June 26, 1956 FOMC Minutes

FOMC minutes

Chairman Martin said that he hoped the Committee could get away from the use of net borrowed reserves in its discussions. How ever, if net borrowed reserves were suddenly to rise to the projected $750 million level, such a figure would attract a great deal of atten tion that a more modest figure would not attract. It would be unwise to permit the level to rise to anything like that figure because of the interpretations that would be put on it, particularly if a strike in the steel industry should take place. He then suggested that, un less there were further comments on the policy to be followed during the next three weeks the existing directive to the New York Bank be approved without change. 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 a view (a) to relating the supply of funds in country, with the market to the needs of commerce and business, (b) to developments in the interest of restraining inflationary sustainable economic growth while taking into account any in the economy, and (c) to the deflationary tendencies account; provided that the administration of the practical in the System account of securities held aggregate amount or sale of securi commitments for the purchase (including this date, other than at the close of ties for the account) indebtedness purchased certificates of special short-term accommodation of the to time for the temporary from time

Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the account 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 in debtedness 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; Treasury from the System To sell direct to the (3) 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, sales shall be made as nearly as may be practicable and such at the prices currently quoted in the open market. Mr, Sproul's suggestion, made prior Chairman Martin referred to memorandum prepared at the York, that a copy of the to his leaving New of September 29, 1955 en of New York under date Federal Reserve Bank of the Debt, and Credit Management, the Structure titled "Notes on Debt along with the memo the Treasury for consideration be sent to Policy" of April 10, 1956, on Mr. Riefler under date randum prepared by Debt. Chairman Short-Dated Federal the Accord with Experience Since well to let be just as it would that he thought on to say Martin went wish to trans would not he although the memorandum, have the Treasury of the of all members the endorsement bearing it as a memorandum mit on which raised questions view it in his since Committee Open Market the memorandum that therefore, He suggested, not agreement. there was at the as one prepared the Treasury of to the Secretary be transmitted

Federal Reserve Bank of New York and distributed to members of the Federal Open Market Committee by Mr. Sproul, who had suggested that a copy be furnished to the Treasury in order that it might have the benefit of the paper. Mr. Treiber stated that he thought this would be a good way to proceed, that the memorandum represented "thinking out loud", and that to whatever extent it might be helpful it seemed desirable to make it available to the Treasury without the endorsement of the Open Market Committee. It was understood that the pro cedure suggested by Chairman Martin would be followed. Secretary's note: Chairman Martin transmitted a copy of the memorandum referred to above to Secretary of the Treasury Humphrey under date of June 27, 1956. Chairman Martin noted that the proposal made by the New York it be authorized to engage in swaps in Treasury bills, Bank that originally suggested in Mr. Sproul's memorandum of May 3, 1956, had for discussion at this meeting. He said been placed on the agenda unable to attend this meeting held rather that Mr. Robertson who was and that in view of the lack of pressure firm views on this matter it over until a seem desirable to carry a decision it would for might be present. when Mr. Robertson meeting with this There was agreement suggestion.

Chairman Martin noted that the next meeting of the Committee would be held on Tuesday, July 17, In response to a question, Mr. Treiber commented briefly on the status of the proposed section 13b loan to Studebaker-Packard Corporation, referred to at the meeting held on June 5, 1956. Thereupon the meeting adjourned. Secretary