March 1–2, 1951 FOMC Minutes

FOMC minutes

3/1-2/51 after the latest discussion of the matter, also realized the Com mittee's interpretation of that point was implicit in the whole agreement. This, like point number 3, was one which Mr. Martin was not certain that he had covered sufficiently with Secretary Snyder, and he felt it would be necessary to make certain that the Secretary had a full appreciation of its significance before any agreement was concluded. This, he said, probably could not be done until tomorrow morning. Mr. Szymczak inquired as to whether Mr. Martin would discuss with Secretary Snyder the question of additional authority over bank reserves, and Chairman McCabe responded that it was his understanding that while Mr. Martin expected to mention the matter to the Secretary, he did not feel that there would be more than a general indication as to what the Treasury's position would be, particularly since no specific program for increased authority over reserves was before the Secretary for consideration. Chairman McCabe then stated that Mr. Thurston, Mr. Bartelt, and ;r. Lynch, General Counsel of the Treasury, had prepared a draft of joint statement that might be issued with a view to having it consideration by the Committee, and that Mr. Martin available for would like to clear it with Secretary Snyder when he saw him to discuss the foregoing points of the agreement. The statement read as follows:

3/1-2/51 "The Treasury and the Federal Reserve System have reached full accord with respect to debt-management and monetary policies to be pursued in furthering their common purpose to assure the successful financing of the Government's requirements and, at the same time, to mininize monetization of the public debt." Following a discussion, it was agreed unanimously that the foregoing statement for release and the state ment of the Committee's understanding of the proposed agreement contained in the list of seven points set forth above should be submitted to Secretary Snyder with the understanding that if he agreed with the program as discussed the executive committee of the Federal Open Market Committee, acting under the direction of the full Committee, would be authorized to carry out the program and to resolve any questions raised by the Treasury which would not change the essential features of the program, The members of the Board of Governors present indicated that a meeting of the Board would be held following the meeting of the Federal Open Market Committee to approve and ratify the above joint statement, a statement by the Board contained in the seven principal points set forth above that it would approve no change during the rest of this calendar year in the discount rates of the Federal Reserve Banks without prior consultation with the Treasury and unless very impelling circumstances existed, and a request for the cooperation of the Treasury in seeking from the Congress early supplementary legislation to restrict the expansion of bank credit. With respect to the instructions to be issued to the execu tive committee, Mr. Sproul suggested that in view of the possibility

3/1-2/51 -41- of an increased volume of transactions that might result if the proposed agreement were carried out, the limitation in the first paragraph of the general direction to be issued to the executive committee be increased from $2 billion to $3 billion. Thereupon, upon motion duly made and seconded, the following direction to the executive commit tee was approved unanimously with the understanding that the limitation contained in the direction would in clude commitments for the System open market account: The executive committee is directed, until otherwise 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 purchases, sales, exchanges, replacement of (including maturing securities, and letting maturities run off with out replacement), as may be necessary, in the light of current and prospective economic conditions and the gen eral 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 administration 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 directed by the Federal Open Market Committee, otherwise 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 accom modation of the Treasury; provided that the total amount held in the account at any one time of such certificates shall not exceed $1,000,000,000.

3/1-2/51 made and sec Upon motion duly unanimous vote, the onded, and by in the System account transactions for the period February 6, 1951, to 28, 1951, inclusive, were February ratified and confirmed. the meeting adjourned. Thereupon Secretary.