December 8, 1952 FOMC Minutes

FOMC minutes

time--would accomplish anything in the next two or three weeks except to complicate adjustments in the year-end money market. Mr. A. H. Williams stated that in the Philadelphia district the most general view was that a change in the discount rate should not be made until there had been an opportunity to observe developments after the turn of the year so as to be more certain whether a change was needed. Mr. Gilbert said he would not be in favor of an increase in the discount rate at this time, that he would much rather wait until after the end of the year to observe whether the normal repayment of borrowings that had developed this fall took place; if the seasonal liquidation in loans did not take place, he thought consideration then should be given to an increase in the rate. Mr. Erickson agreed with this view. Mr. Bryan reiterated the comment that while he did not advocate an increase in the discount rate at this time, he thought it an extra ordinary event in terms of central banking that the rate remained at 1-3/4 economy was operating with virtually full em per cent at a time when the only in terms of the record and that such a rate was defensible ployment, Market Committee over a period of several years. of the Open Chairman Martin commented that it was also important to remember of circumstances evident present rate had existed in a conjunction that the in Government securities. He went on to say in the return to a freer market

that, as he had indicated at the meeting of the executive committee on November 25, the Federal Reserve System was in a constant dilemma with respect to the effect of its actions on Treasury financing. At some point it would be necessary to meet this issue head-on; this, he said, should preferably be done in conjunction with the Secretary of the Treasury. He felt that the System should not make a move to increase the discount rate until it was convinced that such an increase was appropriate, but that it should then act even though at that time the System might be faced with the immediate question of the effect of the increase on the Treasury's financing program. The System may have "missed the boat" in not having raised the discount rate some time ago, the Chairman said, but if that were true it still did not warrant taking corrective action at this particular time simply because it might be more difficult to face up to appropriate monetary policy when Treasury financing vas the problem of early next year. Chairman Martin added that under active consideration these periods of anxiety, that it had the System had been going through that Mr. Bryan had made an some progress in its monetary policy, made not be too ready to suggesting that the Committee excellent point in out a view which it that Mr. Gidney had brought congratulate itself, and Martin said, the Nevertheless, Chairman desirable to discuss. was very with its present Committee should proceed indicated that the discussion to have another become necessary that it might having in mind policy, of the year. the first soon after of the Committee meeting

There was no indication of disagreement with Chairman Martin's suggestion for continuation of the existing policy of the Committee. Mr. Sproul noted that speculation regarding a possible change in the discount rate caused disturbance in the money market and suggested that, in so far as possible, discussion of such a possibility not be carried on outside. Chairman Martin agreed with this suggestion, adding that while it was necessary for the directors of the Reserve Banks to discuss the matter, it would also be desirable for the Reserve Bank Presidents to caution them against discussion of the subject outside the meetings of the directors. 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 transactions for the System open market account, either in the open market or directly with the Treasury (in cluding purchases, sales, exchanges, replacement of maturing securities, and letting maturities run off without replace ment), as may be necessary, in the light of current and economic conditions and the general credit prospective situation of the country, with a view to exercising restraint upon inflationary developments, to maintaining orderly con the Government security market, to relating the ditions in supply of funds in the market to the needs of commerce and administration of the account; business, and to the practical of securities held in the that the aggregate amount provided (including commitments for the purchase or sale System account close of this date, other for the account) at the of securities of indebtedness purchased than special short-term certificates for the temporary accommodation of the Treasury, from time to time decreased by more than $2,000,000,000. shall not be increased or

The executive committee is further directed, until other wise 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 certificates 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 Federal Reserve Banks shall not exceed in the aggregate $2,000,000,000. In a discussion of a date for the next meeting of the full Com mittee, reference was made to a memorandum prepared by Mr. Vest dated Decem ber 2, 1952, stating that inasmuch as March 1, 1953, will fall on a Sunday, it would seem to be desirable, if otherwise practicable, for the meeting of the new Committee to be held during the first week of March 1953. In commenting on this, Mr. Vest stated that the organization meeting of the new Committee usually had been held on March 1 of each year and that it meeting of the old Committee also to be held late in was customary for a February in order to ratify actions taken up to that time. He said there is necessary, the new Committee could not was no reason why, if ratification and that he did not think taken by the previous Committee, ratify actions the old Committee meet in late February. Following a dis it essential that of the full Committee should it was agreed that the next meeting cussion, be held during the week beginning March 2, 1953. Thereupon the meeting adjourned. Secretary