November 30, 1955 FOMC Minutes

FOMC minutes

He went on to say that he felt the purchase of the when-issued securities was more important than the extension of the period for repurchase agree ments, With respect to the latter, the idea was to aid the dealers in aiding us. He felt that if this extension were made the Committee might have to purchase less securities than otherwise but, as indicated, the purchase of the when-issued securities up to $400 million was more impor tant. Mr. Sproul said that he would also like to comment regarding the market in view of the statement that yesterday it seemed to be on a firm basis. It was true, he said, that quotations for the new securities have been just under par, but in reality the market has been in a state of suspended animation in which holders were not able to sell all that they wished to sell. Chairman Martin stated that if there were no other comments on his statement of the proposal before the Committee, he would ask for a vote on the motion. Thereupon, the Chair put the motion that the Federal Reserve Bank of New York be authorized to purchase for the System open market account in the open market, on a when-issued basis, up to $400 million of Treasury 2-5/8 per cent certificates to be dated December 1, 1955, maturing December 1, 1956. The motion was approved, Messrs. Martin, Sproul, Earhart, Fulton, Irons, Leach, Shepardson, Balderston, voting "yes", and Messrs, Mills, Robertson, and Szymczak and Vardaman voting "no". now ask for a vote on Mr. Martin stated that he would Chairman authority for the Federal suggestion that the existing Sproul's second

Reserve Bank of New York to enter into repurchase agreements be amended to extend the maximum period for such agreements from 15 days to 35 days. The Chairman went on to say that while he thought this was a minor element, he would be inclined personally to avoid taking that step at this time. Mr. Sproul said that in view of the sentiment expressed during the preceding discussion, and the authorization to purchase when-issued securities, he also would now suggest that no change be made in the exist ing authorization for repurchase agreements. Chairman Martin said that under these circumstances it appeared clear that the Committee would not wish to change the existing authority for repurchase agreements, and there was no disagreement with this state ment. In response to Chairman Martin's invitation for other comments, Mr. Mills stated that as he understood the action just taken to authorize the purchase of 2-5/8 per cent certificates on a when-issued basis, the not put funds into the market until December 8, the pay operation would ment date for the new securities. In the meantime, there might be a market and it would seem that the Committee should rapidly tightening as to the quantity of reserves that should reach a judgment at this time reserves should be made avail the market and just how those be put into able. he thought this probably could be handled Mr, Sproul said that the period for such agreements agreements even though through repurchase could indicate to since the account management was not to be lengthened,

the market that repurchase agreements on the usual basis would be readily available from the present time through the year-end period. He concurred in a comment which Chairman Martin made that the existing authority for repurchase agreements, plus the understanding that they would be made available over the year-end period, would be sufficient to handle this immediate situation. Mr. Mills commented further to the effect that there might be a need for direct purchases of securities within reasonable limits, to be combined with the repurchase agreements. Further, he gathered from the discussion that repurchase agreements might be made not only against bills but also on "rights" on the new securities, and he raised the question whether this would be a further technical deviation from the Committee's general policy. Mr. Sproul stated that the System account had been engaging right along and that he did not understand in this type of transaction policy since the Committee specifically had it to be a deviation from from the policy of not exclusion of repurchase agreements approved the financing, (1) maturing issues during a period of Treasury purchasing, (2) when-issued securities, and for which an exchange is being offered, for exchange. Mr. for those being offered (3) comparable maturities to Chairman Martin's question, by stating, in response Sproul continued period, and he during this rule out direct purchases that he would not He also stated $131 million. such purchases totalled noted that yesterday

that the System account in its operations would take into consideration Mr. Mills' suggestion that outright purchases of securities might be necessary during the period immediately ahead. Chairman Martin inquired of Mr, Rouse whether any change in the Committee's general directive to the New York Bank was required. Mr. Rouse responded that, as he understood it, the Committee's action this morning authorized the special and additional purchase of the limitation contained in the directive $400 million of securities beyond on November 16. Under these circumstances, he felt issued at the meeting no change in the directive issued at the meeting on November 16, 1955, was needed. Thereupon, the meeting adjourned at 10:11 a.m. Secretary.