August 23, 1955 FOMC Minutes

FOMC minutes

current rates. Something could be accomplished, he said, through repur chase agreements at some point if the severity of restraint increased. He interpreted it to be the sense of the Committee that the New York Bank should not buy bills at a rate below 2 per cent. Chairman Martin stated that we faced a difficult problem, but that he would have no hesitation to purchase bills below 2 per cent. Mr. Rouse commented that if the problem was regarded as solely a question of re serves and acquisitions were looked at from that standpoint such purchases would be fine. Chairman Martin's response was that if the market tightens enough bills would probably be available. While the question was not further clarified by further discussion, Mr. Rouse stated that he thought the New York Bank could function satisfactorily in the light of the dis cussion at this meeting. Chairman Martin then stated that, if there was no objection, the discussion would conclude on that uncertain, and in a note. He said that everyone should continue sense, rather unsatisfactory to study the problem and feel free to communicate with Mr. Rouse at any time. Martin then referred to the replies to letters received Chairman the last meeting of the were mentioned at Congressman Patman which from that copies of the had been made He said that the suggestion Committee. Federal Advisory Council to the members of the be sent by the Board letters their information and Reserve Banks for Chairmen of the Federal and the that would be done. the absence of objection, that, in

Reference was then made to the understanding at the last meeting that the authority to the New York Bank to enter into repurchase agreements with dealers covering United States Government securities would be con sidered at each meeting of the Committee. Mr. Rouse stated that the range of rates in the existing authorization was regarded by the bank as minimum rates, that the going rate in the market on loans to dealers was 2-1/2 per cent, and that if the situation called for repurchase agreements during the next three weeks, he would be inclined to make them at 2-1/4 per cent. The ensuing discussion brought out the point that such action would be within the terms of the existing authorization and no objection was made to it. At the conclusion of the discussion, upon motion duly made and seconded, and by unanimous vote, authorization to the Fed eral Reserve Bank of New York was renewed as follows with the understandings (a) that the authority would be used sparingly in entering into agreements at rates below the discount rate, and (b) that the Federal Open Market Committee will consider at each meeting the extent to which repurchase agree ments covering Government securities were and the rate or rates at to be authorized which such agreements are to be undertaken: CONDITIONS FOR REPURCHASE AGREEMENTS PRESCRIBED BY THE FEDERAL OPEN MARKET COMMITTEE As Approved August 23, 1955 of New York is hereby author The Federal Reserve Bank with nonbank dealers repurchase agreements to enter into ized

in United States Government securities subject to the following conditions: 1. Such agreements (a) In no event shall be at a rate below whichever is the lower of (1) the discount rate of the Federal Reserve Bank on eligible commercial paper, or (2) the average issuing rate on the most recent issue of three-month Treasury bills; (b) Shall be for periods of not to exceed 15 calendar days; (c) Shall cover only Government securities maturing within 15 months; and (d) Shall be used as a means of providing the money market with sufficient Federal Reserve funds to avoid undue strain on a day-to-day basis. 2. Reports of such transactions shall be included in the weekly report of open market operations which is sent to the members of the Federal Open Market Committee. 3. In the event Government securities covered by any such agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, the securities thus acquired by the Federal Reserve Bank of New York shall be sold in the market or transferred to the System Open Mar ket Account. Chairman Martin stated that ordinarily the next meeting of the that Governor Balderston would be held on September 13 but Committee would day. For that reason the evening of that return from Europe until not be held either on that the next meeting Martin) suggested he (Chairman indicated that a meeting Some of the members having September 14 or 15.

on September 14 would be more convenient to them, there was unanimous agreement that the next meeting should be held on that date. Thereupon the meeting adjourned. Secretary