May 23, 1956 FOMC Minutes

FOMC minutes

view to. bringing about a downward trend in the volume of net borrowed reserves. In response to Mr. Johns' question, Chairman Martin re-read clause (b) of the Committee's directive of January 24, 1956. There being no indication of dis agreement with Chairman Martin's statement of the policy to be followed by the Committee between now and the next meeting, upon motion duly made and seconded and by unanimous vote, the Federal Reserve Bank of New York was directed 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 restraining inflationary developments in the interest of sustainable economic growth while taking into account any deflationary tendencies in the economy, and (c) to the practical administration of the account; provided that the of securities held in the System account aggregate amount (including commitments for the purchase or sale of securi account) at the close of this date, other than ties for the special short-term certificates of indebtedness purchased time for the temporary accommodation of the from time to not be increased or decreased by more than Treasury, shall $1 billion; for the ac from the Treasury To purchase direct (2) Bank of New York (with discre count of the Federal Reserve it seems desirable, to issue participa tion, in cases where Reserve Banks) such amounts of tions to one or more Federal special short-term certificates of indebtedness as may be time for the temporary accommodation necessary from time to the total amount of such Treasury; provided that of the by the Federal Reserve held at any one time certificates shall not exceed in the aggregate $500 million; Banks

(3) To sell direct to the Treasury from the System account for gold certificates such amounts of Treasury securities 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 noted that the agenda included as a topic for consideration Mr. Sproul's proposal that the System account be authorized to engage in swapping of Treasury bills, along the lines discussed at the meeting on May 9. He suggested that because of the lateness of the hour this topic be carried over until the next meeting of the Committee, and there was agreement with this suggestion. Chairman Martin then referred to the Committee action at its May 9 meeting at which it decided to set up a staff committee to study the facts of the experience with present operating procedures along the lines suggested by Mr. Sproul. This would be a "spade work" study. Chairman Martin went on to say that he had consulted with Mr. Sproul to participation from the staff of the Federal Reserve with respect a result would suggest that the committee con Bank of New York and as Chairman; Mr. Tilford C. Gaines, Secretary; sist of Mr. Harold V. Roelse, Donald C. Miller. Mr. Robert Holland; and Mr. Mr. J. Dewey Daane; Mr. would be Open Market Committee, of the Federal Riefler, as Secretary committee's work. in touch with the ex officio, to keep expected, that Mr. Rouse Mr. Sproul had suggested also said that Chairman Martin that he would be as such but to serve on the committee not be asked

available for counsel and information. His suggestion would be that when the committee is organized it present the Federal Open Market Committee with a report indicating the nature and scope of the material it would undertake to gather. There was no indication of disagreement with Chairman Martin's suggestion for the membership of the staff committee or of the procedure to be followed by the committee in proceeding with the study suggested. Mr. Mangels withdrew from the meeting at this point. Chairman Martin said that he was forwarding to the Treasury, as authorized by the Committee at its meeting on May 9, copies of Mr. Riefler's memorandum "Experience Since the Accord with Short-Dated Fed eral Debt" distributed to members of the Committee under date of April 10, 1956. After the Treasury representatives had had an opportunity the memorandum he would plan, in accordance with the under to study at the May 9 meeting, to discuss with them possible approaches standing the problems of coordination of debt management and credit to studying policy. Mr. Sproul had suggested that it Chairman Martin stated that Treasury also a copy of the memorandum be appropriate to send the might Reserve Bank of New York under date of Septem prepared at the Federal Management--Structure of the Debt ber 29, 1955, entitled "Notes on Debt that between now and the next meeting and Credit Policy." He suggested to refresh their review this memorandum Committee the members of the

minds with respect to its contents, with a view to deciding at that time whether to send the New York Bank's memorandum also to the Treasury. There was no disagreement with Chairman Martin's suggestion. Chairman Martin next referred to the proposal by Mr. Sproul at the meeting on May 9 that there be a study of the Federal Funds market, the first phase of which would be the development of factual information by a subcommittee operating under the Committee on Re search and Statistics of the Presidents' Conference. The Chairman said that he understood that Mr. Leedy was taking steps to appoint this subcommittee of the Presidents' Conference. Mr. Leedy said that he had referred this matter to the System Advisory Committee on Research and Statistics. Chairman Martin noted that the next meeting of the Committee would be held on Tuesday, June 5, 1956. Thereupon the meeting adjourned at 1:28 p.m. Secretary.