January 31, 1951 FOMC Minutes

FOMC minutes

"be a good thing. The Chairman then asked him what would be the general nature of the statement and he said it can be said that we discussed the general emergency situation, the defense effort, budget and taxes, and that he had stressed the need for public confidence in the Government's credit. He said further that he would be talking to the press the next morning and that he would be prepared to answer any questions that might be raised. Since the President indi cated that he would be discussing it with the press, the Chairman said he felt it would be best for us not to issue any statement to the press at this time. The President did not seem to be particularly concerned about whether or not a statement was issued. The press conference scheduled for the following morning was canceled because of General Eisenhower's appearance at the Capitol. The White House press secretary gave the press the following statement which appeared on the ticker about noontime: "'Washn -A P - The Federal Reserve Board has pledged its support to President Truman to maintain the stability of Government securities as long as the emergency lasts. "'White House press secretary Joseph Short announced this today, saying there have been re ports of differences of opinion between the Trea sury and the Federal Reserve Board. "'This is to quiet those rumors - Short said. "'Members of the Federal Reserve Board conferred with Mr. Truman yesterday - Secretary of the Treasury Snyder did not attend the meeting.' "A little later the following statement appeared on the ticker: A P -A Treasury spokesman said the White "'Washn - announcement means the market for Government secur House ities will be stabilized at present levels and that these will be maintained during the present emergency.'" levels stated that as he understood it, the action taken Chairman McCabe that the market on the the executive session was by majority vote during at par and 21/32 until the next restricted bonds would be held long-term which was to be called for of the Federal Open Market Committee, meeting Tuesday, February 13, 1951.

Mr. Sproul said his understanding of the action was that the Comittee would continue in effect until the meeting on February 13 the existing policy with respect to the purchase of long-ter restricted bonds which would mean that, if the Treasury discontinued its support purchases of the long-term restricted bonds, the price might decline below par and 21/32. In the ensuing discussion it was understood that the action taken in the executive session by majority vote was as stated by Mr. Sproul. Chairman McCabe expressed strongly the view that until the Commit tee had had an opportunity to determine what its over-all policy was to be, it would be a mistake to allow the price of long-term restricted bonds to decline further. that the general direction to be issued to Mr. Sproul suggested be in the same form as that presently in effect the executive committee but that the limitation in the first paragraph of the direction be re duced from $3 billion to $2 billion. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was approved unanimously with the understanding that the limitation in the direction would include contained commitments for the System open market account. until otherwise di committee is directed, The executive Market Committee, to arrange for rected by the Federal Open System open market account, either such transactions for the the open market or directly with the Treasury (including in of maturing securities, sales, exchanges, replacement purchases,

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 condi tions 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 administration of the ac count; 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 $2,000,000,000. 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 certifi cates held in the account at any one time shall not exceed $1,000,000,000. It was also agreed that the understanding with respect to the rates at which short-term securities should be purchased and sold for the System account, reached at the meeting of the Committee on October 11, 1950, should continue in effect with the further understanding that in accordance with the letter sent to the Treasury following the meeting for the time being, would 30, 1950, the executive committee, on October maturing within one year to rise not permit the rate on new securities 1-1/2 per cent. above With reference to the replacement of maturing Treasury bill understanding should continue was agreed that the present holdings, it executive committee should be guided by what unchanged, and that the

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. Thereupon the meeting adjourned. Secretary.