March 2, 1955 FOMC Minutes

FOMC minutes

solely for the purpose of influencing the volume of bank reserves and thereby the costs and avail ability of credit, in order to promote economic growth and stability (including correction of dis orderly markets). Transactions for the System account in the open market shall be confined (except in correc tion of disorderly markets) to short-term securi ties, preferably bills, and shall not include offsetting purchases and sales of securities of different maturities (i.e., "swaps"). During periods of Treasury financing there shall be no purchases of (1) maturing issues for which an exchange is being offered, (2) when issued securities, or (3) outstanding issues of comparable maturity to those being offered for exchange. I wish to reiterate that, in my opinion, the question whether our open-market activities should be confined to the short end of the market can never be answered, for all time, as a matter of unchangeable principle. We all must recognize that there are advantages to trading in Government bonds on occasion. There are also advantages to minimizing our domina tion of the market. I believe that the latter outweigh the former as a basis for normal operations under present condi tions. At no time have we restricted the authority of the executive committee and the account Manager to enter into transactions with respect to securities of any maturity, in the event of a disorderly market. The point of this motion, like its predecessors, is simply that transactions in other than short-term securities, except in emergencies, should re ceive the specific attention of the full Committee. It is also hardly necessary to point out that the effect of our policies is a matter of continued study by the Commit tee and staff, and I am sure no member of the Committee would hesitate to modify or reverse any policy if conditions changed significantly or if future developments demonstrated that our information, reasoning, or judgment had been faulty or incom and had led to adoption of policies that did not work plete out satisfactorily. Chairman Martin stated that while Mr. Robertson's proposal impressed opportunity that he had had to know of the him favorably, this was the first

suggestion, and he expressed the view that it would not be desirable to act upon the proposal without giving all members of the Committee an op portunity to study the suggested phraseology. Mr. Sproul stated that while he was inclined to think that Mr. Robertson's suggestion took care of his objections to the third operating policy to be considered, set forth above as 13.c., he would still wish to vote "NO" on that portion of the proposal which related to the decision that operations for the System account in the open market be confined to short-term securities, etc. i.e., 13.b. Chairman Martin suggested that under the circumstances the Commit tee give consideration at this meeting to the second and third statements of operating decisions in the form set forth above as 13.b. and 13.c., with the understanding that Mr. Robertson's statement and proposed revi sion which would consolidate the three continuing operating policies be sent to all members of the Committee for study and consideration at the next meeting of the full Committee. The Chairman also suggested that in considering 13.b., the Committee action be based upon his earlier proposal that the statement be revised to include a reference to repurchase agree ments, so that it would read as follows: operations for the System account in the open market, Agreed, that repurchase agreements, be confined to short-term securi other than of disorderly markets) and that ties (except in the correction of Treasury financing there be no purchases of (1) during a period is being offered, (2) when maturing issues for which an exchange issued securities, or (3) outstanding issues of comparable maturity and that these policies be to those being offered for exchange; as they may be superseded or modified by followed until such time Federal Open Market Committee. further action of the

It was agreed that this statement should be continued in the revised form set forth above, Mr. Sproul vot ing "NO" for the reasons stated. Chairman Martin then read the third statement of operating policy, listed as 13.c. above. It was agreed that no action should be taken at this time to amend or terminate this statement of operat ing policy. On this action, Mr. Sproul voted "NO" for reasons previously in dicated. Mr. Leach stated that he had voted to approve the continuance of the three operating policies set forth above. However, he recalled that at the time the Committee appeared before Senator Flanders' Subcommittee of the Joint Committee on the Economic Report on December 7, 1954, Chairman Martin had expressed the view that there was greater depth, breadth, and resiliency in the Government securities market than there was at the begin 1953, in which year these operating policies were first adopted, ing of whereas, Mr. Sproul, as Vice Chairman of the Committee, had expressed a contrary view. Mr. Leach felt that it would be helpful to the other mem bers of the Committee if a study were made to show just what changes had the Government securities market since these operating policies occurred in were adopted. that he felt it would be very desirable to Chairman Martin stated would be given con a study made and that Mr. Leach's suggestion have such sideration. from the meeting at this point. Messrs. Rouse and Thomas withdrew

The following pages (60-92) contain the minutes of that part of the meeting of the Federal Open Market Committee on March 2, 1955, which, except for the Secre tariat, was held in executive session. This part of the meeting started at 2:40 p.m.