September 24, 1953 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington on Thursday, September 24, 1953, at 10:30 a.m. PRESENT: Mr. Martin, Chairman Mr. Sproul, Vice Chairman Mr. Erickson Mr. Evans Mr. Fulton Mr. Johns Mr. Mills Mr. Powell Mr. Robertson Mr. Szymczak Mr. Vardaman Mr. Riefler, Secretary Mr. Thurston, Assistant Secretary Mr. Vest, General Counsel Mr. Solomon, Assistant General Counsel Mr. Thomas, Economist Messrs. Abbott, Hostetler, Peterson, Roelse, and Ralph A. Young, Associate Economists Mr. Carpenter, Secretary, Board of Governors Mr. Sherman, Assistant Secretary, Board of Governors Mr. Youngdahl, Assistant Director, Division of Research and Statistics, Board of Governors Mr. Gaines, Securities Department, Federal Reserve Bank of New York Messrs. Leedy, Williams, and C. S. Young, Alternate Members of the Federal Open Market Committee Bryan, Earhart, and Leach, Presidents of Messrs. the Federal Reserve Banks of Atlanta, San Francisco, and Richmond, respectively First Vice President, Federal Mr. W. D. Gentry, Reserve Bank of Dallas motion duly made and seconded, and Upon unanimous vote, the minutes of the meeting by Committee held on Federal Open Market of the June 11, 1953 were approved.
Chairman Martin stated that advice had been received from the Federal Reserve Bank of New York that Mr. Sproul had been selected as Manager pro tem. of the System Open Market Account to serve while Mr. Rouse is in Europe during the period approximately September 16 to October 28, 1953. Chairman Martin also noted that Mr. Sproul had been serving in this capacity since Mr. Rouse left for Europe on September 16. Upon motion duly made and seconded, and by unanimous vote, the selection of Mr. Sproul as Manager pro tem. of the System Open Market Account to serve during the period while Mr. Rouse is in Europe from approximately September 16 to October 28, 1953 was approved. Upon motion duly made and seconded, and by unanimous vote, the actions of the execu tive committee of the Federal Open Market Com mittee as set forth in the minutes of the meetings of the executive committee held on June 11, June 23, July 7, July 21, August 4, August 25, and September 8, 1953 were approved, ratified, and confirmed. Before this meeting there had been sent to the members of the Committee a copy of a report prepared at the Federal Reserve Bank of New York covering operations in the System open market account from June 10 to September 18, 1953, inclusive. At this meeting Mr. Sproul presented a supplementary report covering commitments executed from September 21 to September 23, 1953, inclusive, and commented briefly on the reports, copies of which have been placed in the files of the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the transactions in the System open market account for the period June 11 to September 23, 1953, inclusive, were approved, ratified, and confirmed.
Chairman Martin referred to the action taken at the meeting of the Federal Open Market Committee on June 11, 1953 in connection with a proposed revision in the directives of the Federal Open Market Committee and its executive committee, at which time the matter was referred by the full Committee to the executive committee with the understanding that the latter would appoint two of its members to consider the proposal further. The executive committee, Chairman Martin noted, at its meeting on June 11 appointed Mr. Sproul and himself for this purpose and it was understood that the special committee would submit its recommendations to the members of both the full Committee and the executive committee. Chairman Martin went on to say that in accordance with that action, of revised directives were prepared and considered. After further drafts and in the light of the various drafts reflection upon the entire matter Mr. Sproul and he felt that it was ques that had been prepared, he said, further consideration of a much would be accomplished by tionable whether now in use. They felt, instead, revision at this time of the directives might well continue to and the executive committee that the full Committee forms of directives, modifying them, of course, upon utilize the existing Chairman Martin may dictate. Accordingly, occasions as circumstances such use of the existing recommended the continued the special committee said, from time to respective committees being made by the forms, with changes circumstances may indicate. time as special of the special com The recommendation Chairman Martin was as set forth by mittee approved unanimously.
Chairman Martin called attention to a memorandum prepared by Mr. Vest under date of September 10, 1953, with respect to the debt limit of the United States in relation to purchases by the Federal Reserve Bank of Government obligations. The memorandum had been prepared at the request of the executive committee at its meeting on August 25, 1953 and copies had been sent to all members of the Federal Open Market Committee. At the Channan's request, Mr. Vest summarized the content of the memorandum, stating that in his opinion obligations of the United States sold directly to Federal Reserve Banks would not be excluded from the statutory debt limit of the United States; and that if the Treasury should issue obliga tions in excess of that limit and if the Federal Reserve Banks should have some of the obligations which were issued in excess of the debt limit, they would be invalid and unenforceable obligations against the United Vest said, the memorandum indicated that there States. Furthermore, Mr. difference between special certificates issued by the Treasury would be no on the books of the Federal Reserve Banks since the and an overdraft of the United States must be authority for either type of obligation and, therefore, legally they were in the derived from the same statutes same category. had been considered by Counsel stated that this matter Mr. Sproul any purchases which the position that Bank who had taken of the New York the System open market account, or any the New York Bank might make for would result in New York Bank which occur at the overdraft which might
United States Government obligations in excess of the statutory debt limit, would, as Mr. Vest stated, not represent valid or enforceable obligations. Mr. Vardaman inquired whether this meant that in the event the New York Bank incurred an overdraft for the Treasury in excess of the statutory debt limit, the Treasury would be requested not to formalize the matter by issuing special certificates of indebtedness to cover the overdraft. Mr. Vest stated that while he could not answer as to what a Fed eral Reserve Bank would do, it would be his opinion that the Bank should follows the normal procedure and get the special certificates since legally there would be no difference between holding that obligation and carrying an overdraft. The answer to the question might depend, Mr. Vest said, on whether the Treasury would be willing to issue such certificates if it found that, inadvertently, the overdraft had resulted in its exceed ing the statutory debt limit. Mr. Vardaman stated that he would not consider it desirable for a Reserve Bank to accept special certificates to cover an overdraft under such circumstances, even if the Treasury were willing to issue them. Mr. Sproul stated that the position of Counsel for the New York would not be improved if it that the legal position of the Bank Bank was special certificates since in rather than taking the held an overdraft claim against the Bank have a legally enforceable neither case would the Government.
Chairman Martin noted that copies of Mr. Vest's memorandum had been made available to all Federal Reserve Banks for their information, and he stated that no further action was called for with respect to the matter. At this point members of the staff of the Board's Division of Re search and Statistics and Division of International Finance entered the room for a visual presentation on the current economic situation. A copy of the script of the presentation has been sent to each member of the Fed eral Open Market Committee and a copy has been placed in the Committee's files. Following the presentation, the members of the staff who had entered the room for the purpose of assisting in its presentation withdrew from the meeting. Chairman Martin stated that as had been brought out by the minutes of the meetings of the executive committee since the last meeting of the open market operations had been arranged for in accord full Committee, directive laid down by the full Committee at its ance with the general meeting on June 11, which provided, among other things, that transactions should be "with a view to avoiding deflationary for the System account of inflationary developments encouraging a renewal tendencies without require aggressive supplying of reserves (which in the near future will this policy, the executive that, in carrying out to the market)." He noted
committee at its meeting on September 8 agreed upon a program of "active ease", as described in the minutes of that meeting. This was being followed, he said, with the thought that the System would supply the reserves needed in the economy to meet the seasonal and growth demands even though they were large. It was felt that the risk of inflation was not sufficiently great to warrant being overly restrictive in the light of the adjustments that have been appearing on the fringe of the economy. Chairman Martin then called upon Mr. Thomas who stated that in making projections of possible demands for Reserve Bank credit during the year it had been assumed that there would be an increase in rest of this the money supply, that is demand deposits-adjusted and currency, for the cent. On the basis of this assumption 1953 as a whole of about 3 per year estimates of the amount of Reserve Bank of moderate needs, Mr. Thomas said, the basic reserves had been made. credit that would be needed to supply than projected, he have been somewhat smaller Thus far, actual developments has been only about demand deposits and currency and in fact growth in said, the past six months. long-term growth during with no element of seasonal deposits and in changes in demand recent and projected commenting upon After appeared to be said that the conclusion balance, Mr. Thomas the Treasury credit would Reserve Bank billion of additional like $1-1/2 that something for a order to provide of 1953 in last four months during the be required This could whole year. for the and currency in deposits cent growth 3 per or in part Government securities, purchases of entirely by System be supplied by member bank and in part repurchase agreements) purchases (including by
borrowings. Another way of supplying some of the needed reserves would be by a reduction in reserve requirements, and still another source of reserve funds would be provided if the Treasury were to use some of the free gold now held in its general balance. Chairman Martin suggested that consideration now be given to the Committee's general policy, i.e., whether it should supply roughly the amount of reserves which Mr. Thomas' remarks indicated would be needed by the economy, after which there would follow a discussion of the way in which any additional reserves might be provided. Mr. Sproul stated that his views and the estimates of the New York Bank were in general accord with the views and estimates presented by Mr. Thomas as far as the need for reserves was concerned. He said that whereas heretofore we have been following a policy of contributing to balance between inflation and deflation, it is now his view that policy should be based on an estimate of the business and credit situation which foresees the possibility of slipping into deflation, rather than the danger of inflation. This would indicate a policy of ease and not restraint of credit, one of supplying reserves needed to meet seasonal and growth factors. During the past few weeks, Mr. Sproul said, operations for the System account had pur sued this objective, but a period of more severe testing will occur during factors affecting the money market are esti October and November when other funds out of the market. He noted to take a considerable amount of mated
that the way in which the Treasury may use its free gold may affect opera tions for the System account and, in a comment on the difficulty of making projections of operation for the System account, Mr. Sproul referred to the last paragraph of a staff memorandum dated September 21, 1953 on the out look for Treasury cash requirements and bank reserves, copies of which were distributed before this meeting. This paragraph suggested that if demand deposits were to show a growth for the year 1953 of as much as 3 per cent, they would have to increase over $6 billion in the fourth quarter and that such a growth would mean an increase of about $650 million in required re serves in the last quarter of the year. The paragraph also mentioned probable large drains on reserves due to a currency outflow and possible gold losses; and stated that on the assumption that excess reserves would remain around $600 million, an expansion in Federal Reserve credit of approximately $1.3 billion would be required to meet needs for reserve funds over the remainder of the year, that more than two-thirds of this demand would probably occur during October and early November, and that if member bank borrowings were not to increase above the level of excess re these needs would have to be supplied by means other than serves, most of the view that the needs at the end of discounting. Mr. Sproul expressed would rise sharply could most appropri the year when demand for currency that he felt that in discounts, but aside from ately be met by increasing the next few weeks. would be needed during creased open market operations
With respect to the usefulness of the several estimates as a guide to operations for the System account, Mr. Sproul cautioned that, while such estimates tended to be borne out over a period of several weeks or months, they should not be looked upon as precise or accurate projections from day to day or week to week, and that operations would not necessarily con form with weekly estimates that might be projected for the period ahead. Chairman Martin agreed as to the difficulty of day to day estimates of reserves needed. He pointed out, however, that what he was seeking at this time was a pattern with respect to the over-all amount that might need to be supplied between now and the end of the year. He asked whether any of the members of the Committee felt that operations would be if they moved in the general direction outlined by Mr. Sproul overly tight with the figures which Mr. Thomas had and in more or less conformity presented. the estimates presented by Mr. Thomas Mr. Riefler commented that somewhat tighter situation than staff memorandum assumed a and in the the figure of $1.3 billion by the foregoing discussion, might be indicated that would be needed to was the approximate amount of additional reserves reserves. It was borrowings and excess rough balance between maintain a have excess reserves desirable to it might be thought that Mr. Riefler's the $1.3 billion figure he would look upon above borrowings; therefore, would be necessary if reserves that probably as the minimum additional excess reserves. to rise above were not borrowings
Chairman Martin stated that irrespective of the level of borrow ings, he was seeking an indication of the Committee's views as to the approximate over-all amount of reserves that would have to be gotten into the market during the rest of the year. Be asked whether any of the mem bers of the Committee differed with the estimates presented by Messrs. Sproul and Thomas, or with the thought that the executive committee, in arranging for operations, should continue to pursue a policy of active ease in the market, having in mind the general estimates which had been cited regarding the amount of reserves to be furnished during the remain der of this year. Mr. Mills stated that as he understood it this would contemplate that additional reserves would be provided in substantial amounts at an early date, that the operations of the Committee would not be frozen into any particular attitude as to the relationship between discounts and ex cess reserves, that there would be flexibility in the Committee's opera tions as directed by the executive committee, and that at the end of the desirable to meet the temporary heavy currency year it probably would be discounts than through open market operations. demands more largely through understanding stated by Mr. Mills, with Mr. Sproul said that the a modification of the idea that borrowings which he agreed, would represent in need for reserves reserves. The bulge held down below excess should be which properly and naturally for instance, was one at the end of the year, said, if that window, he met at the discount itself to being accommodated
window was kept freely open and funds were available. He felt that individual bank situations could be met in that manner more satisfactorily than through open market operations. He also noted that repurchase agree ments represent a flexible instrument for meeting individual market situations. Chairman Martin stated that another meeting of the full Committee probably would be held before the bulk of the year-end demand for currency appeared and that in the meantime the executive committee would be meeting from time to time. He suggested, therefore, that unless there was objec tion the full Committee approve a continuation of a policy of active ease with the understanding that reserves would be supplied to the market to meet seasonal and growth needs, having in mind the estimates of total needs as presented at this meeting and recognizing that open market opera tions would be flexible in relation to the volume and timing of supplies of reserves from other sources. There was unanimous agreement with this statement of policy. Chairman Martin then referred to the letter which Mr. Sproul had sent to members of the Federal Open Market Committee and to the Presidents who are not currently members of the Committee of Federal Reserve Banks referred to a letter and enclosure date of July 16, 1953. He also under all members of the Committee and (Chairman Martin) had sent to which he Market Committee under serving on the Open all Presidents not currently to for the to confining operations 15, 1953 with respect date of September
System account to the short-term sector of the market and to refraining from certain purchases of Treasury securities during periods of Treasury financings. He then made a statement substantially as follows: In introducing this subject today I feel I want to make a few comments as Chairman of the Committee with respect to my general view as to the necessity for the System grappling with what I conceive to be issues. I want to make very clear that I welcome the letter Mr. Sproul wrote on July 16, 1953, and I welcome similar letters from all members of the Open Market Committee at all times. The fullest and most open discussion we have in the Open Market Committee at all times of problems of this sort is to the benefit of all of us. I am also con fident that none of us act on these problems as a face-saving device or for any reason other than to get the best answer. I, as Chairman, never ask anybody to vote with me unless their judgment indicates they conscientiously should do so. Never theless, it is sometimes necessary for us to disagree. There are times when you have basic differences of opinion. After studying Mr. Sproul's letter of last July and think ing the matter over, I think there is more than a minor differ ence of opinion. There is a basic difference. I would like to say in commenting on this, that if you will review the minutes of the meeting last March you will see that I pretty well stated there the origin of the ad hoc subcommittee report in my thinking. It really goes back to a time four and one-half years ago when I first began to get a little on the fringe of this problem. Many of you, and Mr. Sproul in particular, have had more experience in actual operations of the open market account than I, but I was in the Treasury four and one-half years ago and began then to see some of the problems. A great amount of can get into the situation when people bitterness and acrimony have done things differently. I confess that I say they would differently but I have tried to would have done some things into an area of individuals or refrain from putting this particular operations. about the Federal Reserve is the The thing I like most two words don't make much difference word "System". The first in the interests of the does. We are all working but "System" to do. The ad hoc subcom in all that we are tying System in terms of the responsi was to assay the market mittee report Committee for of the Open Market each of the members bility of
what is a full operation at times. We were not trying to criticize anybody at any time. The essence of the problem we were struggling with was a matter of degree of discretion. Each member of the Open Market Committee is responsible in a very real sense for what is the heart of the System. I don't profess that I have all the answers, but I do think we want the Manager of the Open Market Account to have adequate discretion but don't want to put him in the position of having more discretion than is necessary; if we are going to give him wider discretion, then I think each of the members of the Open Market Committee ought to follow each of the details considerable closer than we do. In my letter and memorandum I have concentrated on just two matters raised at the meeting in June, confining operations to short-term securities and refraining from certain transactions during periods of Treasury financings. With respect to the housekeeping and other matters placed in the hands of the ad hoc subcommittee, I think Mr. Sproul and the subcommittee ought to get together and review them. But in these two matters that came up in June--the confining of operations to short-term securities and refraining from transactions in certain securi ties during periods of Treasury financings--I would like to have a further discussion at this meeting. It is true that we can call a meeting of the full Com mittee on 24 hours notice if we have to, and there is no freeze the Committee's views on these intention at any time to any other matters. I think this is a very fundamental or of a free market is a matter of problem. The whole problem for us, if we are going to degree. I think it is essential the type of device we have in the open market opera operate table all of the issues, all of tions, that we get out on the them. No one can read the problems we have, and discuss the is terribly important for us to have future but I do think it on our thinking. If we want within which to carry a framework do it as a Committee. Let's to recede from a framework, let's all the discretion he must the Manager of the Account give account but let's not put him have in order to operate the the entire brunt and let's not put in the position of bearing the position of saying we Open Market Committee in the entire in a position of responsibi the Manager of the Account have put of the fact that the of our being just a defender lity and I should like to carried out our instructions. Manager has for discussion. I know questions out on the table have these Chair, but since Mr. Mills make a motion from the that I could him to present a I have asked do on this question, feels as I think the full Committee of the action I along the lines motion to take at this meeting. ought
Mr. Mills then referred to the action taken at the meeting of the full Committee on March 4 and 5, 1953, when it was agreed that under present conditions operations for the System account should be confined to the short-end of the market (not including correction of disorderly markets) and at which meeting it was also understood that, pending further study and further action by the Committee, the Committee approved the ad hoc subcommittee recommendation that it 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 out standing issue of comparable maturity to those being offered for exchange. he noted, were rescinded by a 5 to 4 vote of the Com These agreements, mittee at its meeting on June 11, 1953. Mr. Mills stated that in presenting the belief that the action of the market and the the motion, he did so in the open market account had given a very convincing per operations of was a proper policy for the Sys that the motion to be proposed formance tem to adopt. Mills then moved that the Federal Mr. take the position that Open Market Committee the System account be con operations for (except in the to short-term securities fined markets) and that correction of disorderly financing there a period of Treasury during issues for of (1) maturing be no purchases offered, (2) when an exchange is being which outstanding issues or (3) issued securities, those being offered maturity to of comparable be fol these policies and that for exchange; as they may be super lowed until such time action of the by further seded or modified Market Committee. Federal Open
Mr. Szymczak seconded Mr. Mills' motion. Chairman Martin suggested that Mr. Sproul open the discussion of Mr. Mills' motion, commenting that he knew Mr. Sproul struggled very vigor ously for the views he held to be right, that he and Mr. Sproul agreed on many things, and that he was sure Mr. Sproul would not respect him if he did not struggle equally vigorously for the views which he held. Mr. Sproul then made a statement substantially as follows: 1. My most recent letter and memoranda on open market opera tions were sent to the members of the Federal Open Market Committee (and potential members) on July 16, 1953. The Chairman's reply, dated September 15, states 1953, that certain of the matters I discussed are still pending be fore the ad hoc subcommittee, and he confines his state ment to a consideration of two matters on which action was taken by the Committee in June to rescind action taken in March. I shall do the same. 2. Obviously there has not been time since the receipt of the Chairman's letter and memorandum last Wednesday, to pursue exhaustive staff studies and prepare an exhaustive rebuttal. This is probably an advantage. Too much of our discussion, perhaps, has been devoted to scoring debating points worked up by the staff of the Board and of the New York Bank. I have several pages of discussion here of the Chair man's letter and memorandum concerning open market tech niques during the past several months. I am going to omit them and merely say that I disagree with his analysis and with his conclusions. Maybe all that indicates is that it is possible for two equally sincere people to draw different conclusions from similar experiences when dealing with the non-physical world. it seems to me all of that underbrush If you clear out that the forest looms up pretty distinctly, I do not see remaining difference of opinion, if we straighten much out our assumptions.
4. It is not the position of the New York Bank, as the Chair man suggests, (A) "that the Management of the Open Market Account should be given blanket discretion to operate in the intermediate and long term, as well as the short-term sectors of the Government Security Market within general directives laid down by the Federal Open Market Committee and the Executive Committee." It is not the position of the New York Bank that (B) "it should have (blanket) discretion during periods of Treasury financing to purchase maturing Treasury issues for which an exchange is being offered, when issued securities, and outstanding issues of comparable maturity to those being offered for exchange." My position--and that of the New York Bank--is that the Federal Open Market Committee should lay down the gen eral lines of credit policy, that the interpretation and direction of the policy under changing conditions is the job of the Executive Committee, and that the Executive Committee should give the management of the Account only such discretion as to execution of policy, including market techniques, as is necessary for effective per formance of its job. In support of this, I may remind you that following the action of the Federal Open Market Com mittee in June, rescinding two of its March actions, it was I who pointed out to the Executive Committee that the pur pose of my motion to rescind, was not to control the actions of the Executive Committee, but to restore its freedom to use its discretion within the general lines of policy laid down by the full Committee. What I have been objecting to as a matter of principleand still object to--is trying to write into a "constitution" Market Committee, as one member called it, a of the Open against actions deemed undesirable by particular prohibition Committee, holding particular views, at a members of the particular time. We can't afford a freeze of ideas or prac tices. presently constitute the Committee, or a majority We who may agree that ordinarily it would be of the Committee, open market operations in short preferable to conduct our and that whenever possible we term Government securities, like to stay out of the market at times of Treasury would financing. But we shouldn't try to tie our hands by from using its judgment, the Executive Committee preventing credit policy, in what the limits of our general within meetings of the full may arise between ever circumstances While, as has been pointed out, a meeting of Committee. quickly convened in these days of the full Committee can be
air travel, I do not think the full Committee can or will be brought together to decide questions of market tech niques; it isn't the best way to operate and I doubt if we really intend to operate that way. It was to avoid this straitjacket of an imposed "con stitution" that I proposed the June motion to rescind the March action on the two points at issue today. That was the purpose and that was the result of my motion. So far as I can see our present situation differs little, if at all, from the final views expressed by the Chairman in his letter. If we do not assume, first, that the Executive Committee cannot be trusted,and, second, that the New York Bank and the Manager of the System Open Market Account are so habituated by a long spell of price support that they will jiggle with the market regardless of their insturctions from the Executive Committee, that is where we come out. I don't think the first assumption is justified and the second, I think, is preposterous. Therefore, I would say that we are in agreement, as we stand, and that no further action is needed by this Com mittee at this time, with respect to the two items pre sented for discussion. One further word in an overlong presentation--in this job I think we need an "informed intelligence conscious of its (almost) infinite ignorance". Chairman Martin stated that he subscribed heartily to Mr. Sproul's last comment. made a statement substantially as follows: Mr. Johns then at the June meeting I voted in favor of As you all know, Mr. Sproul's motion to rescind the March actions on these two matters. Since that time I have been amazed and disappointed the votes of those who voted as I did, to find that my vote and by some as indicating that it was my desire have been construed in the management of the account or the New York Bank to vest I respectfully submit almost unlimited discretion. a large and import of my vote and I am almost that such was not the legal Supreme Court did some as a member of the persuaded to suggest, years ago when he said that it is precarious business to try to Congressmen, that it was precarious business to psycho-analyze me and the motive behind my vote. What I try to psycho-analyze intended to leave the executive committee a rather large did was
area of discretion within which to make decisions which are more than operating decisions and which involve considerable policy making prerogatives. As I understand the motion Mr. Mills makes, the question I am presented with now is whether to continue to delegate such policy-making authority to the executive committee or whether to retain that prerogative in the hands of the full Open Market Committee. I will admit that from the one point of view of good administration, it may be that such discretion can be more easily and possibly at times more quickly exercised by a smaller body such as the executive committee. However, I am not con vinced that there is such lack of ease of administration in retaining that prerogative in the hands of the full Committee as might superficially appear. If, as usually is the case, the members of the Board of Governors, who are always members of the full Committee, are at their posts and Mr. Sproul is at his post and in constant communication with the offices of the Board of Governors, the fact is that there are only four Presidents to be called in order to obtain action by the full Open Market Committee. If the urgency of a situation is so great that a delay of 24 hours within which the Open Market Committee could convene and assemble around this table would be serious, I see no difficulty about getting in touch with the absent Presidents who are members of the full Committee on the telephone, and I suspect that in most instances that could be done within a period of 30 minutes. I am aware of the fact that the executive committee of the Open Market Committee is a nonstatutory body. I have some doubt about the degree of discretion and policy making least ought to be, delegated to the hich can be, or at executive committee. Therefore, Mr. Chairman, having attempted which I think is perhaps more accurate to psycho-analyze myself, I am prepared for the foresee than psycho-analyzing by others, able future, which will probably extend for the duration of my to accept the on the Open Market Committee, present membership the general instructions authority to modify proposal that the of the full Open Market Committee. be retained in the hands Mr. Mills' motion. disposed to support presently I am, therefore, a question con like to ask that he would went on to say Mr. Johns of a was any implication whether there motion, namely, cerning Mr. Mills' in the report of says and the proposal what the motion connection between rules. Such so-called ground to publicize ad hoc subcommittee the
publication, he felt, might inhibit or make more difficult a change in the policy proposed in Mr. Mills' motion. Mr. Mills stated that the motion contained no such implication. He added that the booklet on the Federal Reserve System published by the Board of Governors was being revised and that while the discussion of open market operations would be written around the background of confining such operations to short-term securities, there would be nothing in the text to preclude purchases of securities of any maturity. Thus, there was no implication that there would be made public any state ment of principles suggested by the ad hoc subcommittee or that any such statement would be given to members of the investment community. Chairman Martin stated that the Comittee should bear in mind that under section 10 of the Federal Reserve Act the Board of Governors was required to include in its annual report to Congress a record of policy actions taken by the Federal Open Market Committee and that this record would, of course, be made public in accordance with the statutory provi sions. Mr. Johns said that he had no objection to that procedure since it was a statutory requirement. Mr. Robertson referred to the discussion at the meeting last the ad hoc subcommittee that the open market March of the recommendation of Government securities the "ground rules" account make known to dealers in the occasions for its transactions with which henceforth would govern
dealers. At that time, he said, it was clearly understood that there would be no publication of such rules pending further consideration of what ground rules might be agreed upon and whether and how such rules might be made known. Mr. Erickson said that he had given a great deal of thought to the subject of Mr. Mills' motion since the meeting of the Committee in June and that he felt very much as Mr. Johns had expressed himself. He wanted to be sure that there was enough flexibility so that action could be taken to deal with any situation that might arise, but considering all the cir cumstances, as they exist today, Mr. Erickson said, he would vote to approve Mr. Mills' motion. Mr. Powell stated that he did not particularly like the motion presented by Mr. Mills because it put into language a continuing directive Committee concerning a subject which he felt should be to the Open Market at every meeting of the full Committee and a matter for consideration executive committee in the interim. He doubted perhaps at meetings of the with enough different kinds of economic whether there had been experience operations should remain in the Committee to say its situations to enable circumstances. It would except under most unusual the short-term market proposed, Mr. Powell as Mr. Mills to have such an expression be better not serve only between in which it would it was in a form felt, unless he thought, was in Mr. Mills' motion, of the full Committee. meetings therefore, would not document and he, a much more far reaching tended as vote to approve it. be disposed to
Mr. Fulton said that at the time of the meeting of the Federal Open Market Committee last June he anticipated that operations for the System account would remain in the short-term sector of the market but he was apprehensive of having those operations frozen in so that the account could not operate in other parts of the market. In the meantime reserve requirements of member banks have been reduced, a move which had had a powerful effect in easing the market, and while he felt it still desirable that the executive committee have considerable latitude in carrying on operations, he agreed with the statments made by Mr. Johns to the effect that the full Committee could be brought together at least by telephone there did not seem to be danger that operations in the account so that enough flexibility to meet any situation. On the whole, would not have factors and because of the general situation as it in view of these the full expectation that the Federal Open Market appeared today and with Committee could change the action at any meeting, he would vote to approve the motion presented by Mr. Mills. stated that he would vote to approve Mr. Mills' otion, Mr. Evans of the ad hoc subcommittee carefully, that that he had studied the report that report, and that he felt conclusions reached in he agreed with the returning to the posi the Committee was simply the proposal now before of the after full discussion last March by the full Committee tion taken report.
9/24/3 Mr. Vardaman stated that had he been present at the meeting of the full Committee last June he would have voted against rescinding the action taken by the full Committee at its meeting in March, at which time it agreed that under present circumstances operations in Government securi ties should be confined to the short-end of the market. Because he still held this view, he would vote to approve Mr. Mills' motion. At the same time, he emphasized that he was in favor of giving the executive committee such operational latitude as was necessary so long as that latitude was not sufficient to enable the executive committee to conduct its operations in such a manner as to amount to policy decisions, Mr. Robertson requested that Mr. Mills' motion be reread and, following the reading of it by the Secretary, stated that he would vote to approve the motion. Mr. Szymczak stated that he had been unable to attend the meeting of the full Committee in June because he was in the hospital on that day, but if he had been present he would have voted against rescinding the taken at the March meeting on the two points under discussion. actions the meeting of the executive committee on June 23, he He noted that, at that operations for the System account had expressed himself as believing He felt that the full Committee limited to Treasury bills. should be in the Government securities aware of the situation should be constantly was such as to call for a change and that whenever the situation market short-term securities purchases of of shifting from of the nature of policy
to other sectors of the market, such a change should be authorized by the full Committee. He, therefore, favored approval of Mr. Mills' motion. Mr. Leedy stated that he was a little disturbed by Mr. Sproul's suggestion that decisions in such matters as were involved in Mr. Mills' motion might be delegated by the full Committee to the executive committee. He wondered what would be left for the full Committee if such decisions were to be turned over to the executive committee. Mr. Leedy noted that, as Mr. Johns had stated, the executive committee is not a statutory body; it was set up by the full Committee as an operating committee and, while it has a wide responsibility as to executing operations, he felt that it should not have responsibility for adopting fundamental policy decisions. of the sort involved in Mr. Mills' In Mr. Leedy's opinion, decisions motion were of fundamental importance. somewhat concerned lest the formal Mr. Williams stated that he was discussion might give the Mr. Mills' motion and the attendant nature of of permanence that it otherwise would not have. Committee's action an air has power to make any change at any meeting, The full Committee, he noted, and the formal nature of of Mr. Mills' motion and the extended discussion out of to be taken an importance not give the action the motion should to what it should have. proportion no hesitation in changing stated that he would have Mr. Vardaman the next meeting or any full Committee at other action of the this or any
other subsequent meeting if that seemed appropriate at the time, and he noted that the last clause of Mr. Mills' motion--"that these policies be followed until such time as they may be superseded or modified by further action of the Federal Open Market Committee"-seemed clearly to indicate that the action proposed was subject to change by the Committee at any time. Mr. Robertson stated that this was the very point which had caused him to request a rereading of Mr. Mills' motion, that he, too, had felt concern along the lines indicated by Mr. Williams, but that the rereading of this clause in the motion satisfied him that the matter was properly covered. Mr. Williams stated that he certainly did not intend to indicate an objection to the motion, that in June although not a member of the full Committee, he had taken the position that the policies adopted in March should be looked upon as experimental in nature, and that he still felt that the Committee should look upon a policy such as that proposed in Mr. Mills' motion as experimental. Chairman Martin stated that there was no intention, in raising Mr. Mills' motion, to bind the Committee this question or in presenting be binding in connection with any other decisions in any way that would not of the Committee. very well the Williams had expressed Sproul stated that Mr. Mr. the whole discussion, the Taking the background of question in his mind.
content of the ad hoc subcommittee report, and the discussion at the meet ing last March, he felt there was an implication of permanent policy in Mr. Mills' resolution which, despite the clarifying clause at the end of the motion, tended to inhibit the free and flexible consideration of the problem by either the full Committee or the executive committee. This carried with it, he said, the implication of "writing a constitution" for the open market operation, of setting down a policy which, under only the most extraordinary circumstances, could or should be changed. He felt this was the wrong atmosphere to create for the executive committee, and he found it difficult to see what change had occurred to cause a shift in the views of some of the members of the full Committee since last June which would warrant putting into the record a formal motion such as that proposed by Mr. Mills. Mr. Szymczak noted that the full Committee included all members of the Board of Governors and five Presidents of the Federal Reserve Banks, not all of whom were equally close to the market or to the detailed opera tions of the System account. For that reason, he felt it much better for matters of this type to be brought to the attention of the full membership be kept alert regarding a so that each individual would of the Committee would have an so that he and he had a responsibility, subject for which Mr. to be established. on any policy to express himself opportunity the basis of decisions on dislike for reaching also expressed Szymczak at the full Committee had taken place vote such as a closely divided
meeting in June when some of the members were not present, and at the subsequent meeting of the executive committee. If there were to be dif ferences of opinion on policy matters, he felt it much better to have the questions fully discussed at a meeting when all members of the Committee and the Presidents who were not members could be present, in an attempt to find out the best course to follow. Mr. Johns stated that he had no fear that passage of Mr. Mills' motion would in any way limit the full Committee in changing the policy. If any member of the Committee felt the policy ought to be changed between full Committee meetings, he would have an opportunity and responsibility to make his views known. As for reasons for a change in his views since June, Mr. Johns said that, as first alternate, he had been called upon to serve almost continuously as an active member of the executive committee during the past few months, and that experience had made him feel the change in authorization was desirable. During that period, Mr. Johns said, he would have been most uncomfortable to have taken the action of authorizing operations in securities other than Treasury bills without having had the benefit of consultation with the other members of the full Committee. Out of this experience had come the conclusion that decisions in such matters should be left to the full Committee. stated that the only aspect of the motion which he did Mr. Leach not like was the air of permanence to which Mr. Williams had referred. he said, was that it did not His conception of the Open Market Committee,
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
Also: Record of Policy Actions·Minutes of the Executive Committee, June 23, 1953·Minutes of the Executive Committee, July 7, 1953·Minutes of the Executive Committee, July 21, 1953·Minutes of the Executive Committee, August 4, 1953·Minutes of the Executive Committee, August 25, 1953·Minutes of the Executive Committee, September 8, 1953·Minutes of the Executive Committee, September 24, 1953