January 11, 1955 FOMC Minutes

FOMC minutes

directive of the full Committee, the executive committee could work within the framework of a policy along the lines discussed at this meeting Chairman Martin responded that if the Committee was going to act now to authorize a policy along the lines of the discussion, he felt the Committee should agree at this meeting on a phrase which was representative of the shade of opinion on which there was agreement at the meeting today. Mr. Irons then suggested that while he was not a member or alternate the Committee, the tenor of the discussion indicated to him that member of the Committee s directive would be given a meaningful wording clause (b) of to provide that operations should be with a view "to promoting if it were maintaining conditions in the money growth and stability in the economy by market so as to avoid the development of unsustainable expansion". After discussion of Mr. Irons' sugges tion, Mr. Sproul moved that the Committee modify clause (b) of the first paragraph of its directive to the executive committee to read, "to fostering growth and stability in the economy by maintaining conditions in the money market that would encourage recovery and avoid the development of unsustainable expansion". Mr. Sproul's motion was put by the Chair and carried. On this motion, Mr. Bryan requested that he be recorded as "not voting". with his request that he be re In connection Mr. Bryan made a state corded as not voting, ment substantially as follows: recorded as not voting. This request I should like to be prepared to discuss the because I came to this meeting is made to discuss appropriate policy economic situation, and prepared rates. I find myself ill in terms of reserves and money in the directive of the prepared to discuss textual changes

Committee, and least of all prepared, in the light of the discussion we have had to appraise the significance of the textual changes actually adopted, or the magnitude of the policy changes contemplated by the changes of language. In view of this lack of preparation and understanding on my part, I believe that it is wisest for me not to vote either for or against the proposal. It seems to me that there is a difference of opinion, or a substantial difference of emphasis, as to what our actual policy should be in the light of current economic events. We have not, I believe, come to grips with that fundamental and basic difference of opinion in terms of free reserves, total reserves, or money rates but have de voted ourselves to a textual change in the directive that conceals rather than reveals our differences. That textual change is apparently intended to signal a change of policy but not in a way that makes reasonably clear to the executive committee and the agent for the account what actual policy is intended. Please forgive the opinion that we have attained a semantic solution that does not set forth what it is that we want to do, and does not clearly enough tell our agent com mittee and agent bank what we have in mind. If I were the agent bank, or the agent executive commit tee, charged with the responsibility of effecting the inten tions of the full Committee, I would be fearful of so vague a directive. I would have no way of certainly proving that I had discharged my responsibilities and would thus court the danger of being second-guessed and falsely suspected, which is a human tendency in any event and almost inevitable when the principal is a committee and the agent is given a direc tive that conceals differences of opinion regarding the proper policy, or the proper extent of policy change, or both. source of our difficulty in writing a di An important rective, and an important source of danger to the agent executive committee and agent bank, I believe, is that we have been trying to use terms that are qualitative in nature. Qualitative terms have great use in certain fields, but I doubt if they are of much help to any of us here in saying what we want to do, unless, as Mr. Sproul has commendably attempted, we define those terms with considerable precision, Unfortunately, qualitative terms run into the difficulty that they must usually be defined by other terms that are qualitative in nature. Thus, we have many terms such as ease, active ease, firmness, restraint, mild restraint, and be that these terms can be sufficiently defined so on. It may

that there is a minimal room for difference of opinion as to the policy intended, the authority delegated, and the discharge of the delegation; but I am now tempted to the opinion that we will understand our policy better, and make a better discharge of our responsibilities, within acceptable canons of delegation as between principal and agent, the more nearly we develop directives that avoid qualitative terms and approach directives in quantitative terms, whether free reserves, total reserves, money rates, or money-rate ranges. On the economic situation, I share totally the views expressed by Mr. Sproul and Mr. Williams. I quarrel with nobody's conjectures, but it seems to me that we have the problem of taking up slack in the economy and of providing for a growth sufficient to provide for a rapidly expanding working population. I cannot see, by an examination of prices or employment levels, any real inflationary problem at this time. Therefore, I am extremely concerned, as I was in December, when I reluctantly voted to take the word "active" out of the policy directive as describing our policy of monetary ease, that any actual change in policy whatever words we may use in the directive-be very tenta tive, very hesitant, very experimental, lest we send a pall over the economy. In response to Chairman Martin's question as to the limitation to be included in the directive to be issued to the executive committee, Mr. Rouse stated that he felt the existing limitation of $2 billion in each paragraph was satisfactory. Thereupon, upon motion duly made and seconded, the following directive to the executive committee was approved, Mr. Bryan not voting for the reasons indicated above: 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 (in cluding purchases, sales, exchanges, replacement of maturing securities, and letting maturities run off without replace be necessary, in the light of current and ment), as may

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 fostering growth and stability in the economy by maintaining conditions in the money market that would encourage recovery and avoid the development of unsustainable expansion, (c) to correcting 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 ac count (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 $2,000,0000000. 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 in debtedness 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. It was agreed that the next meeting of the Committee would be held during the week beginning February 28, 1955. Thereupon the meeting adjourned. Secretary