October 16, 1956 FOMC Minutes

FOMC minutes

today. Three aspects might enter the decision, other than the obvious favorable considerations: 1. The System account has not, as a matter of policy for several years, bought securities newly or recently issued by the Treasury (other than regular Treasury bills)--i.e., it has avoided direct support to a Treasury issue. 2. This special bill may be considered the first instal ment of a June tax anticipation instrument, and the account has not, as a matter of policy, bought any Tax Anticipation issues. 3. Any concentration of the account's January redemptions in this special issue might pose peculiar problems for the needed refunding in January, assuming that the rollover would not merely be into another 91-day bill. The mere presence of this issue in the market should add to the availability of other January issues, in any case. After some discussion of this question, Mr. Roosa suggested that since it should not prove necessary for the System account to buy the special bills during the next three weeks in any event, this period would give the Committee an opportunity to see if these bills were trading off the yield curve. If they tended to trade above the yield curve, the System account could then purchase them when purchases become necessary. Chairman Martin stated that he did not see any reason why the account should not deal in the tax bills. He agreed with Mr. Roosa's suggestion, however, pointing out that this simply implies that purchases would be on the general basis of "best price." He also agreed with a comment by Mr. Szymczak that it was important that the Committee not allow the money market on the basis of System operations to distinguish between the regular weekly bills and the special bills recently offered. None

of the members of the Committee indicated disagreement with these views. 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 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 Treas ury, 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 indebted may be necessary from time to time for the ness as of the Treasury; provided that temporary accommodation of such certificates held at any one the total amount Federal Reserve Banks shall not exceed in the time by the aggregate $500 million; from the System sell direct to the Treasury (3) To gold certificates such amounts of Treasury account for maturing within one year as may be necessary securities time to time for the accommodation of the Treasury; from of such securities so sold that the total amount provided aggregate $500 million face amount, shall not exceed in the as nearly as may be practicable such sales shall be made and in the open market. prices currently quoted at the

In a discussion of the time for the next meeting of the Committee, agreement was reached on a tentative date of Tuesday, November 13, 1956, at 10:00 a.m., partly for the reason that Tuesday, November 6, would be a general election day. Chairman Martin stated that Congressman Patman hoped to issue a press announcement shortly, stating that the Subcommittee on Economic Stabilization of the Joint Economic Committee would hold a public hear ing during the first two weeks of December, at which time the members of the Board and the Presidents of the Reserve Banks would be present to give testimony on present monetary policy and the basis of its development during the past six or eight months. In a discussion of a date for such a hearing it was agreed that a meeting of the Federal Open Market Committee would be held at 10:00 a.m. on Monday, December 10, 1956, and that the members of the Board and the Presidents would plan to be in Washington on Tuesday, December 11, 1956, for the pur pose of meeting with Congressman Patman's subcommittee. Mr. Robertson suggested that at the meeting scheduled for November 13, a special committee be appointed to review the report being distributed today on Operation Alert 1956 with a view to sub mitting its comments to the entire Federal Open Market Committee for and it was understood that this topic would be placed later discussion, on the agenda for that meeting. the view that discussions of questions Mr. Balderston expressed Hayes and Roosa regarding the operation such as those raised by Messrs.

of the System open market account were most helpful in improving communications between the Committee and the Account Management and said that he hoped similar discussions could take place in the future. There was general concurrence in this view. Thereupon the meeting adjourned. Secretary