May 10, 1955 FOMC Minutes

FOMC minutes

ending May 11, May 18, and May 25. After the end of May, it was antici pated that there would be almost a continuous negative free reserve posi tion, sometimes in substantial amounts. Mr. Sproul said that he would prefer to have reserves taken out of the market during the next statement week from repayments of repurchase agreements, and to allow market factors to do what they could to reduce reserves during the following week. By the end of the month, the projections indicated that free reserves might be down to the range of around zero. Chairman Martin stated that this program seemed appropriate for the immediate future. He noted that this discussion was in a meeting of the full Committee and that the policy to be set would apply for a period of approximately six weeks until the next meeting of the full Committee. Mr. Sproul stated that on the basis of the projections prepared at the Board's offices as well as those prepared at the New York Bank, it should be contemplated that some purchases of bills might be necessary dur ing the period between now and the next meeting of the full Committee. He suggested that the instruction from the full Committee include that pos sibility even though no positive direction were to be given. Mr. Mills stated that he would concur in Mr. Sproul's reasoning. Mr. Robertson said that he was in general agreement but that he thought the Committee should get the level of free reserves down. If natural forces would do this, fine. If not, he would favor selling secu rities from the System account in the immediate future. The main thing, keep in mind that the Committee's policy was one of moder he said, was to whether there was any thought that repurchase ate restraint. He inquired

agreements should be made available from here on out at a rate below that of the discount rate. Mr. Sproul responded that he did not think so, that he thought the repurchase agreements at the lower rate would go off today except with respect to repurchase agreements based on "rights", and that after today, if the repurchase window is open, the rate would be 1-3/4 per cent. In response to Chairman Martin's inquiry as to what additional instructions were needed, Mr. Riefler stated that he thought nothing additional was required from the full Committee. Thereupon, upon motion duly made and seconded, the following directive to the executive committee was ap proved 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 sales, exchanges, replacement of maturing securi purchases, ties, and letting maturities run off without replacement), as may be necessary, in the light of current and prospective conditions and the general credit situation of the economic to relating the supply of funds in country, with a view (a) the needs of commerce and business, (b) to the market to and stability in the economy by maintaining fostering growth market that would avoid the develop conditions in the money (c) to correcting a disor ment of unsustainable expansion, Government securities market, and derly situation in the of the account; provided to the practical administration (d) of securities held in the System that the aggregate amount the purchase or sale of (including commitments for account close of this date, other the account) at the securities for of indebtedness purchased special short-term certificates than accommodation of the Treas time to time for the temporary from by more than be increased or decreased ury, shall not $2,000,000,000.

The executive 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 discretion, in cases where it seems desirable, to issue par ticipations 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 accom modation 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. Robertson suggested that the Committee bear in mind the pos sibility of an increase in the discount rate, if additional pressure on the market was needed during the next few weeks. Mr. Balderston stated that he shared this view. Mr. Riefler noted that in accordance with the action of the full its meeting on March 2, 1955, a procedure had been made ef Committee at fective by the executive committee at its meeting on March 29, 1955, whereby the Federal Reserve Bank of New York was authorized to purchase acceptances up to an amount of $25 million. It was understood bankers' that the authorization for this procedure would continue in effect until changed by the Committee. that he would like to make one fact clear. All Mr. Sproul stated were inclined to get into the habit of us, he said, including himself, the whole situation when actually the Fed of thinking that we controlled of the picture. The Federal Reserve, eral Reserve controlled only a part and credit controls, was not in control of the whole with its monetary situation, and it should not get into the habit of thinking economic that it was.

Chairman Martin concurred heartily with this statement, Mr. Leach inquired whether the executive committee had any author ity to take any action in a period of Treasury financing which would be intended solely to assist in making a Treasury offering a success, or whether that would require action by the full Committee, as was his under standing. Chairman Martin responded that his understanding was the same as Mr. Leach's. Mr. Riefler stated that in accordance with the understanding at the meeting of the full Committee on March 2, Mr. Vest, General Counsel, had prepared a draft of a resolution which dealt with actions that would have to be taken in the event the full Committee were to decide to abolish the executive committee, and a letter transmitting this draft of resolution was being distributed to all members of the Committee today. suggested that at the next meeting of the full Mr. Robertson study be given to the form of certain continuing Committee, further to operations for the System open market account, along policies relating 2, and it was understood that lines discussed at the meeting on March the agenda for consideration at the June this matter would be placed on the meeting. Thereupon the meeting adjourned. Secretary.