September 25, 1952 FOMC Minutes

FOMC minutes

and holidays, when some Reserve Banks are open and others are closed and the Treasury wishes to make payments on the certificates. The memorandum suggested that consideration be given to having the special certificates carried by the Federal Reserve Bank of New York for its own account instead of being held in the open market account, noting that the System's earnings on such certificates are relatively small ($4,000 in 1951 and $49,000 dur ing 1952 up to September 22) and that the proposed procedure should not affect significantly the earnings position of any Reserve Bank. Chairman Martin stated that he felt the procedure suggested in the memorandum would be desirable and, in response to the Chairman's request, for the proposed change in procedure. Sev Mr. Sproul reviewed the reasons members of the Committee who also were Reserve Bank Presidents eral of the the New York Bank handle the special Treas stated they would favor having ury certificates. stated that adoption of the proposed change would prob Mr. Rouse meeting of the full approved at the unnecessary the authorization ably make over week of special certificates 19 concerning purchases Committee on June are open. He are closed but others Federal Reserve Banks ends when some it possible for approved to make had been that that authorization observed on any day amount of the special certificates to pay down the the Treasury open, but that branches were Banks or of the Reserve when only a portion interest was saving in that the possible to him had indicated the Treasury a recent occasion procedure on use of the to justify the not sufficient

when most of the Federal Reserve offices were not open. Thereupon, upon motion duly made and seconded, and by unanimous vote, the Com mittee authorized the adoption of a proce dure whereby the Federal Reserve Bank of New York would purchase direct from the Treasury, for its own account, such amounts of special short-term certificates of in debtedness as may be necessary from time to time for the temporary accommodation of the Treasury within the limit authorized by the executive committee. In taking this action it was understood that (1) in cases where it seemed desirable, the New York Bank was au thorized to issue participations to one or more Federal Reserve Banks, and (2) the exe cutive committee was authorized to issue such detailed instructions to the New York Bank as were needed to carry out the action of the full Committee. to the discussion at the meeting of the execu Mr. Rouse referred on April 4, 1952 at which time the executive committee agreed tive committee the remaining $713 million of 2-3/4 recommend to the full Committee that to in the System account be con non-marketable bonds of 1975-80 held per cent marketable Treasury notes to be dated verted into 5-year 1-1/2 per cent October 1, 1952. agreed unanimously that It was remainder of the non-marketable the 1975-80 should be exchanged bonds of 1-1/2 per cent marketable for 5-year Treasury notes to be dated October 1, with the recommen 1952, in accordance executive committee at dation of the its meeting on April 4, 1952. be issued by the direction to of the general During a discussion mentioned that Chairman Martin executive committee, Committee to the full

some minor changes in wording would be necessary as a result of the Commit tee's approval earlier during this meeting of the proposal that special Treasury certificates of indebtedness be carried by the Federal Reserve Bank of New York rather than in the System open market account, and he suggested that the existing direction, revised to include such changes in wording as Mr. Vest felt were necessary to carry out that decision, be approved. The Chairman also mentioned that the June 19, 1952 direction included a clause to the effect that the authority to purchase securities direct from the Treasury would terminate on June 30, 1952 if the authority contained in section 14(b) of that Reserve Act were not extended beyond that date, and that since Congress had extended this authority for an additional two years, the clause was no longer needed. Mr. Rouse suggested that the existing limitations in the direction be renewed at this time. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was approved unanimously. 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, ex changes, 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 inflationary developments, to maintaining orderly conditions in the Government security market, to relating the supply of funds of commerce and business, and to the in the market to the needs practical administration of the account; provided that the aggre gate amount of securities held in the System account (including for the purchase or sale of securities for the account) commitments than special short-term certifi at the close of this date, other of indebtedness purchased from time to time for the temporary cates

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 direct from the Treasury for the account of the Federal Reserve Bank of New York (which Bank shall have discretion, in cases where it seems desirable, to issue participations to one or more Federal Reserve Banks) of such amounts of special short-term certi ficates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held at any one time by the Fed eral Reserve Banks shall not exceed in the aggregate $2,000,000,000. unanimously that the next meeting of the Federal Open It was agreed Market Committee would be held during the week beginning December 8, 1952. Thereupon, the meeting adjourned. Secretary