March 6, 1956 FOMC Minutes

FOMC minutes

slightly since the last meeting and he would now align himself with those inclined toward tightness rather than toward an easier policy at the moment. However, Chairman Martin said he thought the Com mittee was dealing in minute degrees and shades of emphasis. It was very difficult for the Manager of the Account to operate under such circumstances, he said, but he did not think that any useful purpose would be served in voting on a more specific policy directive. Chairman Martin did not feel that any change should be made in the Committee's directive at this juncture, although it might be desir able at the next meeting to consider a change of language. We were still in the middle of the Treasury financing and should maintain a condition of stability in the market until a little past March 15. The Committee should not start changing its policy immediately after this financing was completed. In general, Chairman Martin felt that the majority would agree that toward the end of the period between now and the meeting of the Committee to be held on March 27, doubts could be resolved in the direction of a little more tightness. But this was a shading of emphasis and he would think that the Committee should wait until its next meeting for any change. Chairman Martin's inquiry as to whether this In response to of policy, several members of the represented a satisfactory summary it, and Mr. Rouse responded that Committee indicated agreement with in the directive to be issued no need for changing the limits he saw to the New York Bank.

Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Re serve Bank of New York until otherwise directed by the Committee: (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, in the 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 while taking into account any de flationary tendencies in the economy, and (c) to the practical administration 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 certificates of indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the ac count of the Federal Reserve Bank of New York (with discretion, in cases where it seems desirable, to issue participations 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 exceed in the aggregate $500 million; to the Treasury from the System (3) To sell direct account for gold certificates such amounts of Treasury securi ties maturing within one year as may be necessary from time to time for the accommodation of the Treasury; provided that the total amount of such securities so sold shall not exceed $500 million face amount, and such sales in the aggregate as may be practicable at the prices shall be made as nearly currently quoted in the open market. Mr. Robertson had raised a question Chairman Martin noted that of the repurchase authority earlier during the meeting and about the use

inquired whether he felt it would be preferable to have the use of repurchase agreements considered at each meeting of the Committee or to have this authority handled on some other basis. Mr. Robertson said that he had no strong feeling that it was desirable to have the question come up at each meeting. He saw no particular reason why this authority should not be in the same cate gory as the several continuing operating authorizations which were listed for consideration at the annual organization meeting and which had been passed upon earlier today. He stated that at the time the Committee modified the repurchase authority last August to limit it to the Federal Reserve Bank of New York rather than to all Federal Reserve Banks, it was approved with the understanding that it would be used sparingly at rates below the discount rate. That understand ing had been carried out and he assumed that it would be continued. stated that he understood that this would be Chairman Martin the case. He also said that the question whether to consider the repurchase authority at each meeting of the Committee, or only at might be discussed at the meeting to be held on longer intervals, March 27, 1956. the following authoriza Thereupon, by unanimous vote: tion was approved York is hereby authorized Reserve Bank of New The Federal nonbank dealers in agreements with to enter into repurchase subject to the following United States Government securities conditions:

1. Such agreements (a) In no event shall be at a rate below which ever is the lower of (1) the discount rate of the Federal Reserve Bank on eligible com mercial 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 matur ing 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 trans ferred to the System open market account. Thereupon the meeting adjourned. Secretary