December 10, 1956 FOMC Minutes

FOMC minutes

in 1956 and the highest since 1954. Mr. Williams said that his general attitude was that there should be no change in discount rates between now and the end of the year, that the Committee's directive should not be changed at this time, and that a program of modest restraint was in order. Mr. Johns said that one of the large banks in the St. Louis District that had been out of debt at the Reserve Bank recently had come back to the discount window and had indicated that it would be borrowing for the next several weeks. He had no other developments in the Eighth District worthy of reporting at this time. With respect to policy, he was completely in agreement with the views expressed by Mr. Hayes, which he understood to have been supported by the others who had commented at this meeting. Mr. Szymczak said that he too agreed with Mr. Hayes. The borrowing of an additional $1 billion by the Treasury had affected and because it was so because it was a large amount the market both with developments in the Middle unexpected. This influence together than on the other side. on the expansion side rather East was all Mr. Szymczak felt there was nothing to However, in the circumstances, the policy the Committee had been following in do but to continue recent weeks. change in the situa said he saw no fundamental Mr. Balderston of conditions impressed The mixed nature the past two weeks. tion during

him. Persons close to the steel industry had indicated that there might be another price increase of $3.50 a ton after the turn of the year, and the Committee knew that further wage increases were in evitable. On the other hand, Mr. Balderston said that softening spots were emerging in the economy and these should be kept in mind lest the leveling off might turn into something that the Committee should be off setting. Between now and the end of the year he felt that continuance of the current policy was indicated. Chairman Martin said it was obvious that the international situa tion was an overriding consideration at the present time, and he re iterated the comment he had made at the preceding meeting that this factor might have long-term implications that would require the Committee's care ful study over a considerable period of time. He felt it unfortunate that the price increases we have been and are observing were taking place, but the forces causing them had already occurred and the Committee could do nothing about them at this stage. These price increases probably were working in a restraining manner at this time, Chairman Martin said, and he thought it would become more and more difficult to pass the increases on to consumers. Also, with the capital market in its present condition, normal factors would be working in a restraining manner. it seemed clear that the con The Chairman went on to say that in the directive to be meeting indicated no change sensus of today's issued to the New York Bank. remark to the effect referred to the Chairman's Mr. Shepardson

that it was too late for the Committee to do anything about the price increases that had been or now were taking place. He recognized that this might be the case but urged that the Committee be on its guard against development of forces that would result in further price in creases, in so far as it was within the Committee's power to influence prices. International factors were of importance right now, he said, and there was unanimity of opinion that the Committee should not apply additional restraint over the year-end period. However, he reiterated his earlier view that after the turn of the year the Committee should be looking for opportunities to exercise whatever control it had to prevent conditions developing to a point where we would have to say that it was too late for the Committee to do anything about price increases. Chairman Martin stated that this comment was well taken. He then in the directive to be issued to the New York inquired whether any change and, in the absence of suggestions, Bank was believed to be necessary would be renewed without change. stated that the existing directive upon motion duly made and Thereupon, seconded, the Committee voted unanimously Federal Reserve Bank of New to direct the directed by the Com York until otherwise mittee or exchanges (including such purchases, sales, (1) To make maturities to securities, and allowing replacement of maturing Open Market Account for the System off without replacement) run maturing securities, by market or, in the case of in the open necessary in the as may be with the Treasury, direct exchange and the economic conditions current and prospective light of a view (a) to re the country, with situation of general credit needs of com market to the of funds in the lating the supply developments inflationary (b) to restraining merce and business,

in the interest of sustainable economic growth, while recogniz ing additional pressures in the money, credit, and capital mar kets resulting from seasonal factors and international conditions, and (c) to the practical administration of the account; provided that the aggregate amount of securities held in the System ac count (including commitments for the purchase or sale of securi ties 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; (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 indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; pro vided 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; (3) To sell direct to the Treasury from the System account for gold certificates such amounts of Treasury securities matur ing 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 suggested, and it was agreed, that the next meeting of the Federal Open Market Committee would be held at 10:00 a.m. on Tuesday, meantime it would be desirable He commented that in the January 8, 1957. be prepared to at Committee, or his alternate,to for each member of the that seemed to the event of any development an emergency meeting in tend such a meeting desirable. make the calling of Thereupon the meeting adjourned. Secretary