September 24, 1953 FOMC Minutes

FOMC minutes

make public statements of its policies and that it would not take a posi tion indicating that it had set any particular policy from here on out. The fact that some of the members of the Committee attached so much importance to the subject under discussion indicated to him that the decision was being regarded as a matter of permanent policy. Mr. C. S. Young stated that he shared and believed what Mr. Johns had said about the executive comittee, that for the first time in years he was now hearing that the Federal Open Market Committee was an active body. He would like to see the full Committee have a little more authority than it had had and would like to have the members feel that they were an Mr. Young said he could see no active part of the open market operation. Mills' motion and was inclined to feel that its grounds for fears in Mr. full Committee feel that they were would make the members of the adoption market account than they had of the management of the open more a part the statements Mr. Johns had made. been. He agreed wholeheartedly with a policy different from there was no question of Mr. Sproul said Market Committee as a being authorized by the Open that being followed was adopted; it was a ques proposed by Mr. Mills whole if the resolution background of the discussion, Committee, with all the tion whether the full of the execu on the actions this prohibition put into the record wanted to and undesirable. was unnecessary felt such a prohibition committee. He tive the lines of policy had operated within the executive committee Since June,

of the Open Market Committee and within the lines proposed by Mr. Mills' motion. His objection was to making this a matter of formal record which he felt would give to the recommendations of the ad hoc subcommittee an air of being a permanent part of policy of the full Committee as though such policies were being "written in tablets of stone". Chairman Martin stated that he felt sure the minutes of this meeting would make it clear that no tablets of stone were being written. Thereupon, Mr. Mills' motion was put by the Chair and carried, Messrs. Martin, Erickson, Evans, Fulton, Johns, Mills, Robertson, Szymczak, and Vardaman voting "aye", and Messrs. Sproul and Powell voting "no". Mr. Riefler referred to the understanding earlier in the meeting as to the policy to be pursued in supplying reserves to the market until the next meeting, and to the wording of the existing directive to the executive committee covering transactions in the System open market He suggested that, in view of the policy agreed upon at this account. meeting, it would be desirable to change the instruction in clause (b) such operations should be with a view "to avoiding deflationary that renewal of inflationary developments without encouraging a tendencies supplying of reserves to future will require aggressive (which in the near it was agreed that this During the ensuing discussion, the market)." words following "tendencies" to delete all the clause should be modified deflationary tendencies". would read "to avoiding so that the clause

Mr. Sproul stated in response to a question from Chairman Martin that he felt the existing limits in the directive would be adequate for the present. Thereupon, upon motion duly made and seconded, the following directive to the executive committee was approved unani mously: 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 securi ties, 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 (a) to relating the supply of funds in the market to the needs of commerce and business, (b) to avoiding deflationary tendencies, (c) to correcting a dis orderly situation in the Government securities market, and (d) to the practical administration of the account; provided that the aggregate amount of securities held in the System account (including commitments for the purchase or sale of securities for the account) at the close of this date, other special short-term certificates of indebtedness purchased than from time to time for the temporary accommodation of the Treas ury, shall not be increased or decreased by more than $2,000,000,000. The executive committee is further directed, until other by the Federal Open Market Committee, to arrange vise directed the Treasury for the account of for the purchase direct from Bank of New York (which Bank shall have the Federal Reserve it seems desirable, to issue discretion, in cases where to one or more Federal Reserve Banks) of such participations of indebtedness as of special short-term certificates amounts time to time for the temporary acccmoda may be necessary from that the total amount of such tion of the Treasury, provided the Federal Reserve Banks held at any one time by certificates shall not exceed in the aggregate $2,000,000,000.

There was a discussion of the next date for the meeting of the Federal Open Market Committee and, while no definite date was set, it was understood that it probably would be held during the week beginning Decem ber 14, 1953. (Later in the day, at the joint meeting of the Board of Governors and the Presidents of the Federal Reserve Banks, it was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, December 15, 1953.) Secretary's note: At the meeting of the executive committee of the Federal Open Market Committee held immediately following this meeting, and at the joint meeting of the Board of Governors and the Presidents of all Federal Reserve Banks held later in the day, Chair man Martin reported that the Secretary of the Treasury had indicated informally that it was expected that approximately $1 bil lion of free gold carried in the Treasury's cash balance would be used during the fall months of this year, one of the purposes of such use being to enable the Treasury to meet necessary payments within the $275 billion statutory debt limit. Chairman Martin also noted that, depending upon how gold was used by the Treasury, it would this affect the amount and timing of open market operations. Thereupon the meeting adjourned. Secretary