December 7, 1954 FOMC Minutes

FOMC minutes

was that the Manager might be instructed by the executive committee to take into account the "feel" of the market as well as the volume of free reserves, money rates, and other factors. In other words, "feel" was to be only one of the factors to be considered in determining open market operations within whatever limits were prescribed by the full Committee and the executive committee. In response to a question from Chairman Martin, Mr. Rouse stated that he had no suggestion for change in the limitations in the directive to be given by the full Committee to the executive committee. 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 with out replacement), as may be necessary, in the light of current and prospective economic conditions and the gen eral 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 maintaining a condition of ease in the money market, (c) to correcting a disorderly situation in the Government securities market, and (d) to the practical administration of the account; provided the aggregate amount of securities held in the System that account (including commitments for the purchase or sale of securities for the account) at the close of this date, other short-term certificates of indebtedness pur than special from time to time for the temporary accommodation chased shall not be increased or decreased by more of the Treasury, than $2,000,000,000.

The executive committee is further directed, until otherwise 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 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 Treas ury, 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. Chairman Martin suggested that Mr. Robertson commenton the sub ject of repurchase agreements, concerning which he had raised questions in his memorandum of October 20, 1954, and with respect to which the New York Reserve Bank had furnished a memorandum dated November 9, 1954. Mr. Robertson stated that he had prepared an additional memoran to this matter since reading the memorandum prepared at dum with respect Bank of New York under date of November 9, 1954, and the Federal Reserve copies of his additional memorandum be dis that he would suggest that of postponing discussion of the matter until tributed with the thought Committee. Mr. Robertson stated that in the next meeting of the full have no objection to continuing the existing pro the meantime he would respect to repurchase agreements. cedures with There was agreement with this suggestion. that he had received copies of a report by Mr. Szymczak stated on Foreign Operations of American Banks on Bankers the Special Committee to the suggestion made at the meeting of Acceptances, prepared pursuant

12/7/ -27 the full Committee on September 22, 1954. Since the report had come to him only yesterday afternoon and members of the Committee had not had an opportunity to study it, it was suggested and agreed that the full Committee ask the executive committee to study the report and give some indication at the next meeting of executive the committee as to its views concerning the report. If necessary, a meeting of the full Committee could be called to consider changes in the procedure with respect to bankers' acceptances. There was agreement with this suggestion. Mr. Rouse then stated that at the present time no authority existed for executing repurchase agreements covering bankers' acceptances, and he raised the question whether it would be desirable to extend the existing authority covering repurchase agreements for Treasury securities so as to include bankers' acceptances. Mr. Robertson stated that he would be averse to extending the authority as suggested by Mr. Rouse, that in his view the whole question of bankers' acceptances should be considered before making a change of proposed, and that he would, therefore, suggest that the pro the type until the next meeting of the executive committee. posal be carried over There was agreement with this suggestion. this subject, Chairman Martin stated In an additional comment on important as a year in year 1955 might be much more that he felt the

terms of what was done in the foreign trade field than seemed probable in terms of domestic trade. He felt, therefore, that the proposals re garding bankers' acceptances merited consideration. It was agreed that the next meeting of the full Committee would be held during the week beginning February 28, 1955. Mr. Sproul stated that as indicated in his letter to the members of the Committee dated November 24, 1954, he would carry over until the meeting in March discussion of the actions taken by the Committee in in March 1954, to which he had referred at the close December 1953 and Committee meeting on September 22, 1954, to the effect that of the full open market account will be entered into transactions of the System providing or absorbing reserves (except for solely for the purpose of disorderly markets). Thereupon the meeting adjourned.