memorandum on suggested policy on Treasury savings notes prepared in the Board's offices prior to the meeting of the executive committee on November 17 and distributed to members of the Federal Open Market Committee under date of November 24, 1950. The memorandum, a copy of which has been placed in the files of the Federal Open Market Committee, concluded, for the reasons outlined, that the present series of Treasury savings notes should be continued for at least the next six to nine months unless net cash redemptions of present issues should become excessive or cash needs of the Treasury should change sharply from what the present military program suggested. There was general agreement among the members of the Committee with this conclusion. Mr. Sproul suggested that the general direction of the full to the executive committee to arrange for transactions Committee changed by reducing the limitation in the in the System account be $4 billion to $3 billion. first paragraph from Thereupon, upon motion duly made and seconded, the following direction the executive committee was approved to the understanding that unanimously with in the direction the limitation contained include commitments for the System would market account: open until otherwise committee is directed, The executive Mrket Committee, to arrange directed by the Federal Open System open market account, such transactions for the for or directly with the Treasury either in the open market replacement of purchases, sales, exchanges, (including run off without and letting maturities maturing securities,

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 Government security market, to relating the supply of funds in the market to the needs of commerce and business, and to the practical ad ministration of the account; provided that the aggregate amount of securities held in the account at the close of this date other than special 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 $3,000,000,000. The executive committee is further directed, until otherwise 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 certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held in the account at any one time shall not exceed $1,000,000,000. Following a discussion of the rates at which short-term securities should be purchased and sold for the System account, there was unanimous agreement that the understanding reached at the meet ing of the Committee on October 11 on this point would continue in effect with the further understanding that, in accordance with the letter sent to the Treasury following the meeting on October 30, would not permit the time being committee for 1950, the executive maturing within one year to rise above the rate on any securities 1-1/2 per cent. copies of a memorandum from Mr. There were then distributed

Thomas dated November 24, 1950, transmitting two memoranda on the "Cost of Raising Reserve Funds Through Bill Operations", one prepared in the offices of the Board of Governors and one prepared at the Federal Reserve Bank of New York. Mr. Thomas stated that the two memoranda were in general agreement that substantial fluctuations should be permitted to develop in the bill rate in accordance with changing market circumstances as a means of reinforcing restrictive credit measures. In a discussion of the memoranda, Mr. Sproul suggested that the full Committee indicate to the executive committee its general approval of the idea of a wider spread between the buying and selling rates on Treasury bills, leaving it to the executive committee to fix the effective buying and selling rates. Mr. Sproul's suggestion was approved unanimously. It was unanimously understood that the understanding with respect to the replacement of maturing Treasury bill holdings should that the executive committee should be guided be continued unchanged and the light of current conditions in the by what would be required in credit policy of the Federal market to carry out the general money Open Market Committee. at the meeting of the was made to the discussion Reference and the understanding reached committee on November 17, 1950, executive under which the price of the longestat that time of the circumstances

term restricted bonds should be permitted to decline to slightly above par. In the light of that discussion, it was agreed unanimously that the present understanding with respect to transactions in long term securities for the System account should be continued, i.e., that the longest-term restricted bond would not be allowed to decline beyond a point slightly above par, and that an orderly market would be maintained. It was agreed that the next meeting of the Committee would be subject to call by the Chairman. Thereupon the meeting adjourned. Secretary.