April 17, 1956 FOMC Minutes

FOMC minutes

should be made in the Committee's policy at this time, and that this would mean that no change was called for in the wording of the direc tive to be issued to the Federal Reserve Bank of New York. He in quired of Mr. Rouse as to whether this was his understanding, and Mr. Rouse indicated that it was, and that no change in the limitations in the directive was called for. 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, 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 restraining inflationary developments in the interest of sustainable economic growth, and (c) to the practical admin istration of the account; provided that the aggregate amount of securities held in the System account (including commit ments 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 dis in cases where it seems desirable, to issue par cretion, ticipations 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 Re Banks shall not exceed in the aggregate $500 million; serve

(3) To sell direct to the Treasury from the System ac count 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 in the aggregate $500 million face amount, and such sales shall be made as nearly as may be practicable at the prices currently quoted in the open market. Chairman Martin suggested that the next meeting of the Com mittee be set for Wednesday, May 9, 1956, and there was agreement with this suggestion. Chairman Martin next brought up the question of the authority for repurchase agreements. He noted a suggestion that, instead of considering the authority for the Federal Reserve Bank of New York to enter into repurchase agreements with nonbank dealers in Government securities at each meeting of the Committee it might be sufficient to raise this question at less frequent intervals, and he inquired whether any of the members of the Committee would object to that procedure. Mr. Vardaman stated that he could see no reason for bringing the question up at each meeting of the Committee, and Chairman Martin suggested that it would seem sufficient to bring it up at the annual meeting of the Committee to be held next March unless some occasion it again prior to that time. arose for discussing being no indication of dis There agreement with Chairman Martin's sug gestion, the authority for repurchase agreements was renewed in the following form with the understanding that it

would continue in effect until the annual organization meeting of the Committee to be held in March 1957, unless a condition developed prior to that time which would make it desirable for the Committee to consider it earlier: The Federal Reserve Bank of New York is hereby authorized to enter into repurchase agreements with nonbank dealers in United States Government securities subject to the following 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 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 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 transferred to the System open market account. the Committee was scheduled to Chairman Martin noted that April 18, 1956, for the purpose of discussing meet tomorrow, Wednesday, continuing operating policies of questions raised regarding certain distributed by Mr. Sproul referred to in a memorandum the Committee, that the members of the March 21, 1956. He suggested under date of

Committee and the Reserve Bank Presidents not currently serving as members of the Committee meet in executive session at 9:30 a.m. on April 18, 1956, for the purpose of discussing this subject, and there was agreement with this suggestion. Thereupon the meeting adjourned. Secretary's note: In connection with the discussion of certain continuing operating policies to be held on April 18, 1956, Chairman Martin distributed under date of April 17, 1956, a memorandum intended to make clear his personal position on the basic points raised in Mr. Sproul's memorandum of March 21, 1956, concerning this subject. Subsequent to the executive session on April 18, the Chairman reported to the Secretary that the subject had been discussed and that the discussion had not re sulted in a decision to change the existing statements Secretary.of policy.