August 21, 1956 FOMC Minutes

FOMC minutes

the period between now and the next meeting of the Committee.. He did not know how these different views could be resolved, but he was glad to note that more and more the members of the Committee were moving away from the use of a figure of net borrowed reserves as a guide. In attempting to sum up the majority view as to policy for the immediate future, the Chairman said that he gathered that none of the members of the Committee wished an appreciable relaxation of pressure in the market and that for the most part they did not wish to use open market opera tions to increase pressure on reserves during a period of discount rate adjustments. At Mr. Vardaman's suggestion, Mr. Hayes reiterated his comments as to the policy that might be followed, stating that he would favor maintaining restraint somewhere near its present level, that he would not have in mind increasing the restraint, and that he would be ready to reduce pressure at least temporarily if the Account Management felt that the tone of the market seemed to require such action during the transitional period of an increase in the discount rate. would understand this to mean Mr. Shepardson stated that he reserves might be reduced, this that while the level of net borrowed the same pressure that of maintaining about be done as a means would avoiding a further build-up in pressure, existed in the market and of Hayes also stated in was correct. Mr. Hayes stated that this and Mr. would not have in Robertson that he a comment from Mr. response to the next few the market during put reserves into action to mind taking

days in a way that would indicate relaxation, subject to the reserva tion that if the market seemed to be getting out of hand it might be desirable to put in some reserves. However, on the basis of projec tions it looked as though net borrowed reserves this week would average around $250 million and it probably would not be necessary to take any further action until early next week. Chairman Martin noted that Messrs. Erickson and Irons had emphasized the point that the Account Management should use the "feel" of the market in its operations in this particular period. He agreed that it was necessary to depend on the Account Management to do the best it could within the framework of the Committee's general policy. In the immediate future, this should be with tho understanding that the Committee wished the Account Management to make every effort to avoid indicating an appreciable change in policy through open market operations, recognizing that it would be very difficult to carry out None of the members of the Committee indicated dis this program. Martin's statement of policy or of procedures agreement with Chairman to be followed in carrying it out. whether he would inquired of Mr. Treiber The Chairman then amounts specified in the directive, and recommend any change in the that he had no change to suggest. Mr. Treiber stated Thereupon, upon motion duly made the Comittee voted and seconded, to direct the Federal Re unanimously of New York until otherwise serve Bank 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, and (c) to the practical ad ministration 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; the Treasury for the ac To purchase direct from (2) Reserve Bank of New York (with dis count of the Federal cases where it seems desirable, to issue cretion, in or more Federal Reserve Banks) such participations to one of special short-term certificates of indebtedness amounts time to time for the temporary as may be necessary from provided that the total accommodation of the Treasury; such certificates held at any one time by the amount of shall not exceed in the aggregate Federal Reserve Banks $500 million; from the System to the Treasury To sell direct (3) such amounts of Treasury account for gold certificates as may be necessary within one year securities maturing the accommodation of the Treasury; from time to time for such securities so sold the total amount of provided that $500 million face amount, not exceed in the aggregate shall as may be practicable be made as nearly such sales shall and in the open market. currently quoted at the prices for a discussion the agenda provided noted that Chairman Martin that the System the New York Bank the proposal of this meeting of at bills. He stated in swaps of Treasury to engage be authorized account until be postponed of this topic that discussion he would prefer that with was no disagreement and there of the Committee, next meeting the

this suggestion. It was agreed that the next meeting of the Committee should be held on Tuesday, September 11, 1956. Thereupon the meeting adjourned. Secretary