March 6, 1956 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington on Tuesday, March 6, 1956, at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Sproul, Vice Chairman Mr. Balderston Mr. Erickson Mr. Johns Mr. Mills Mr. Powell Mr. Robertson Mr. Shepardson Mr. Szymczak Mr. Vardaman Mr. Fulton, Alternate Messrs. Bryan and Leedy, Alternate Members, Federal Open Market Committee Messrs. Leach, Irons, and Mangels, Presidents of the Federal Reserve Banks of Richmond, Dallas, and San Francisco, respectively Mr. Riefler, Secretary Mr. Thurston, Assistant Secretary Mr. Vest, General Counsel Mr. Solomon, Assistant General Counsel Mr. Thomas, Economist Messrs. Abbott, Parsons, Roelse, Willis, and Young, Associate Economists Mr. Rouse, Manager, System Open Market Account Carpenter, Secretary, Board of Governors Mr. Secretary, Board of Mr. Sherman, Assistant Governors Director, Division of Mr. Koch, Assistant Board of Governors Research and Statistics, Miller, Chief, Government Finance Section, Mr. Statistics, Board of Research and Division of Governors Mr. Marsh, Manager, Securities Department, Reserve Bank of New York Federal election by the Federal that advices of the Mr. Riefler reported commencing March 1, 1956, of Banks for a period of one year Reserve
members and alternate members of the Federal Open Market Committee had been received, and that each newly elected member and alternate member had executed the required oath of office, except that in the case of Mr. Treiber, the form for the oath had been sent to him in New York where it was understood that he would execute it as an alternate mem ber of the Committee. The members and alternate members were as fol lows: J. A. Erickson, President of the Federal Reserve Bank of Boston, with A. H. Williams, President of the Federal Reserve Bank of Philadelphia, as alternate member; Allan Sproul, President of the Federal Reserve Bank of New York, with William F. Treiber, First Vice Presi dent of the Federal Reserve Bank of New York, as alternate member; W. D. Fulton, President of the Federal Reserve Bank of Cleveland, as alternate member; of the Federal Reserve Bank of Delos C. Johns, President Bryan, President of the Fed St. Louis, with Malcolm eral Reserve Bank of Atlanta, as alternate member; Powell, President of the Federal Reserve Bank Oliver S. of Minneapolis, with H. G. Leedy, President of the Bank of Kansas City, as alternate Federal Reserve member. Upon motion duly made and seconded, and by unanimous votes, the following of the Federal Open Market Com officers were elected to serve until the mittee their successors at the first election of of the Committee after February meeting understanding that in 28, 1957, with the of the discontinuance of their the event official connectio with the Board of Governors or with a Federal Reserve Bank, be, they would cease to as the case might connection with the have any official Federal Open Market Committee:
Wm. McC. Martin, Jr. Chairman Allan Sproul Vice Chairman Winfield W. Riefler Secretary Elliott Thurston Assistant Secretary George B. Vest General Counsel Frederic Solomon Assistant General Counsel Woodlief Thomas Economist Wm. J. Abbott, Jr., Franklin L. Associate Economists Parsons, H. V. Roelse, Parker B. Willis, and Ralph A. Young Upon motion duly made and seconded, and by unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System open market account until the adjournment of the first meeting of the Committee after February 28, Mr. Sproul stated that the Board of Directors of the Federal Re serve Bank of New York had selected Mr. Rouse as Manager of the System Open Market Account, subject to the selection of the Federal Reserve Bank of New York by the Federal Open Market Committee as the Bank to execute transactions for the System account and his approval by the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the selection of Mr. Rouse as Manager of the System Open Market Account was approved. Chairman Martin stated that he was voting for approval of Mr. Rouse as Manager of the System Open Market Account although he dis approved of the procedure now followed by the Committee under which the board of directors of the agent Federal Reserve Bank selects the manager. There were no personalities involved in this feeling, the Chairman said, but he referred to the action of the Committee in authorizing appointment
of a special committee at the meeting on March 2, 1955, to study and bring back to the Committee concrete proposals for perfecting the structural and operating organization that would best implement the policies of the Federal Open Market Committee. This Committee, he said, had met with the Board of Directors of the New York Bank last November but he, as Chairman of the committee, had not called a meeting since that time partly, at least, because of pressure of other problems. Chairman Martin said that he intended to continue the Committee ap pointed pursuant to that authorization until it had a report to submit to the full Committee, and in this connection he stated that he pro posed to have a meeting of the committee on the day on which the next meeting of the Federal Open Market Committee (probably to be held on Tuesday, March 27, 1956) took place. Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Com mittee held on February 15, 1956, were approved. Reference was made to a memorandum distributed with the agenda respect to the procedure approved by the Committee for this meeting with in addition to members and officers of the on March 2, 1955, whereby, not currently members of the Com Committee and Reserve Bank Presidents be made available to any other minutes and other records could mittee, Reserve Bank with the of Governors or of a Federal employee of the Board or another Reserve Bank President, of a member of the Committee approval the extent to The memorandum indicated with notice to the Secretary.
which such records were being made available, on the basis of advices received by the Secretary, and suggested that following this meeting a review be made by the members of the Committee and the Reserve Bank Presidents of the persons authorized to have access to the records, with proper notice to the Secretary of any changes that should be made in existing authorizations. It was agreed that no change should be made at this time in the procedure for giving access to minutes and other records of the Federal Open Market Committee. In taking this action, it was understood that following this meeting the Secretary would be informed of any changes that should be made in the existing authorizations. Chairman Martin commented on the traditional care with which minutes and other records of the Open Market Committee were handled, noting that there was a problem of how to train additional persons in the System so that they would be prepared to carry out the activities of the Federal Open Market Committee. The Committee wanted to maintain secrecy regarding its discussions and activities, but it also should encourage the development of as much talent as possible for this work throughout the System. This was a responsibility within the province of each member of the Committee, the Chairman noted, and each individual who attended the meetings must judge the extent to which Committee discussions should be passed on to others. He was inclined to think, have been more secrecy or re Chairman Martin said, that there might open market materials and discussions in handling some of the striction
at some of the Federal Reserve Banks and at the Board than was neces sary in order to maintain the confidential nature of the Committee's operations. This might have limited the development of knowledge on the part of additional individuals in the System undesirably. Chairman Martin said that he was not suggesting any change in procedure which would result in lack of judicious use of the materials or information in the discussions at the meetings, and he noted that in the past there had been some unfortunate "leaks" regarding Committee discussions and decisions. However, he felt that the likelihood of such leaks would not be furthered if the individual Committee members saw fit to make materials available to selected additional persons for training purposes. Chairman Martin referred to the resolution adopted by the Fed eral Open Market Committee on November 20, 1936, authorizing each Re serve Bank to purchase and sell, at home and abroad, cable transfers and bills of exchange and bankers' acceptances payable in foreign cur rencies, to the extent that such purchases and sales may be deemed to be necessary or advisable in connection with the establishment, mainte nance, operation, increase, reduction, or discontinuance of accounts of Federal Reserve Banks in foreign countries. It was agreed unanimously that no action should be taken at this time to amend or terminate the resolution of November 20, 1936. sent to the members of the this meeting there had been Before 1956, from Mr. Rouse and Mr. memorandum dated February 23, Committee a of the Board's Division of Bank Operations, with Leonard, Director
respect to the allocation of securities in the System open market account among the several Federal Reserve Banks, as it would take place on April 2, 1956, under the formula which became effective September 1, 1953. This formula provided for percentage allocations to each Federal Reserve Bank based on the ratio of total assets of each Bank to total assets of all Reserve Banks computed on a daily average basis during the twelve months ending in February. It was agreed unanimously that no action should be taken at this time to amend or terminate the procedure for allocation of securities in the System open market account which was adopted pursuant to the action of the Committee at its meeting on June 11, Martin noted that authority had been given to the Chairman meeting on March 1, 1951, and renewed Chairman of the Committee at the time, to appoint a Federal Reserve in March of each year since that account temporarily in case the Bank as agent to operate the System to function. The report Bank of New York was unable Federal Reserve dated January 9, 1956, which Subcommittee on Defense Planning of the Committee on January 10, 1956, was approved by the Federal Open Market be reaffirmed. that this authorization included a recommendation Chairman to of the The authority Reserve Bank as agent appoint a Federal account temporarily in to operate the Reserve Bank of New case the Federal to function was re York was unable affirmed by unanimous vote. approval was given to Unanimous weekly report of distribution of the
open market operations prepared at the Federal Reserve Bank of New York as follows: 1. The members of the Board of Governors. 2. The Presidents of the 12 Federal Reserve Banks. 3. Officers of the Federal Open Market Committee. 4. The Secretary of the Treasury. 5. The Under Secretary of the Treasury. 6. The Assistant Secretary of the Treasury working on debt management problems. 7. The Fiscal Assistant Secretary of the Treasury. 8. The Chief of the Division of Bank Operations of the Board of Governors. 9. The officer in charge of research at each of the Fed eral Reserve Banks which is not represented by its President on the Federal Open Market Committee. 10. The alternate member of the Federal Open Market Com mittee from the Federal Reserve Bank of New York; the Assistant Vice President of the Federal Reserve Bank of New York working under the Manager of the System Account; the Managers of the Securities De partment of the New York Bank; the Vice President in Charge and the Manager of the Research Depart ment of the New York Bank; and the confidential files of the New York Bank as agent for the Fed eral Open Market Committee. 11. With the approval of a member of the Federal Open Market Committee or any other President of a Fed eral Reserve Bank, with notice to the Secretary, any other employee of the Board of Governors or of a Federal Reserve Bank. had been sent to the members of the Before this meeting there authorization from the Federal Open Market Committee Committee a draft of Bank of New York to purchase bankers' acceptances. to the Federal Reserve of the authorization approved in prin This draft represented a revision 2, 1955, under which the of the Committee on March ciple at the meeting issue instructions to a given the authority to executive committee was a resolution in a form such purchases when Reserve Bank for Federal had been prepared. Such to the executive committee satisfactory
authorization was given by the executive committee to the Federal Reserve Bank of New York, effective March 29, 1955; and under the terms of the resolution abolishing the executive committee, adopted at the meeting on June 22, 1955, that authorization by the executive committee became an authorization of the full Committee. The pro posed resolution was drafted to continue as an authority from the Committee to the New York Bank the existing provisions with respect to purchases of bankers' acceptances. Mr. Robertson said that he would oppose a renewal of the existing authority with respect to bank acceptance policy. In this connection, he made a statement substantially as follows: My views on this matter have not changed since a year ago, when I voted against the proposal that the System pur chase bank acceptances "at market rates of discount" and maintain a portfolio of such acceptances. Originally, the suggestion that we participate actively in the bank acceptance market was based on the idea that this market was impeded by "administered rate constriction" and that the situation could be alleviated by modest purchases at our initiative. Upon further consideration this line of reasoning was abandoned, and when the Committee adopted this policy, in March 1955, it was for the stated purpose of "showing the interest of the central banking organization in this market." In my opinion a fundamental principle of our policy should be that the central bank should interfere with free the extent necessary to discharge our market forces only to We should stay out of market situations responsibilities. it is clear that our participation will yield specific unless When we stepped into the acceptance market there benefits. basis for thinking that action was necessary, and was no there is no evidence that the maintenance of a Federal Re serve portfolio of bank acceptances during the past year market in any way. We are properly has aided the acceptance charge that we have meddled gratuitously in subject to the that did not need our participation. a situation
For these reasons, I propose that the Federal Reserve System withdraw from active participation in the acceptance market. I believe that we could better support and encourage that market, if that be our aim, by standing ready to pur chase acceptances at published rates that ordinarily would be a fraction above corresponding market rates. However, even such action is not warranted at this time. Chairman Martin called for comments from other members of the Committee, and in response to a question from Mr. Balderston, Mr. Rouse referred to a memorandum prepared at the Federal Reserve Bank of New York under date of March 5, 1956, and distributed to the members of the Committee at the beginning of this meeting reviewing the results of System bankers' acceptance operations to date. Mr. Rouse commented briefly on the report, noting that a desire to increase flexibility of rates was a prime reason for embarking on the present policy, and that the System's activity in this market had contributed noticeably to flexibility in acceptance rates. Also Mr. Rouse felt that this activity had been of some help from the standpoint of dealers in acceptances. The volume had been so small, however, that a great deal of importance could not yet be attached to the operation. Mr. Rouse said that it was hoped that there ultimately would be more widespread convertibility of more currencies and, in his view, it would be worth while to continue the existing authority for purchases of bankers' acceptances for the purposes indicated at the time the authorization was approved a year ago, namely, that the System should assist in the further development of an acceptance market in the United States, with a view to improving means of financing foreign trade and the functioning of this country's an international money market.
Chairman Martin noted that there had been no second to Mr. Robertson's proposal that the Federal Reserve System withdraw from active participation in the acceptance market. Thereupon, upon motion duly made and seconded, the following authoriza tion was approved, Messrs. Martin, Sproul, Balderston, Erickson, Johns, Mills, Powell, Shepardson, Szymczak, Vardaman, and Fulton, voting for the resolution, and Mr. Robertson voting "no" for the reasons indicated: The Federal Open Market Committee hereby authorizes the Federal Reserve Bank of New York for its own account to buy from and sell to acceptance dealers, at market rates of dis count, prime bankers' acceptances of the kinds designated in the regulations of the Federal Open Market Committee, at such times and in such amounts as may be advisable and consistent with the general credit policies and instructions of the Fed eral Open Market Committee, provided that the aggregate amount of such bankers' acceptances held at any one time by the Fed eral Reserve Bank of New York shall not exceed $25 million. The Federal Open Market Committee further authorizes the Federal Reserve Bank of New York to enter into repurchase agree ments with nonbank dealers in bankers' acceptances covering prime bankers' acceptances of the kinds designated in the regu lations of the Federal Open Market Committee, subject to the on which the Federal Reserve Bank of New York same conditions is now or may hereafter be authorized from time to time by the Federal Open Market Committee to enter into repurchase agree ments covering United States Government securities, except the maturities of such bankers' acceptances at the time that of entering into such repurchase agreements shall not exceed except that in the event of the failure of six months and the seller to repurchase, such acceptances shall continue to by the Federal Reserve Bank or shall be sold in the be held agreements shall be at the open market. Such repurchase that applicable, at the time of entering into same rate as agreements covering United such agreements, to repurchase States Government securities. committee of the Federal Open On July 20, 1954, the executive given that committee to pursuant to the authority Market Committee, open market account with a view, for transactions for the System arrange administration of the account, among other things, "to the practical
authorized the Manager of the System Account to engage in purchase and sale transactions in the market for "cash," i.e., for delivery and payment on the same day as that on which the transaction was executed. Previously, transactions had been limited to "regular" or next-day delivery, which prevented the System from making the most efficient use of its facilities in meeting all situations which might arise, particularly those which developed suddenly or which might be impossible to predict very far in advance. This authoriza tion, which became an authorization of the full Committee at the time the executive committee was abolished on June 22, 1955, was in addition to the procedure for "regular" transactions and did not contemplate that all System transactions would be on a cash basis. In response to a question from Mr. Vardaman, Mr. Rouse stated that the authority for cash transactions had been used quite actively in recent months. While he did not have precise figures of the pro portionate volume of transactions engaged in on a cash or regular delivery basis, Mr. Rouse expressed the opinion that the substantial use that had been made of the procedure for completing transactions and payment on the same day had been of definite assist for delivery techniques of operations for the System account. ance in improving the Unanimous approval was given to the without change of the under continuance that the Manager of the System standing was authorized to engage in trans Account for either cash delivery or regular actions delivery.
Chairman Martin next referred to certain statements of operat ing policies or procedures which had been adopted in 1953 and reaffirmed in 1954 and 1955, and inquired whether there was agreement that the following statement of policy with respect to operations for the System account, listed as item "a" under topic 7 of the agenda for this meet ing, should be continued: It is not now the policy of the Committee to support any pattern of prices and yields in the Government securities market, and intervention in the Government securities market is solely to effectuate the objectives of monetary and credit policy (including correction of disorderly markets). It was agreed unanimously that the foregoing statement of operating policy should be continued without change. Chairman Martin then referred to the following additional state ments of operating policy, listed as items "b" and "c" under topic 7 of the agenda, inquiring whether the Committee desired that they be re affirmed at this time: b. Operations for the System account in the open market, other than repurchase agreements, shall be confined to short-term securities (except in the correction of disorderly markets), and during a period of Treasury financing there shall be no purchases of (1) maturing issues for which an exchange is being offered, (2) when-issued securities, or (3) outstanding issues of comparable maturities to those being offered for these policies to be followed until such exchange; be superseded or modified by further time as they may of the Federal Open Market Committee. action in the open market for the System account c. Transactions for the purpose of provid be entered into solely shall in the correction of absorbing reserves (except ing or and shall not include offsetting disorderly markets), for the purpose of and sales of securities purchases
altering the maturity pattern of the System's port folio; such policy to be followed until such time as it may be superseded or modified by further action of the Federal Open Market Committee. Mr. Sproul stated that he had reexamined his views concerning the continuing operating policies adopted by the Committee during the past three years as listed under item 7 of the agenda for this meeting, and that he was still opposed in principle and in practice to these operating rules which confine our ordinary operations to short-term Government securities, and which forbid transactions in certain securi ties at times of Treasury financing and offsetting sales and purchases of securities, until such time as these rules may be superseded by further action of the Committee. Mr. Sproul continued his statement on this subject substantially as follows: Whatever justification there may have been for such continuing rules, when first enacted, would seem to me to have disappeared with adoption of a program which brings together the full Committee every three weeks, and places it directly in relation with the operating bank, without the intermediary of an executive committee. There is no longer need, if there ever was, for the Committee to con tinue to pass these ordinances of self denial, which tend to inhibit freedom of discussion and action by the Com mittee, and to generate complaint and criticism by some sectors of the market and by some of those in public life when current circumstance dictates action by the Committee to supersede its continuing rules. This will be increasingly so, I think, as time passes and it is more and more for gotten that these experimental rules are only in effect until superseded by further action of the Committee. Now that we have the means of regularly determining policy every three weeks, or oftener if special circumstances require it, and of keeping in touch with operations from day to day through telephone and wire reports, it seems to me that it would be better to remove these particular continuing operating policies from the record (paragraphs b and c of item 7 of the agenda), and to discuss the matters with which they are concerned whenever we meet and whenever any member of the Committee or the Manager of the System Open Market
Account thinks that the current situation suggests a possible deviation from the practices of the past three years. What I am getting at here is to try to introduce some greater flexibility into our thinking, to dispel the idea inside and outside the System that we are frozen in a pattern, and to create an atmosphere which will en courage rather than discourage discussion of these im portant operating problems. It is significant, I think, that there has been no real discussion of these continu ing operating policies, other than formal yes and no votes, for many months. I may have contributed to this by suggesting a period of study of these rules in practice. I hope to present to the Committee, shortly, the results of my own study and I would also hope that this will stimulate a re-examination of our position on the part of all members of the Committee. Mr. Mills stated that he would like to open the rebuttal to Mr. Sproul's argument by expressing the opinion that the best proof of the set out in "section (b) of continuing operating efficacy of the policy experience of the past three years. This policies" lies in the tested clearly that this policy, in said, has demonstrated very experience, he objectives, has also of the System's general facilitating attainment in the way of positive market what can be expected clarified to the of a Treasury financing operation. action at the time System as fol statement was substantially of Mr. Mills' The remainder lows: out--and I have great Mr. Sproul has pointed there is a danger his point of view--that sympathy for set forth in to the principles that rigid adherence carved on graven become like something section (b) can be changed. However, that can never afterwards stone members of the our duties as be failing in we would we ever to allow Committee were Open Market Federal an attitude. My drift into so inert ourselves to is in of this Committee in the membership confidence so remote a possibility. enough against surance
The wording of section (b) distinctly sets out that this policy remains in effect solely at the discretion of the Open Market Committee and is subject to change when ever required, either in the event of urgency or following deliberative discussions. On the question of emergency or deliberative decisions, surely the Open Market Committee should always strive to be a deliberative body whose readi ness for reaching quick decisions is helped and not hindered by reliance on time-tested principles. We have learned recently in a rather difficult period that occasions can arise requiring hurried meetings of the Committee and risk ing hasty decisions. It seems to me that abiding by a proven principle, like that of section (b), in serving to preserve the deliberative process for the Open Market Com mittee, affords protection against hasty decisions that can result in undesirable policy deviations. In my opinion, the rare occasion calling for a deviation from the policy contained in section (b) has yet to be witnessed, although it is of course possible of occurrence. Mr. Erickson recalled the discussions of these operating policies in 1953 and the fact that he had joined Mr. Sproul in voting in December 1953 to add to the statement of procedure for confining operations to short-term securities and avoiding transactions in securities involved in a Treasury financing, a clause which would have provided that the policy be followed until the next meeting of the Federal Open Market Committee. He also had voted against the statement of policy preclud ing offsetting purchases and sales of securities for the purposes of altering the maturity pattern of the System's portfolio. Mr. Erickson went on to say that he would like to see more flexibility in these matters. He noted that the statements under discussion had been adopted by the Committee in 1953, That they had been reaffirmed in March of 1954 and again in March of 1955, and they were now being
presented again without having been changed in the interim. Mr. Erickson questioned the meaning of the concluding clauses of the two statements under discussion which provide that the policies be followed until such time as they may be superseded or modified by further action of the Committee. He said that reaction of the financial community and the financial press to last November's de viation from the policy against purchases of securities involved in a Treasury financing made it apparent that dealers and others had come to look upon these as inflexible statements of procedure. This had resulted in confusion, Mr. Erickson said, and he expressed the opinion that it would be desirable for the Committee to give consideration to these procedures at frequent meetings and not to permit them to be set as policies to be followed more or less for all time. He thought a situation would arise again when the Com mittee would wish to depart from the statements of policy. Chairman Martin responded that the statements of policy at every meeting if that was de could be called up for discussion should abandon the statements He did not think the Committee sired. from one meeting to another. Chairman and have no policy guidance suggestion that the the view that Mr. Sproul's Martin also expressed there was a means of from the record because statements be removed three weeks did not seem appli regularly determining policy every executive committee, each discontinuance of the cable since, with bring any of these privileged to was now member of the Committee
questions up for discussion at every meeting, now ordinarily held at three-week intervals. He would not object to having the minutes indicate that members were encouraged to bring these matters up for discussion, but he felt that the Committee should give an indication as to what its general policy should be on the matters dealt with by the statements. Mr. Sproul stated that he disagreed with Mr. Mills. He did not think the present operating policies had contributed to the effec tiveness of credit policy. This was primarily perhaps because they had not, as the Committee was encouraged to believe, contributed to the better functioning of the Government securities market in the way that was supposed to have resulted. With respect to Chairman Martin's comment that the statements could be brought up for discussion at each meeting, Mr. Sproul said that their adoption as continuing policies had proved to be a "wet blanket" on discussion despite the last clause in the "b" and "c" statements; there had been a tendency for members of the Committee to be divided into rigid groups with their minds made up either for or against the policy. Removal of the statements would not mean that the Committee would not have any policy between meetings, Mr. Sproul said: it could adopt the same statement but with a wording that would make it clear that the Committee would constantly be taking action to continue the statement rather than to affirmatively have the statement in a form which indicated it to be a policy that could only be changed under the most urgent circumstances.
During the ensuing discussion, Mr. Balderston suggested that perhaps the substance of statement "b" should be looked upon as guidance to current actions and included in the directives to be issued to the Federal Reserve Bank of New York as agent for the System account at each meeting. He was not suggesting a change at this time but felt that such a change might be considered at a later meeting. Chairman Martin said that he would like to make the point that consideration of the substance of these statements had not gone for three years without being reaffirmed: Mr. Sproul had seen to it that the Committee had had discussions of the statements at intervals, and there had been public discussions of the statements with the re sult that they had been constantly under re-examination. Chairman they should be re-examined. However, he felt that Martin said that had been responsible for getting the statements the Committee itself importance was attached to them than was into a framework where more warranted--an importance that would not have developed if the Com in so much disagreement within itself regarding mittee had not been to them than was and drawn more public attention the statements, justified. that one of the problems was the drawing of a Mr. Leach felt policy and statements having a public record of credit line between need not go into procedures which practices or to do with operating drawing a line difficulty of recognized the record. He a public
between these two but hoped that the policy record could more and more be a record of credit policy actions or decisions, and less and less a record relating to operating techniques or practices. Mr. Bryan felt that the discussion this morning was largely on matters of form rather than substance. The Committee might not need a constitution, but some general rules as to its operating policies were needed. The real problem was the fundamental disagree ment that existed in the Committee regarding the substance of the statements under discussion. He thought it doubtful that all members of the Committee would ever agree on each of the statements of pro cedures being discussed. After further discussion, Mr. Mills moved that the Committee re affirm the statements of operating procedure as set forth under "b" and "c" above, pending whatever study the Committee might decide to make along the lines suggested by Messrs. Balderston and Sproul. There was a long discussion of Mr. Mills' motion, during which Mr. Shepardson raised the question when consideration would be given to the substance of these statements. He noted that reference to them had been made at a number of meetings within the past year, and he expressed the hope that a full scale discussion of their substance could be had at an early meeting. In the course of the discussion, Mr. Vardaman suggested and the that the last clause of Mr. Mills' suggestion was accepted by Mr. Mills,
motion be eliminated in order to make clear that at this point the Committee was voting only on the question whether to reaffirm the statements in their present form. After further discussion, Mr. Mills' amended motion was put by the Chair and carried, Messrs. Martin, Balderston, Erickson, Johns, Mills, Powell, Robertson, Shepardson, Szymczak, Vardaman, and Fulton voting for the motion, and Mr. Sproul vot ing "no" for the reasons he had indicated. In a further discussion of the suggestions for re-examination of the continuing operating policies listed above as "b" and "c", it was agreed that the agenda for the next meeting of the Committee, to be held on Tuesday, March 27, 1956, would provide for a full discus sion of suggestions to be submitted to the Secretary regarding pro cedures that might be followed in reviewing these statements, as re affirmed at this meeting. At Chairman Martin's request, Mr. Vest commented on drafts of two resolutions which would carry out paragraph A-1, D, E, K, and L of the report of the Subcommittee on Defense Planning dated January 9, 1956, and approved by the Committee on January 10, 1956. Mr. Vest stated that one of the resolutions would provide for the continued the Committee during an emergency, while the other would operation of authorize certain actions by Federal Reserve Banks during an emergency. in his opinion the drafts of resolu Mr. Robertson stated that recommendations contained in the carried out satisfactorily the tions of the Subcommittee on the matters covered by the resolutions, report
and Mr. Sproul concurred in this view. Thereupon, upon motion duly made and seconded, unanimous approval was given to the following resolutions: RESOLUTION OF THE FEDERAL OPEN MARKET COMMITTEE TO PROVIDE FOR THE CONTINUED OPERATION OF THE COMMITTEE DURING AN EMERGENCY In the event of war or defense emergency if the Secretary or Assistant Secretary of the Federal Open Market Committee (or in the event of the unavailability of both of them, the Secretary or Acting Secretary of the Board of Governors of the Federal Re serve System) certifies that as a result of the emergency the available number of regular members and regular alternates of the Federal Open Market Committee is less than seven, all powers and functions of the said Committee shall be performed and exer cised by, and authority to exercise such powers and functions is hereby delegated to, an Interim Committee, subject to the follow ing terms and conditions. Such Interim Committee shall consist of seven members, com prising each regular member and regular alternate of the Federal Open Market Committee then available, together with an additional number, sufficient to make a total of seven, which shall be made up in the following order of priority from those available: (1) each alternate at large (as defined below); (2) each President of a Federal Reserve Bank not then either a regular member or an alternate; (3) each First Vice President of a Federal Reserve Bank; provided that (a) within each of the groups referred to in clauses (2), and (3) priority of selection shall be in numerical (1), order according to the numbers of the Federal Reserve Districts, (b) the President and the First Vice President of the same Fed eral Reserve Bank shall not serve at the same time as members of the Interim Committee, and (c) whenever a regular member or regular alternate of the Federal Open Market Committee or a person having a higher priority as indicated in clauses (1), he shall become a member of the (2), and (3) becomes available Interim Committee in the place of the person then on the Interim Committee having the lowest priority. The Interim Committee is hereby authorized to take action by majority vote of those present whenever one or more members thereof are present, pro vided that an affirmative vote for the action taken is cast by one regular member, regular alternate, or President at least of a Federal Reserve Bank. The delegation of authority and other procedures set forth above shall be effective only during as there are available less than a total such period or periods alternates of the Federal seven regular members and regular of Open Market Committee.
As used herein the term "regular member" refers to a member of the Federal Open Market Committee duly appointed or elected in accordance with existing law; the term "regular alternate" refers to an alternate of the Committee duly elected in accordance with existing law and serving in the absence of the regular member for whom he was elected; and the term "alternate at large" refers to any other duly elected alternate of the Committee at a time when the member in whose absence he was elected to serve is available. RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY The Federal Open Market Committee hereby authorizes each Fed eral Reserve Bank to take any or all of the actions set forth be low during war or defense emergency when such Federal Reserve Bank finds itself unable after reasonable efforts to be in communication with the Federal Open Market Committee (or with the Interim Com mittee acting in lieu of the Federal Open Market Committee) or when the Federal Open Market Committee (or such Interim Committee) is unable to function. it necessary in the light of economic (1) Whenever it deems conditions and the general credit situation then prevailing (after taking into account the possibility of providing necessary credit through advances secured by direct obligations of the United States under the last paragraph of section 13 of the Federal Reserve Act), Reserve Bank may purchase and sell obligations of the such Federal for its own account, either outright or under re United States from and to banks, dealers or other holders of purchase agreement, such obligations. of obligations of the any prospective seller (2) In case Reserve Bank is unable to tender the United States to a Federal such obligations because of condi actual securities representing such Federal Reserve Bank may, tions resulting from the emergency, as it deems and subject to such safeguards in its discretion in lieu of the actual securi accept from such seller, necessary, in form acceptable to executed by the seller ties, a "due bill" effect that the Bank stating in substantial such Federal Reserve the subject of which are owner of the obligations seller is the is thereby trans of such obligations that ownership the purchase, and that the obligations Reserve Bank, ferred to the Federal Bank as soon the Federal Reserve delivered to will be themselves as possible. in its discretion pur Reserve Bank may (3) Such Federal directly from the certificates of indebtedness chase special to cover overdrafts as may be needed in such amounts United States
in the general account of the Treasurer of the United States on the books of such Bank or for the temporary accommodation of the Treasury, but such Bank shall take all steps practicable at the time to insure as far as possible that the amount of obliga tions acquired directly from the United States and held by it, together with the amount of such obligations so acquired and held by all other Federal Reserve Banks, does not exceed $5 bil lion at any one time. Authority to take the actions above set forth shall be effective only until such time as the Federal Reserve Bank is able again to establish communications with the Federal Open Interim Committee), and such Com Market Committee (or the mittee is then functioning. Before this meeting there had been distributed to the members of the Committee a report of open market operations covering commitments executed December 13, 1955 through February 29, 1956, and at this meeting there was distributed a supplementary report covering commitments executed March 1-5, 1956, inclusive. Copies of both reports have been placed in the files of the Federal Open Market Committee. in response to a question from Chairman Martin, Mr. Rouse stated, it could to carry out the wishes account had done the best that the System and operations seemed to have in a difficult situation, of the Committee market to the Treasury an well. Reaction of the worked out reasonably indicated a surprisingly its forthcoming refinancing nouncement regarding Rouse thought it unlikely attrition. Mr. offering with little successful that the System give would be made to the Committee that any suggestion at this stage however, that He noted, in this refinancing. assistance all indica although forecast accurately, could not be the final result to which A third point he had expressed. the views bore out tions now mentioned financing of corporate large calendar was the Rouse referred Mr.
in the report distributed. Large New York Banks were suggesting this was an appropriate time for corporations to fund bank loans. One of the factors in this development was the desire of banks to improve their liquidity positions. Chairman Martin stated that question had been raised concerning the action of the System account in making available repurchase agree ments since the last meeting of the Committee, and he asked that Mr. Rouse comment on this matter. Mr. Rouse said that he had endeavored to open the doors some what for repurchase agreements and that they had been extended to a number of dealers in recent weeks. The amounts had not been large. He reported discussions regarding dealers' loans and the responsibility of banks in a Treasury financing operation, both among representatives of the American Bankers Association and the Investment Bankers Associa tion. In his discussions with dealers, Mr. Rouse said, he had attempted to make it clear that while the System account was willing to assist, dealers to find money that was available before they came it expected to the Federal Reserve for assistance. that in his opinion the handling of the account Mr. Mills said He then com had been entirely appropriate. the preceding meeting since the acknowledged re financing and the forthcoming Treasury mented on with a Treasury financ Federal Reserve to cooperate sponsibility of the the point of interference possible up to to the utmost ing operation He felt that the for credit policy. the System's objectives with
Manager of the System Open Market Account had very meticulously followed that principle in the present Treasury financing opera tion, in that the System's policy objectives had in no wise been deterred by the reserves that had been supplied to the market. Continuing, Mr. Mills said that fortunately the point of view of the market at the present time indicated that the Treasury should not experience a heavy attrition in its refinancing program. How ever, he pointed out that whatever the System could do to minimize attrition in this or following Treasury financing operations would benefit the Treasury in the course of the next few months in that it could take fuller advantage of any budget surplus available to effect a dramatic and heartening reduction in the Federal debt by way of offering a lesser amount of refunding securities than the amount of securities maturing. Mr. Mills emphasized that a reduction in the Federal debt by the unspectacular route of attrition would not offer the same psychological advantages of the alternative procedure. commented again on the outlook for the Treasury Mr. Rouse financing, stating that the System account was attempting to follow developments very closely from day to day. Upon motion duly made and seconded, and by unanimous vote, the transactions for the System account during the period December 13, 1955, through March 5, 1956, inclusive, were approved, ratified, and confirmed. the room to assist Board's staff then entered Members of the illustrated by chart slides. of an economic review, in a presentation
A copy of the script of the review was sent to each member of the Committee following the meeting. The review stated that industrial production in the United States, like gross national product, had shown little further change recently, following earlier marked ad vances. Some comments regarding this leveling off called attention to selective reductions in demand and their possible significance for economic prospects and policy. Other observers emphasized that the leveling off came only after production in many lines had reached near capacity levels and upward pressures on industrial prices had developed. Industrial prices in the United States are now substanti ally higher than last spring, it was stated, and increases have con tinued in recent months although at a somewhat less rapid rate than earlier. In concluding the review, Mr. Thomas made the following statement: As we have seen, recovery and expansion in activity have been followed by little change. To some observers this has suggested that the forces of recovery may be about spent and that concern for the future should relate to possible declines in activity and employment--or at least to the pos sible failure of activity to increase enough to make full use of our expanding resources. In this view not much con cern need be felt about the possibility of further price advances. In another view, the forces of expansion are still strong, leveling off of output is due in considerable part to capacity limitations, and the threat of further broad price advances is still very real. Some support can be found in the facts for each of the positions. Evidence of diminishing expansionary forces is for example, in the consumer credit field. The rapid seen, associated with easier terms and rise in instalment credit high auto sales was moderating by the fourth quarter, as and repayments continued to rise, and extensions declined so far this year. In the a further slowing is evident
housing field, mortgage lending and housing starts are down somewhat from earlier very high levels. Business inventories of durable goods were higher at the end of January in relation to sales than they had been earlier, and the rate of inventory accumulation in the economy generally in recent months has been larger than would be indefinitely sustainable. down further last year, reflect Agricultural incomes were especially for hogs. While land values rose ing lower prices, somewhat until autumn, the value of livestock on farms--though not the number--was considerably reduced. this year farmers owed more on short At the beginning of and long term than a year ago--about 10 to 15 per cent morethey have drawn down their deposits appreciably. and in some areas the turn of the year have for farm products since Price increases place limits upon the largely seasonal. Large surpluses been of price increases for leading crops. possibility are important lines, such as textiles, in In industry there readily met by higher produc demands have been which increasing Increases in list prices important price advances. tion without made effective in retail markets. for new cars could not be Looking at these facts alone, one might conclude that de mands may not be adequate to provide for further growth in the economy. High on the list of facts supporting the view that the threat of broad price increases is still real, is continuing operation of steel mills at capacity despite reduction of de mands from the auto industry. Railroad car builders, machinery producers, builders, and other users who had been unable to obtain enough steel are now in a better position to increase their production to fill orders already booked or in prospect. A related basic fact is the expansion going on in capital equipment outlays. Apparently equipment programs are being further expanded in this period of little change in over-all activity. In addition, outlays for consumer non-durables and services in the fourth quarter rose further and outlays of State and local governments have been continuing their upward trend. The volume of new capital issues by corporations and by State and local governments has increased recently and the calendar for prospective new issues is impressively large. The volume of orders received by manufacturers continued large through January. The most recent fluctuations have repre sented in large part unevenness in the flow of defense orders. These facts concerning the domestic situation suggest that the forces of expansion may still be very strong and that pres sures on available resources may continue. How the moderating of production increases abroad is to be is also a question. The Bank of England and the interpreted British Government, surveying the whole situation in the United
Kingdon, where balance of payments problems are of great importance and where virtually no slack exists in the economy, evidently are primarily concerned at this time with the dangers of too great domestic demands and rising costs and prices. From a long-run point of view, the record of recent years in the United States appears to be one of moderate growth in output, employment, and the money supply, with relative stability in prices. A possible near-term develop ment, more hopeful than either of the alternatives presented, is that the slackening recently evident in some areas will make possible further expansion in others without undue pres sures on resources and prices. Moderate adjustments of this nature, resulting from the play of market forces accompanied by a balanced budget and flexible credit policies, could help to bring about--and are essential for--the balanced alloca tion of resources that will assure the continuation of economic equilibrium and growth. What monetary policy would best contribute to the attain ment of this end? It is apparent that the policy of the past year has not been too restrictive. But that has been a policy of supplying the growth in reserves entirely through the dis count window, with open market operations covering, at most, only the seasonal variations. That means that restraints be came tighter in the course of time; as member bank borrowing increased, discount rates were raised, and bank liquidity was reduced to meet expanding loan demands. With the economy now operating close to capacity, credit growth in the coming year will need to be slower than in the past year, if rising price pressures are to be avoided. It may be that the existing de in view of adjustments already in process in gree of restraint, to bring about that result. the economy, will be fully adequate mean that reserves needed for further growth, as This would demands, ought to be supplied this well as for regular seasonal market operations without additional resort year through open the other hand, the System should to member bank borrowing. On a renewal of inflationary pressures, be prepared to combat might call for some that develop. Such a situation should rise in discount rates policy--through a shift in emphasis of accordance with de open market purchases--in or more limited for credit. The prices, and demands velopments in production, one than that carried seems to be a more delicate task ahead out during the past year. the discussion of open that Mr. Sproul open Chairman Martin asked market operations.
Mr. Sproul said that the over-all level of business remained high and steady with some strong spots and some weak spots, but with few signs that current near-stability is about to move out of the present range on the up side or to give way on the down side. It is early, of course, to assess the possible economic consequences of the decision of the President to seek reelection, he said, but at the moment it seems unlikely that it will have other than a steadying effect with out greatly changing what appeared to be the immediate economic trend before the decision was announced. Capital expenditure programs con tinue large, Mr. Sproul said, and consumer spending stays at high levels, but there appears to be a little less pressure on productive capacity than there was three months ago. Mr. Sproul went on to say that in this situation the prescrip tion of a steady hand on the controls and a watchful eye on the road to be in order. He would try to stay where we are be ahead continued and the next meeting of the Committee, he said, not being tween now about temporary or day-to-day variations in reserves, too concerned to be causing either knots or sloppy conditions if they do not appear On the basis of present reserve pro in the market and at the banks. a position might be maintained thought that such jections, Mr. Sproul This would be helpful, changes in System holdings. by relatively minor felt it important that he said, because he terms of over-all policy, in as possible of any try to give as little indication the Committee direction at this time. in policy in either change
Mr. Johns said that he had very little to add to Mr. Sproul's statement since he was in agreement with the views that had been ex pressed. He noted that in the group who assisted him in open market matters at the St. Louis Bank, a minority felt that the time had arrived when the System should begin to ease noticeably in its credit policy. For example, a reduction in the discount rate had been sug gested. Mr. Johns said he was not a member of that minority and he would have no reservations in seconding the views expressed by Mr. Sproul. Mr. Bryan said that he had no fundamental disagreement with the views expressed thus far. In reviewing the situation with the staff of the Atlanta Bank, there seemed to be agreement at the moment upsurge in the economy had abated, but it was not that the tremendous clear that it would not break out on the up-side again. Mr. Bryan said he did not feel this was the time for any dramatic move in either change in the discount rate. He such, for example, as a direction, member of his staff had suggested that the noted, however, that one discount rate be lowered. that he was not one to subscribe now to any Mr. Fulton stated reviewed conditions in the of the situation. He indication of easing to high current levels of activity in Cleveland District, pointing for large outlays for well as to firm plans leading industries as not believe the said that he did Mr. Fulton plant and equipment. new
down-turn in the automobile industry or in housing was lethal to the economy. The Committee should be ready to move within the next 30 to 45 days toward a position of greater restraint rather than ease, he said, if the price structure were to be affected by the upward pressures which he felt existed. Mr. Shepardson said that he was inclined to feel much as Mr. Fulton had indicated. He was concerned that as yet there had been no apparent development that was encouraging in the agricultural picture. The price squeeze for agriculture in the long run is not good. Costs of farmers have continued to rise, and the prospects are that there will be further increases reflecting higher labor costs and other factors. Mr. Shepardson felt the Committee should be alert to move against any further price increases. He would not suggest a material change in policy right now, but the Committee should hold firmly at its present position and be on guard to avoid creeping price increases such as occurred last year. Mr. Robertson said that he agreed with the views expressed by Messrs. Fulton and Shepardson. He noted that at the last two meetings of the Committee emphasis had been placed on the "relaxation" side of the even keel. He felt the Manager of the Account had meticulously followed the Committee's directions. This had resulted in some relaxa said he doubted the need for resolving doubts on tion. Mr. Robertson purchases of $88 million of bills, just before the side of ease with
the Treasury financing. He also felt there had been too-easy use of the repurchase mechanism. He agreed that through mid-March, while the Treasury financing was still a factor, it was necessary to con tinue to maintain stability in the market, but he felt that over the period of the next three weeks emphasis should be on the side of resolving doubts in favor of firmness rather than of ease. Mr. Robertson said he was not urging a change in policy but only that, when it was necessary to resolve doubts, that not be done on the side of ease. He referred to the level of prices of farm products which Mr. Shepardson had mentioned, stating that he thought the Com mittee tended to be too complacent about the average level of prices and failed to give consideration to the extent to which the over-all average was based upon a very low level of prices for farm products. His suggestion would be that for the next three weeks management of the account be directed to move imperceptibly toward taking up some of the slack in the money market, not taking any drastic action but resolving doubts on the side of not purchasing securities whenever there was a doubt. Mr. Mills said that business sentiment since the preceding meeting has fluctuated and continues to fluctuate, but on balance it would look as though both business sentiment and economic prospects improved over the last three weeks. His feelings were similar have by Mr. Sproul and shared by Messrs. Johns and to those expressed symbolized perhaps by a level said, and his views would be Bryan, he reserves around $300 million. of negative free
Mr. Leach said that the Fifth District economy continued strong. There was no significant evidence of weakness although the situation in synthetic textiles has slipped further since the last meeting and is now reflected in curtailed operations. The cotton textile outlook continues favorable while bituminous coal output has continued to rise and is running some 20 per cent above a year ago. On balance, the district economy shows no appreciable movement in either direction and activity continues at extremely high levels. Although the immediate repercussions of the President's announcement have not been great, it has eliminated uncertainty and must be re garded as a plus factor. Loan demand continues strong. Mr. Leach said that recent developments do not call for any easing in the present situation, and he was inclined to agree with those who felt that Committee policy should be one of keeping an even keel in the immediate future. Mr. Leedy said that he might express a different view if the problems in the Tenth District were ones about which the Committee could do something. There has been drought in a considerable part of the District and there is some distress in farm areas. However, he would subscribe to the view that nothing the Committee can do will make any direct contribution to that situation. Mr. Leedy felt that in the picture in the past three weeks was the most important thing the President's announcement. He could see no basis on which the should take action to give encouragement to the furtherance Committee
of the kind of activity that has been taking place lately in the stock market. For the time being, he felt the Committee should pursue a policy of watchful waiting along the lines suggested by Mr. Sproul and others. Mr. Powell reviewed economic conditions in the Ninth District briefly, stating that in his view open market operations should be maintained on an even keel basis until the next meeting of the Com mittee with no perceptible change being made in policy at the present time. Chairman Martin noted that Mr. Mangels was attending a meeting of the Federal Open Market Committee as a Reserve Bank President for the first time and invited him to make any observations he cared to make. Mr. Mangels presented a summary of economic conditions in the in which he brought out reasons why the trend of Twelfth District somewhat on the up-side during the past optimism had been modified bank credit, he noted that Twelfth several weeks. With respect to that commercial and have been losing demand deposits, District banks and that agricultural, real industrial loans were down slightly, recently. Borrowings by and consumer credit had increased estate, no occasion had arisen quite modest and recently had been member banks continuous or necessary to discuss considered it in which the Bank said that he bank. Mr. Mangels with any member excessive borrowing
would be inclined to continue about the pattern and policy that had been followed in the open market during recent weeks. If, however, there were to be a choice, perhaps he would be inclined to resolve doubts on the side of ease rather than increased tightness. Mr. Irons described economic activities in the Eleventh District as being at a high level and as warranting repetition of the remark he had made at the preceding meeting that the plus signs outbalanced the negative signs. While he would not wish to take any overt action at this time, he would align himself with the views ex pressed by Messrs. Robertson and Shepardson to the effect that if doubts were to be resolved one way or the other, they should be a little on the side of greater restraint rather than of ease. Mr. Erickson said that the New England economy remained strong. which had been running behind figures for Residential building awards, ago, had improved and during the first three weeks of February a year well ahead of last year's figures. New England has had were running and reached a settlement with a wage increase its first textile strike and a further increase of seven cents of five cents an hour immediately Whether this would set a pattern for an hour to be effective April 30. difficult to judge at present. in New England was other wage settlements weeks he would maintain open said that for the next three Mr. Erickson in the recent past. He, too, policy as it had been followed market toward more re way, he would lean had to lean either felt that if he than toward ease. straint rather
Mr. Szymczak said he saw nothing in the picture to require a change in Committee policy as it had been decided at the meeting three weeks ago and as pursued since that time. The policy then adopted and the way in which it had been carried out had not produced a too-easy situation, in Mr. Szymczak's view. Mr. Balderston said that he was deeply concerned about the price increases that were impending and about their coming so late in the present cyclical movement as not to be effective in restraining demand. The Committee must look forward to further price increases as a result of increased freight rates and current and pending increases in wage rates. His concern was all the more real, he said, because the price increases to which he referred were coming at a time when there was topping out in parts of the economy. On balance, Mr. Balderston now felt the Committee should restrict credit a little more than he felt it should six weeks ago. He hoped the bill rate would rise to the discount rate in the near future and that the Com mittee would keep negative free reserves at about the $400 million level. In short, Mr. Balderston said he subscribed to the views ex pressed by Mr. Robertson and others that the need was for a little greater tightness than was the case a few weeks ago. Chairman Martin said he believed that the members of the Com on the existing economic situa mittee were in fairly close agreement for. His view, he said, had swung tion and the credit policy called
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
Also: Record of Policy Actions