October 4, 1951 FOMC Minutes

FOMC minutes

1. Such agreements a. Are at a rate which will be fixed in fractions of 1/8 per cent and which ordinarily will be not less than the nearest fraction above the average issuing rate on the most recent issue of 3-month Treasury bills but which at times may be below the average issuing rate on bills but not more than 1/8 per cent below; (for example, when the issuing rate on Treasury bills temporarily may have risen slightly above the existing repurchase rate); b. Are for periods of not to exceed 15 calendar days; c. Cover only short-term Government securities selling at a yield of not more than the issuing rate for 1-year Treasury obligations; and d. Are used with care and discrimination as a means of providing the money market with sufficient Federal Reserve funds as to avoid undue strain on a day-to day basis. of such transactions are made to the Manager of the 2. Reports Market Account to be inluded in the weekly re System Open market operations which is sent to the members port of open of the Federal Open Market Committee. covered by any such agree In the event Government securities not repurchased by the dealer pursuant to the agree ment are the securities thus acquired by ment or a renewal thereof, Bank are sold in the market or transferred the Federal Reserve to the System Open Market Account. this action it was under In taking a letter would be sent to all stood that Banks advising them of Federal Reserve the above understanding. reached at the meeting of Reference was made to the decision conversion of 2-3/4 per 17, 1951, with respect to the Committee on May into 5 year 1-1/2 per held in the System account cent nonmarketable bonds out that action stated that following notes. Mr. Rouse cent marketable

it would now be appropriate for the System to convert $500 million of the 2-3/4 per cent bonds into the 1-1/2 per cent notes and that an additional $500 million should be converted on a similar basis in April 1952 at which time consideration would also be given to the program for conversion of the remaining $700 million held in the System account. Mr. Rouse went on to say that before carrying out the exchange of $500 million at this time, it seemed desirable to raise the question whether the Committee wished to make any change in the earlier understanding. He also said that so far as he was concerned in the management of the system account, it would not matter whether the present understanding was carried out or whether the conversion was made in some other manner. that unless there was good reason for Mr. Szymczak suggested at the meeting on May 17, it would seem changing the decision reached on the basis of that action. desirable to proceed This suggestion was approved unanimously. the executive committee should be author It was agreed that general direction to be within the limits of the ized to determine, to the executive committee, meeting by the full Committee issued at this conducted for the System would be upon which transactions the basis was also agreed that securities. It bills and other short-term account in that operations existing understanding be made in the no change should a view to maintaining be conducted with securities should in longer-term to be general direction light of the in the market conditions, orderly

issued to the executive committee at this meeting. Thereupon, upon motion duly made and seconded, the following direction to the executive 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 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 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 exercis ing 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 $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 Treas ury of such amounts of special short-term certificates of indebted ness 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. stated that he had been advised that the examiners The Secretary of Governors of the Federal Reserve System, in connection of the Board with the regular examination of the Federal Reserve Bank of New York, had open market account and that they had completed an audit of the System added that the the account. He the handling of to raise to no objections

customary report of the audit would be distributed among the members of the Committee in the usual manner. Thereupon the meeting adjourned, Secretary.