December 15, 1953 FOMC Minutes

FOMC minutes

maintaining a condition of ease in the money market. Mr. Johns stated reasons why he felt a reduction in the discount rate might be considered at this time, emphasizing that such a reduction need not be thought of as something of a very temporary nature to be followed by an increase soon after the first of the year; it was Mr. Johns' thought that a reduced discount rate at this time might be a desirable indication of flexibility. Several of the other members of the Committee and Presidents of Federal Reserve Banks who were not members of the Committee questioned the desirability of a reduction in the discount rate at this time. Chairman Martin expressed the view that a reduction in the discount rate at present might "muddy the stream" in view of the fact that the Com mittee had already started on a program of meeting year-end credit demands As to the business situation, he noted by use of repurchase agreements. the current readjustment might be and differences of opinion on how serious on the whole it might be wiser to avoid changing the discount suggested that rate at the present time. comments, adding the view that the Mr. Sproul agreed with these discount rate in no way indicated a feeling thoughts expressed regarding the credit policy should in the Committee that its part of the members of on the immediately ahead, during the period sense be one of restraint any at 2:00 p.m. with at 1:10 p.m. and reconvened The meeting recessed the morning session. the close of attendance as at the same

During a discussion of the directive to be issued, it was suggested that the clause in the existing directive which had provided that the exec utive committee should arrange for transactions for the System open market account with a view, among other things, "to avoiding deflationary tendencies" should be changed in keeping with the decision at the morning session that the over-all objective of credit policy should be one of actively maintaining a condition of ease in the money market. There was also a discussion of the purpose of clause (d) of the directive which authorized that transactions be with a view "to the practical administration of the account". Mr. Vest said that it was difficult to state precisely what was authorized by this clause but that it gave a certain amount of leeway for incidental transactions in the account which were neces sary to carry out effectively and appropriately the policies otherwise pre scribed by the Committee, within the limitations established under the by the Committee. Mr. Vest noted policy or other directives adopted general in a similar form had been used in the clause in its present form or that directives of the Federal Open Market Committee and of the virtually all pursuant to the Bank since the Committee was reorganized executive committee ing Act of 1935. that the clause Chairman Martin suggested After some discussion, meeting but that its to be issued at this be retained in the directive there was unanimous agreement the next meeting, and purpose be reviewed before with this suggestion.

Following a further discussion, during which it was stated that no change in the limita tions contained in the directive was necessary, upon motion duly made and seconded, unanimous ap proval was given to a directive in the following form: The executive committee is directed, until otherwise directed by the Federal Open Market Committee, to arrange for such trans actions 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 maturi ties 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 sup ply of funds in the market to the needs of commerce and business, (b) to promoting growth and stability in the economy by actively maintaining a condition of ease in the money market, (c) to correct ing a disorderly 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 (in cluding commitments for the purchase or sale of securities for the at the close of this date, other than special short-term account) certificates of indebtedness purchased from time to time for the temporary 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 the Federal Open Market Committee, to arrange for the directed by Treasury for the account of the Federal purchase direct from the Reserve Bank of New York (which Bank shall have discretion, in cases where it seems desirable, to issue participations to one or more such amounts of special short-ter certi Federal Reserve Banks) of be necessary from time to time for ficates of indebtedness as may of the Treasury, provided that the total the temporary accommodation one time by the Federal Re certificates held at any amount of such serve Banks shall not exceed in the aggregate $2,000,000,000. the Committee would be held that the next meeting of It was agreed during the week beginning March 1, 1954. since the ad hoc subcommittee was being Mr. Robertson stated that, adjourn without first not wish to have this meeting discharged, he would to the commendation of the subcommittee was entitled saying that he felt

the entire Federal Open Market Comittee. He felt that the job the subcom mittee had done was of great benefit to the System, not only because of the specific suggestions it had made, but even more particularly because of the general interest it had stimulated among the members of the Federal market operations. Mr. Robertson added the Open Market Committee in open comment that he felt especially indebted to the subcommittee for the work it had done. Thereupon the meeting adjourned at 2:15 p.m. Secretary.