June 23, 1954 FOMC Minutes

FOMC minutes

Mr. Robertson's motion was put by the Chair and approved by unani mous vote. Mr. Robertson then referred to the following memoranda, copies of which were distributed before this meeting, relating to bankers ac ceptances 1. Bankers' Acceptances - Role of Bankers' Acceptances. March 24, 1954. This memorandum gives background in formation regarding American acceptance market de velopment from inception following establishment of the Federal Reserve System. 2. Current Problem of System Policy with Respect to the Bankers' Acceptance Market. March 25, 1954. This memorandum contains staff suggestions as to steps the Federal Reserve might take to assist in bringing about a more freely functioning bankers' acceptance market. Acceptances: Present Conditions and Practices. 3. Bank May 14, 1954. This memorandum was prepared by Messrs. Hexter and Youngdahl of the staff of the Board of Governors with a view to presenting factual informa present conditions and practices in tion regarding the market for bank acceptances. 4. Proposal to Purchase Bank Acceptances for Federal Re serve Account. June 1, 1954. This memorandum from Governor Robertson raises a number of questions re garding the proposals contained in the staff memorandum dated March 25, 1954, referred to under item "2" above, and Mr. Rouse dated June 16, 5. Memoranda from Mr. Riefler to purchase bank acceptances 1954, regarding proposal for Federal Reserve account. Market Committee terminate the practice He suggested that the Federal Open acceptances at this buying rate on bankers' of establishing a minimum time. a proposal should not stated that he felt such Chairman Martin of the Federal unless all members a full discussion be acted on without the action was desirable. were satisfied that Open Market Committee

Following a brief discussion, it was agreed unanimously that no action would be taken at this meeting with respect to the minimum rate on bankers' acceptances, with the understanding that the memoranda referred to above would be given consideration at the next meeting of the Committee. In response to Chairman Martin's inquiry regarding instructions to be issued by the Committee, Mr. Rouse stated that it appeared probable that, as a result of the usual forces and the reduction in reserve re quirements, there would be a very large volume of free reserves available during July and August, and he raised the question whether they should be left there or taken up through permitting some run-off in System holdings of bills. Chairman Martin stated that he understood it to be the sense of the meeting that the Committee pursue a policy of active ease, recognis ing that there was a division of thought as to the degree of ease that would be desirable, this question, however, to be left in the hands of the executive committee. It was understood, he said, that the full Committee was not pinpointing any specific amount of free reserves that should be maintained in the market in carrying out a policy of active ease. Chairman Martin also said that in the event there were clear signs of inflation developing, the Committee might wish to change its policy from one of active ease in which event it might be desirable to call a meeting of the full Committee prior to the time the next meeting ordinarily would take place. There was unanimous agreement with Chairman Martin's statement.

Thereupon, upon motion duly made and seconded, the following directive to the executive commit tee 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 (including purchases, sales, exchanges, replacement of maturing securities, 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 promoting growth and stability in the economy by actively maintaining a con dition of ease in the money market, (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 than special short-term 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 xecutive 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 discre tion, 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. Mr. C. S. Young stated that the Conference of Presidents had not its next meeting although it had been suggested that it set a time for of the American Bankers Association's might be deferred until the time City, New Jersey, October 17-21, annual convention to be held at Atlantic

Chairman Martin felt that it would not be desirable to defer the next meeting of the Open Market Committee until October and there was agreement with his suggestion that no date be set at this time but that the meeting be subject to call. Thereupon the meeting adjourned.