August 7, 1956 FOMC Minutes

FOMC minutes

Mr. Rouse noted that this was one basis for the statement that it was believed that dealers would not object to the making of swaps by the System account. However, he added the comment that he felt if the authority were given, the account management should feel free to make such swaps within the limits of the proposal in the memorandum, whether a dealer initiated the transaction or not. Mr. Rouse also said that he would be very happy to check with dealers along the lines suggested and that he thought it might be desirable to make such a check. suggested that in discussing the proposal with Mr. Robertson also to find out their attitude toward dealers it might be desirable rather than participating in Reserve Bank initiating such swaps the them only when initiated by a dealer. the suggestion for checking these Chairman Martin stated that he wished to make might be followed. However, points with dealers said that he felt that In principle, he clear his personal position. He did not believe in being System account were wrong. swaps for the proposal was limited even if the however. Nevertheless, hide-bound, which was what Treasury interest bearing money, to making swaps with Every time the a matter of degree. was only are, the question bills the "free market" what he called to depart from account tended System and it was the wrong direction a step in it was taking principle, a step further. it to move would be pressing that others likely to find

Chairman Martin said that he never felt hesitant about stating the free-market principle but that he would not wish to take a narrow view of this proposal and that, subject to checking the attitude of dealers along the lines suggested, he would be disposed to go along with the limited authorization suggested even though he felt it to be a step in the wrong direction. The discussion of this topic concluded with the understanding that the New York Bank would attempt to obtain the views of dealers as suggested, after which the matter would be placed on the agenda for further discussion. Chairman Martin suggested that it might be desirable to hold the next meeting of the Committee on Tuesday, August 21, two weeks hence, with the thought that the following meeting would be on Tuesday, September 11. There was some discussion of possible dates for meetings, at the conclusion of which it was agreed that the next meeting of the Committee would be held on Tuesday, August 23, 1956. During the discus sion, it was also suggested and understood that tentative dates for subsequent meetings would be set for Tuesday, September 11, and Tuesday, September 25, 1956. said that this was an appropriate time for the Mr. Robertson to express their appreciation to the members of the Board of Governors of the Federal Reserve Banks for their cooperation during Presidents period July 20-25, 1956, inclusive. He Operation Alert 1956 in the and suggestions had been submitted by the Presidents, noted that comments

that they were now being reviewed, and that it was contemplated that there would be a discussion of this subject at the next meet ing of the Presidents' Conference, tentatively suggested by Mr. Leedy during the week that would include the meeting of the Open Market Committee on September 25, 1956. Mr. Johns noted that Mr. Mangels had referred to a check he had had made by his Bank's Research Division as to the effect of a reduction in reserve requirements and an increase in the deferred availability schedule of the Reserve Bank. He went on to say that Mr. Rouse had also suggested at the meeting of the Com mittee on July 17, 1956, that the System give more consideration to the influences of float on credit and on the conduct of open market operations. Mr. Johns stated that, while various studies of the subject of float had been made by the System in the past, they had always been directed primarily in terms of operating problems in handling checks for collection. It was his thought that it would be desirable for the Federal Open Market Committee to make a study of fluctuations in float on of the subject because of the effect market operations. open a study should be as to whether such After some discussion Committee or Federal Open Market reporting to the by a committee by a committee report to have it made whether it would be preferable Federal Reserve Banks, it of Presidents of the ing to the Conference

was agreed unanimously that Chairman Martin in consultation with Mr. Leedy, as Chairman of the Presidents' Conference, be authorized to appoint a committee along the lines suggested by Mr. Johns. Secretary's note: Following the meeting, the Secretary was informed by Chairman Martin that, after consultation with Mr. Leedy, he had appointed Messrs. Robertson, Johns, and Erickson as members of a Com mittee on Float, with Mr. Robertson to serve as chairman of the committee and with the understanding that the results of the study to be made by the committee would be reported to the Federal Open Mar ket Committee. Thereupon the meeting adjourned. Secretary