June 11, 1953 FOMC Minutes

FOMC minutes

confining purchases to the short end of the market and with respect to System operations during periods of Treasury financings. Mr. Sproul stated that the only question being raised was that of the instructions from the full Committee to the executive committee: if no vote were taken on his proposals, that amounted to a vote to continue the present instructions, which he felt ought to be changed. His recom mendation, therefore, as suggested earlier, was that the restrictions on the executive committee against buying securities in other than the short term area except in correcting a disorderly market, and against certain purchases of securities during periods of Treasury financings, be rescinded. Martin again questioned whether Mr. Sproul felt that the Chairman to put it to a vote in the absence of some matter was of sufficient urgency the Committee, when it involved, as it did, a change in policy members of of importance. feel the matter was urgent or he Mr. Sproul responded that he did he referred to the Treasury proposing the change, and would not have kept as a consideration. In response needs during the next few weeks financing his suggestion was, Mr. as to precisely what a question from Mr. Thomas to two prohobitions adopted to rescind the said that he was proposing Sproul namely, that (a) on March 4-5, 1953, of the full Committee at the meeting should be con the System account operations for present conditions, under correction of disorderly the market (not including the short end of fined to action by the Committee, further study and further markets), and (b) pending

the Committee should refrain during a period of Treasury financing from purchasing (1) any maturing issues for which an exchange is being offered, (2) when-issued securities, and (3) any outstanding issues of comparable maturity to those being offered for exchange. This would mean, Mr. Sproul said, that the executive committee would not be prohibited from authorizing transactions in other than short-term securities, or from purchasing securi ties as indicated during periods of Treasury financing; whether the execu tive committee would want to use that authority would be up to the execu tive committee. Thereupon, Mr. Mills moved that the two understandings referred to by Mr. Sproul and noted above be reaffirmed by the full Com mittee and that the executive committee be instructed to continue to operate accordingly. Mr. Mills' motion was put by the Chair and lost, Messrs. Martin, Evans, Mills, and voting "aye", and Messrs. Sproul, Robertson Erickson, Fulton, Johns, and Powell voting "no". Mr. Sproul then moved that the understand confining operations for the ings relating to short-term sector of the System account to the and to refraining from certain purchases market during periods of Treasury financings, as ap of the Committee on March proved at the meeting forth above, be rescinded, 1953 and as set 4-5, that the executive committee with the understanding to determine how operations should would be free mentioned, in the carried on in the respects be the current general credit policy of light of the Federal Open Market Committee. motion was put by the Chair Mr. Sproul's Sproul, Erickson, Fulton, and carried, Messrs. voting "aye", and Messrs. Johns, and Powell and Robertson voting "no". Martin, Evans, Mills,

Chairman Martin then referred to the directive to be issued to the executive committee and mentioned a suggestion by Mr. Riefler that, in view of the policy adopted at this meeting that operations in the account should be to supply reserves aggressively to the market during the near future on a sharply rising basis, there should be a change in the wording of the phrase in the present directive which stated that op erations should be "with a view to exercising restraint upon inflationary developments". There was agreement with this suggestion and also with Mr. Rouse's suggestion that the limitations in the directive be continued at the present levels. Thereupon, upon motion duly made and seconded, the following direction to the executive committee was approved unanimously: 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 in the light of current and prospective economic necessary, conditions and the general credit situation of the country, view (a) to relating the supply of funds in the market with a and business, (b) to avoiding de to the needs of commerce encouraging a renewal of in flationary tendencies without in the near future will require flationary developments (which the market), (c) to cor supplying of reserves to aggressive in the Government securities recting a disorderly situation of the ac (d) to the practical administration market, and amount of securities held provided that the aggregate count; for the purchase (including commitments in the System account at the close of this of securities for the account) or sale certificates of indebted special short-term date, other than the temporary accommoda from time to time for ness purchased or decreased by shall not be increased tion of the Treasury, more than $2,000,000,000.

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 parti cipations 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 t 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 ex ceed in the aggregate $2,000,000,000. Mr. Hugh Leach stated that it was contemplated that the next meet ing of the Presidents' Conference would be held during the week beginning September 20, 1953, at the time of the annual convention of the American which is to be held in Washington, D. C. on September Bankers Association 20-23, meeting of the Federal Open Market Chairman Martin suggested that a for the week beginning September 20, Committee also tentatively be scheduled emphasized the probability of having to call at least one meeting but he of the full Committee before that time. Thereupon the meeting adjourned at 3:45 p.m. Secretary.