November 14, 1951 FOMC Minutes

FOMC minutes

Chairman Martin then referred to a memorandum on Treasury cash requirements, prepared by Messrs. Thomas, Youngdahl, and Leach under date of November 9, 1951, copies of which had been sent to all members of the Committee before this meeting. He stated that the executive committee would be glad to have comments from any member of the full Committee concerning the recommendation that should be made to the Treasury as to the refunding of approximately $1,100,000,000 of partially tax exempt bonds called for payment on December 15, 1951. No suggestions were offered, other than those contained in the memorandum referred to above, and it was agreed unanimously to continue the understanding at the last meeting of the Committee that the executive committee would be authorized to submit recommendations to the Treasury concerning both refunding and new financing needs. Chairman Martin stated that toward the end of November a recom mendation would be made to the Treasury, in the light of conditions exist the time, with respect to the December refunding. ing at It was agreed unanimously that there should be no change in the present understanding that the executive committee would determine, within the limits of the general direction to be issued at meeting by the full Committee to the executive this upon which transactions should committee, the basis the System account in bills and be conducted for other short-term securities. operations should be con of the basis upon which In a discussion to the existing under Mr. Rouse referred in longer-term securities, ducted orderly market operations committee that in conducting standing of the executive

the Federal Reserve Bank of New York would not permit the longest-term restricted Treasury bonds to decline below 96-3/4. He also referred to the understanding at the meeting of the full Committee on October 4, 1951, that operations in longer-term securities should be conducted with a view to maintaining orderly market conditions. It was his view that in the light of existing conditions it should be the policy of the Committee to conduct its operations on the basis of the accord reached with the Treasury last March and that if long-term bonds should decline below 96-3/4 in response to market influences they should be allowed to do so as long as the movement was an orderly one. There was unanimous agreement with Mr. Rouse's statement and it was agreed that the executive committee would be guided accord ingly. In a discussion of policy that might be applied to operations of the year when there would be an easing of the money after the turn market resulting from a substantial return flow of currency from circula it was the unanimous view of the Committee that tion and other factors, the executive committee to direct sales of it would be appropriate for as freely as possible to withdraw securities from the System account the market and at the same time to maintain an orderly reserves from market. motion duly made and Thereupon, upon direction to the seconded, the following committee was approved unanimously executive that the limitation with the understanding would include com in the direction contained System open market account: mitments for the

ll/14/51 -11- 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 (including purchases, sales, exchanges, replacement of 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 $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 accom modation 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. Chairman Martin referred to the drafts of replies to two questions the Subcommittee on General Credit Control and Debt Management addressed by on the Economic Report to the Subcommittee) of the Joint Committee (Patman copies of which had been Federal Open Market Committee, Chairman of the before this meeting, He stated distributed to the members of the Committee glad to have at this time, or to he and Vice Chairman Sproul would be that which any of the any comments or suggestions have submitted in writing, connection with the drafts might wish to make in members of the Committee of replies.

It was agreed that the next meeting of the Committee would be call by the Chairman and that in the absence of unforeseen subject to not be called until after the first of the developments a meeting would New Year. Thereupon the meeting adjourned. Secretary.