August 2, 1955 FOMC Minutes

FOMC minutes

borrowings, and the action of money rates, and that it was the desire of the Committee as he sensed it to have increasing pressure on the market but to observe the effects of that pressure on the available supply of reserves and act accordingly. With expectations based on the projections presented at this meeting possibly nothing would need to be done in the open market within the next two or three weeks. Mr. Bryan stated that he understood that repurchase agreements might do the job and that Mr. Robertson's comments were to the effect that if the discount rate is raised it should be made an effective rate as soon as possible. Mr. Sproul added that the bill rate could go to the discount rate or where it would. commented that this point bothered him, that the last Mr. Bryan time the System had a 2 per cent rate the market rate went up to 2.41, rate is fixed at 2 per cent the market that he felt that if the discount would not seem proper to to that rate and it should be in some relation the discount rate. In to get out of touch with allow the market rate the discount rate to System should not increase words, he felt the other rate to get as far the effective open market cent and then allow 2 per by a rate of 2.41 indicated, for illustration, of line as would be out or 1.70. be made in change should if any other Martin then asked Chairman Federal Reserve to the by the Committee to be issued general directive the

Bank of New York. Mr. Rouse stated that he saw no need for any further change and that the amounts contained in the existing directive were appropriate. Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Reserve Bank of New York until otherwise directed by the Com mittee: (1) To make such purchases, sales, or exchanges (in cluding replacement of maturing securities, and allowing maturities to run off without replacement) for the System Open Market Account in the open market or, the in case of maturing securities, by direct exchange with the Treasury, 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 re straining inflationary developments in the interest of sus tainable economic growth, and (c) to the practical administra tion 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 certif icates of indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be in creased or decreased by more than $750 million; (2) To purchase direct from the Treasury for the account of the Federal Reserve Bank of New York (with discretion, in cases where it seems desirable, to issue participatons to one or more Federal Reserve Banks) 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 in exceed the aggregate $500 million; from the System ac direct to the Treasury (3) To sell gold certificates such amounts of Treasury securities count for as may be necessary from time to time maturing within one year the Treasury; provided that the total for the accommodation of securities so sold shall not exceed in the ag amount of such and such sales shall be made gregate $500 million face amount, at the prices currently quoted as nearly as may be practicable in the open market.

Chairman Martin stated that he had received two letters from Congressman Patman, one inquiring about the role of short selling in the United States Government securities market and the other raising several questions about the Federal funds market. He also said that the reply to the latter inquiry was being sent to Mr. Patman today and that a draft of the reply to the other letter had been distributed by Mr. Riefler at this meeting. He also said that it would be appreciated if the Presidents would study the draft and advise Mr. Riefler of any suggested changes that they might have, so that the reply could be sent within the next day or two. It was understood that the suggested procedure would be followed and that copies of the two replies as transmitted to Mr. Patman would be sent to the Presidents of all the Federal Reserve Banks. In response to an inquiry by Mr. Bryan, Chairman Martin stated that following a meeting this afternoon of himself and Messrs. Sproul and Balderston with representatives of the Treasury, the Board would which it would take with respect to an increase in consider the action rate and would advise the Reserve Banks of the decision the discount that as soon as his executive committee learned reached. Mr. Bryan stated on an increase in the rate at the of the Board's decision it would act Atlanta Bank.

It was agreed that the next meeting of the Federal Open Market Committee should be held on August 23, 1955. Thereupon the meeting adjourned. Secretary