March 8, 1951 FOMC Minutes

FOMC minutes

8. The officer in charge of research at each of the Federal Reserve Banks which is not rep resented by its President on the Federal Open Market Committee. 9. Mr. Rounds, alternate member of the Federal Open Market Committee; the Assistant Vice President of the Federal Reserve Bank of New York working under the Manager of the System Account; the Manager of the Securities Department of the New York Bank; the Vice President in charge, and the Manager, of the Research Department of the New York Bank; and the confidential files of the New York Bank as agent for the Federal Open Market Committee. In a discussion of the general direction to be issued to the exec utive committee, it was suggested that the authorization in the first para graph be reduced from $3 billion to $2 billion. Thereupon, upon motion duly made and seconded, the following direction to the exec utive committee was approved unanimously, with the understanding that the limitation contained in the direction would include 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 transac tions for the System open market account, either in the open market or directly with the Treasury (including purchases, sales, exchanges, replacement of maturing securities, 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 inflation ary 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 adminis tration of the account; provided that the aggregate amount of secur ities held in the account at the close of this date other than spe cial 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 oen market account direct from the Treas ury of such amounts of special short-term certificates of indebt edness 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. At Chairman McCabe's request, the Secretary read a revised draft of the memorandum prepared by Mr. Martin, Assistant Secretary of the Treasury, containg revisions made by Mr. Riefler which had been concurred in by Mr. Martin, covering the staff discussions which had taken place during the period February 20-23, 1951. The memorandum is set out on pages 6-10 of the minutes of the meeting of the Federal Open Market Committee held on March 1-2, 1951. The Secretary, also at Chairman McCabe's request, read the statement of the principal points of the understanding with the Treasury, approved by the Committee on March 2, 1951, and set forth on pages 30-31 of the minutes of that meeting. with a discussion of market developments this week, In connection statement being released today by the Life Insur Mr. Riefler read a draft of of America and the American Life Convention, which had ance Association by Mr. O'Leary, Director telephone earlier today read to him over the been Association of America. The state Investment Research, Life Insurance of ment read as follows: Committee on of the Joint Monday a subcommittee "Last Association of America of the Life Insurance Inflation Control opportunity for a Convention had the the American Life and Treasury and Federal officials of the talk with top long

"Reserve System meeting jointly. This subcommittee consisted of Carrol M. Shanks, President, The Prudential Insurance Company of America, Newark, New Jersey; George L. Harrison, Chairman of the Board, New York Life Insurance Company; and Frazar B. Wilde, President, Connecticut General Life Insurance Company, Hartford. "The Joint Committee believes that the recent accord reached by the Treasury and the Federal Reserve System is a most heartening and important development in the fight against in flation. The Treasury and Federal Reserve System deserve high commendation for the realistic step they have taken. The com plete terms with respect to the exchange offering of 2-3/4 per cent Treasury bonds have now been announced by the Treasury. "The Joint Committee strongly urges all life insurance companies to support the exchange offering to the maximum possible extent. The Joint Committee believes that the new Treasury program is a significant step in the right direction in the fight against inflation and thinks that it will prove but the first measure, growing out of the accord, in a con tinued vigorous program by Treasury and Federal Reserve authorities to prevent a further expansion of the money supply." Chairman McCabe said that representatives of several life insurance companies met with him and Messrs. Martin and Bartelt on Monday of this week, that representatives of the investment bankers met with him yesterday, and that both groups indicated their views as to the terms that should apply on the Treasury note that would be available for exchange for the new 2-3/4 per cent nonmarketable bonds to be offered for conversion from the 1967-72 restricted Treasury bonds. He went on to say that some of the representatives felt that a 1-1/2 per cent 5-year note would be the most desirable offering, that this would be the final decision of the Treasury. and that he felt Chairman McCabe then suggested that it be understood that, operat at this meeting, the executive the general direction issued earlier ing under

committee continue to carry out the program agreed upon at the meeting of the Federal Open Market Committee on March 1-2, This suggestion was approved unanimously. The meeting then recessed and, following a meeting of the executive committee, reconvened at 3:35 p.m. with the same attendance as at the close of the earlier session except that Messrs. McCabe, Sproul, Vardaman, Thomas, and Riefler were not present. Members of the staff of the Division of Research and Statistics of the Board of Governors then gave a visual presentation of recent economic developments. In this connection there were distributed a memo randum prepared in the Board's offices under date of March 6, 1951, on the Outlook for Treasury Cash Requirements, a memorandum on gross national product and income, dated March 7, 1951, and two memoranda prepared in the Board's offices under date of March 8, 1951, presenting information with respect to (1) action to check inflation and (2) the supply of funds offerings of Government securities. Copies available absorbing new money of these memoranda have been placed in the files of the Federal Open Market Committee. for the next meeting of the Committee was set tentatively The time for the week beginning May 14, 1951. Thereupon the meeting adjourned. Secretary.