February 29, 1952 FOMC Minutes

FOMC minutes

issues would take control of the debt structure out of the hands of the Treasury because it would not know whether it had a thirty-year or five-year obligation outstanding. He added that, although the convertible issue offered by the Treasury last year was a desirable means of meeting the problem confront ing the Treasury and the System at that time, the issue should not be further imbedded into the debt structure and should not be recommended to the Treasury as a way out of the dilemma of getting long-term funds as a supplement to an improved savings bond program. Riefler, Assistant to the Chair During Mr. Sproul's statement Mr. Board of Governors, joined the meeting. man, of the advantages of marketable and There was a further discussion inquired if the members of issues during which Chairman Martin nonmarketable those expressed by Mr. Sproul. had any views that differed from the Committee suggested that the mem Chairman Martin comments were made whereupon No further presented in the memorandum continue to study the problem bers of the Committee that the full Committee Research Advisory Committee, prepared by the System a copy of the memorandum committee in sending the action of the executive ratify considering the advised that, after the Treasury be Treasury, and that to the that use of a marketable Market Committee agreed the Federal Open memorandum, the use of a nonmarket preferable to rate would be at a competitive security later this financing operations Treasury long-term issue in able convertible year.

There was also a discussion of other questions relating to Treasury financing including possible new money financing during May of this year and question was raised as to whether the Treasury might find it desirable to use tax anticipation bills similar to those issued in the fall of 1951. There was also a discussion of whether payment for such bills, if issued, should be permitted through credit to tax and loan ac counts of banks or whether they should be sold only to corporations (in cluding banks) which might use them in payment of their own taxes. Chair man Martin said that these were matters in which the Committee should work closely with the Treasury. Mr. Sproul expressed the view that, if possible, it would be desirable not to go to the market for new money in May or June of this year, particularly since large refinancing operations would become neces sary in July and new money financing would be necessary during the second half of this year. If it should become necessary for the Treasury to money before the end of June, Mr. Sproul suggested the possible obtain new Federal Reserve System to purchase direct from use of the authority of the short-term certificates of indebtedness for the temporary the Treasury accommodation of the Treasury. that the question of a recommendation Chairman Martin suggested relating to Treasury financing on this point and other matters to the Treasury ratify the trans that the Committee to the executive committee, be left on Government Financing in 1952, to the Treasury of the memorandum mission

and that the Treasury be informed that the Committee would favor long-term financing by means of a marketable issue rather than a nonmarketable con vertible issue. This suggestion was approved unanimously. Chairman Martin then referred to a memorandum dated February 25, 1952, with respect to the establishment of rates on purchases of bankers' acceptances which had been sent to all members of the Committee together with an opinion by Mr. Vest concerning the establishment of such rates by the Federal Open Market Committee. At the Chairman's request, Mr. Carpenter reviewed the circumstances which gave rise to the memorandum, stating that when the currently effective buying rates for acceptances were increased by the Federal Reserve Bank of New York in December 1951 in accordance with a rise in dealers' rates, some of the other Reserve Banks, instead of establishing a schedule of currently effective rates, presented to the Board of Governors for approval an increase to 1-7/8 per cent in their authorized minimum buying rate. As a result of discussions was agreed that consideration should be given at that time, he said, it to the procedure to be followed in the future. at this meeting that the matter be referred to the Chairman Martin suggested it submit a recommendation at committee with a view to having executive the next meeting of the full Committee.

This suggestion was approved unanimously. There followed a general discussion of open market policy during which Chairman Martin commented upon the possible need for additional bank credit to carry inventories incident to rescheduling of defense production. At the conclusion of the discussion it was unanimously agreed that no change should be made in the Committee's current policy of neutrality in the market under which market forces of supply and demand are permitted with a minimum of System intervention except to the to have their effect extent necessary to promote orderly market conditions. Thereupon the meeting adjourned. Secretary.