December 10, 1956 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington on Monday, December 10, 1956, at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Hayes, Vice Chairman Mr. Balderston Mr. Erickson Mr. Fulton Mr. Johns Mr. Mills Mr. Powell Mr. Robertson Mr. Shepardson Mr. Szymczak Messrs. Allen, Leedy, Treiber, and Williams, Alternate Members of the Federal Open Market Committee Messrs. Leach, Irons, and Mangels, Presidents of the Federal Reserve Banks of Richmond, Dallas, and San Francisco, respectively Mr. Riefler, Secretary Mr. Thurston, Assistant Secretary Mr. Vest, General Counsel Mr. Solomon, Assistant General Counsel Mr. Thomas, Economist Messrs. Abbott, Hostetler, Parsons, Roelse, Willis, and Young, Associate Economists Mr. Rouse, Manager, System Open Market Account Carpenter, Secretary, Board of Governors Mr. Mr. Sherman, Assistant Secretary, Board of Governors Mr. Miller, Chief, Government Finance Section, of Research and Statistics, Board Division of Governors Mr. Gaines, Manager, Securities Department, Reserve Bank of New York Federal F. Cobbold, Governor of the Bank of England, was Mr. Cameron of economic and of the chart review during the presentation present
financial conditions. Mr. Fauver, Assistant Secretary, Board of Governors, accompanied Governor Cobbold. Before this meeting there had been distributed to the mem bers of the Committee a report prepared at the Federal Reserve Bank of New York covering open market operations during the period Novem ber 27, 1956 through December 4, 1956 and a supplementary report covering commitments executed December 5 through December 7, 1956. Copies of both reports have been placed in the files of the Committee. Mr. Rouse said that, as stated in the supplementary report, the Treasury bill market continued heavy and sluggish over the three day period December 5 through 7 despite continued System purchases. on Friday, December 7, of an addi The announcement by the Treasury March 22 tax bills, to be $1 billion cash offering of special tional 17, came as a shock to the 12 and paid for December auctioned December that the Treasury's financing he said, since it had appeared market, care of. The immediate year had been taken for the rest of this needs up of rates on with a marking market was precautionary, effect in the that today's auction in the market were bills. Expectations Treasury yield or higher. at a 3.25 per cent bills might sell of regular Treasury the market for past two weeks that during the Rouse also stated Mr. seemed to bonds for corporate and particularly securities municipal seemed to be develop of conditions that In the light have steadied. the bill auction in view of 7, and December on Friday afternoon, ing this to make purchases had decided Management the Account today,
morning perhaps to the amount of $60 or $70 million. Upon motion duly made and seconded, and by unanimous vote, the open market transactions during the period November through December 7, 1956, were approved, ratified, and confirmed. Chairman Martin said that he had placed on the agenda for discussion at this meeting the suggestion that each Reserve Bank President be authorized to bring an economist from his staff to meetings of the Federal Open Market Committee. He noted that the Presidents who were members of the Committee were now accompanied by their economists, and it was the Chairman's thought that even though the adoption of this suggestion would increase the number of persons attending open market meetings, it was important that each of the Presidents be kept as fully informed of developments as possible and that he be given the benefit of having an economist with him if he so desired. All who commented on this suggestion indicated that they favored the procedure. In the discussion, the point was made that President would be free to use his judgment as to each Reserve Bank wished to be accompanied by an economist from his staff whether he of the Committee, and the Chairman also made at any specific meeting it would be a mistake to have an economist it clear that he felt President of his Bank also was present. attend a meeting unless the that in the future concluded with the understanding The discussion was not at the time a member of the each Reserve Bank President who
Federal Open Market Committee would be free to bring an economist from his staff (not necessarily the same one each time) to meetings of the Committee if he felt it desirable to do so. Members of the International Finance and Research and Statistics Divisions of the Board entered the room at this point to assist in the presentation of an economic and credit review, illustrated by chart slides. A copy of the script and charts used in the review was sent to each of the members of the Committee follow ing the meeting. In opening the review, Mr. Young pointed out that before the dramatic developments of the past six weeks in the Middle East and in Western Europe, the economic situation in the United States was being appraised very largely in terms of domestic developments. Activity abroad was generally thought of as continuing to increase or being maintained at existing high levels. The recent international develop ments had had important economic effects abroad, he noted, including a substantial drain on British monetary reserves, curtailment of the flow of oil to Western Europe, and sharp increases in shipping rates. Domestically, industrial production and industrial prices had advanced further to new high levels in recent months. Increases in both pro duction and prices had been widespread. Unemployment was low, gross national product had continued to rise, and greater expansion in had taken place this year than had capital equipment expenditures
been anticipated a year ago. In contrast, production of automobiles had not been so high as in 1955 and starts of new housing units had declined during 1956. Monetary and fiscal policies had operated to restrain excessive demands in money markets and in the economy generally. Mr. Thomas concluded the analysis of the economic situation with a statement as follows The review of the business and financial scene presented here this morning indicates need for continued restraint on credit expansion in the near future, although no additional restraining measures would seem necessary. While not all sectors of the economy have been at their peak rates this year, over-all demands have been so great that many industries, particularly some supplying basic materials, have been operat ing close to capacity. In the period ahead, changes in demand will differ from those evident this year, with autos and hous ing probably not repeating their marked declines and capital outlays probably not repeating their sharp advance, though continuing to increase. The impact of international develop ments is difficult to gauge, but, over all, the situation in this country may well continue to be one of high utilization of growing resources and continuing upward pressures on prices. Credit demands, particularly for long-term funds, continue to exceed the flow of savings. It is in the may that monetary and fiscal policies light of these circumstances and business plans need to be considered. who had entered the room members of the staff At its conclusion, did Governor Cobbold and review withdrew, as to assist in the economic Mr. Fauver. Hayes for a statement of next called upon Mr. Chairman Martin and of his suggestions and credit situation his views on the economic a statement as follows Mr. Hayes made open market operations. for remain about as they were 1. Basic economic conditions in current statistics continuing strength weeks ago. Despite two
for production, employment, and income, we still find a variety of indications that the upward pressure of the boom may be diminishing and that this could easily lead to a leveling off in production and income figures within the next few months. 2. Among factors which point toward continued upward pressures may be mentioned public expenditures, which are almost sure to increase substantially next year, although in the area of Federal expenditures the size and timing of the increase are difficult to appraise. The upward trend in prices of industrial products has continued and, in this connection, the recent rise in hard coal wages and prices, the prospect of a 3 cent per hour cost of living increase in steel wages in January, and an increase in transportation costs are also worth noting. 3. On the other hand we are impressed by the relative sluggishness of consumer demand in the face of the current high level of personal income. The implication that savings have been increasing is, of course, all to the good for the moment in helping to correct the present imbalance between demands for capital and available savings. However, for the longer run it raises a question whether larger productive capacities, together with consumer resistance to higher prices, may cause increasing difficulties in consumer goods industries, which in turn could act as a deterrent to a continued high level of capital expenditures. 4. Furthermore, there are cross currents in recent price developments which suggest that the Suez crisis has made for a spirit of caution on the outlook for world commodity trade, and this has tended to offset any influence the crisis may have had toward a speculative inventory buildup in certain types of com modities. Raw material prices as a whole have been rather stable. capital expenditures in the 5. Most surveys of private year point to a flattening out of the current high level coming rather than any new sharp gains. loans of banks has been 6. The recent growth in business about in line with seasonal expectations. It also seems likely loans will proceed in accordance with that repayments of such although there is in January and February, the seasonal pattern some question as to the timing of whatever impact on loans may in the event that automobile sales show sizable gains be felt for March tax now looks as if borrowings 1956 figures. It over 1956, in view of reduced least as large as in payments may be at as a whole the first quarter so that for corporate liquidity, as was seasonal contraction, to show the normal loans may fail true also in 1956.
7. Our hopes that the Treasury would be out of the mar ket for some time, apart from the regular weekly bill offerings, have of course proved to be ill-founded, in the light of the emergency cash needs resulting from the sterling crisis. We must again be prepared to assist in maintaining a receptive atmosphere for the new financing. 8. We find ourselves in a puzzling and difficult situation with respect to application of sound monetary policy. On the one hand, there is continuing need for general credit restraint, since the balance of economic forces is still upward. But at the same time, we are impressed by the divergent tendencies in the domestic business outlook, by the sensitivity of the capital markets--even though they have shown some tendency to stabilize at least temporarily--and also by the sensitivity of the Treas ury bill market. Moreover, this is of course a time when seasonal pressures are naturally great, and these pressures themselves are generating considerable restraint. Also there is a good deal of talk of a possible discount rate change, this talk being encouraged by the several recent increases in ac ceptance rates, by gossip of a possible prime loan rate rise (this time by perhaps as much as 1/2%), and by the persistent tendency of yields on the longer-Treasury bills to stay well above the discount rate. This tendency has been further emphasized by the reactions on Friday to the latest Treasury financing an nouncement. Despite a considerable easing of the banks' re both countrywide and in New York, as measured serve position, by the statistics alone, a general atmosphere of tightness due in part to the fact that the still prevails, doubtless of banks and corporations has reached a very low liquidity because of the seasonal need for cash for level, and also dividend disbursements and tax payments and the continuing of already large commitments. for loans coming on top demand feel that it would be unwise under these conditions 9. We already evident in the money and capital to add to the strains urge the use of open market operations markets, and we would prevent any intensification of these strains, freely if needed to should be a result. The effect if sizable net free reserves even our efforts and make factors should reinforce of float and other results with fewer bill pur it possible to obtain the desired We would not recommend would otherwise be required. chases than in spite of the up rates at this time, any change in discount of interest. We be short-term market rates ward tendency of unchanged in view properly be left the directive may lieve that will presumably occur shortly fact that our next meeting of the it will be appropriate year, at which time the turn of the after
to reconsider the clause relating to seasonal factors and to consider whether any other change of emphasis should be made in the light of intervening developments. Mr. Erickson said that in the Boston District the situation on the whole was one of strength although there were some signs of weak ness in the economic picture. The improvement in the textile industry that had been shown in August had not been sustained, Mr. Erickson recalled his earlier reports of increases in the value of construction contract awards, stating that during the first ten months of this year they were 11 per cent higher than in the comparable period of However, during the first 22 days of November a decline was reported. Withdrawals from savings accounts exceeded deposits during October for the first time since last April. Mr. Erickson described an interesting development in banking in the First District, stating that last week it had become known that the First National Bank of Boston and Granite Trust Company of Quincy, Massachusetts, were planning to consolidate. The first step would be the conversion of Granite Trust Company, now a nonmember insured bank, said that the State laws of into a national bank, Mr. Erickson provided that a trust company may operate branches only Massachusetts office is located, while savings within the county in which its head miles of their head a radius of 15 operate branches within banks may is located in Suffolk National Bank of Boston office. The First County. Mr. located in Norfolk Company is Granite Trust County while which would propose that a bill had been drafted went on to say Erickson
that the State legislature permit trust companies to operate branches in the same areas as were permitted to savings banks. With respect to credit policy, Mr. Erickson said that he felt there should be no increase in the discount rate at this time nor should there be a change in the Committee's directive. Open market operations should be handled during the next few weeks on the same basis as during the past two weeks, making reserves available to meet requirements as they develop even if this results in positive free reserves. Mr. Irons stated that conditions in the Dallas District con tinued at a strong high level and appeared to be on something of a plateau. Increases in various measures recently had been comparatively small, as might be expected when economic activities were close to full utilization of capacities. Mr. Irons felt that small increases at this stage might, however, result in as much pressure as would larger in creases when the economy was using relatively less of its available facilities. Nonresidential construction contract awards continue to rise, he said, but the number of residential starts recently had been not shown an appreciable increase over a down. Consumer spending had the expected seasonal increase in spending had not yet year ago and increasing only slightly and the pressures developed. Bank loans were as they were a few months have not been as great of demand recently in the general view said that he concurred Nationally, Mr. Irons ago. there was marked staff at this meeting: the report of the indicated in
strength in the picture and it seemed to call for a continuation of the general policy the Committee had been following. At the same time, year-end factors would be with us in the market. These should be taken care of, but Mr. Irons hoped that the Committee would retain as much restraint as was feasible while meeting the year-end needs. He felt that no increase should be made in discount rates at this time. Mr. Mangels said that Twelfth District developments recently had been much as he had reported at the past several meetings. New peaks were being reached in various measures of activity. There had been some rather large gains in erection of new factories and office buildings, and construction of educational buildings had increased. Reports from bankers indicated that the dollar volume of residential construction during the coming year would decline somewhat below this year's level. Christmas trade volume was down somewhat from a year ago, about the total for the month as a but stores were not yet concerned to have been received satisfactorily, New model automobiles seemed whole. in sales, and volume of cars there had not yet been a strong upswing but caused retail financing to rise. retail market had not yet sold in the small with only a the Reserve Bank continued relatively Borrowings at he would concur in the Mr. Mangels said that few banks discounting. is, renew the Committee's by Mr. Hayes, that policy course suggested develop, and make needs as they change, meet year-end directive without rates at present. no change in discount activity in the phases of economic noted that some Mr. Powell of the winter present because inactive at were seasonally Ninth District
weather. Retail trade was running at a somewhat higher level than appeared to be the case in the rest of the country. New model auto mobiles were not yet selling well; this did not seem to reflect lack of acceptance of the new cars but rather seemed to be due to inventory problems. Federal Reserve credit had continued to contract in the Ninth District and larger city banks were extending credit on a Fed eral funds basis to other parts of the country. Mr. Powell felt that the Committee should continue a policy of restraint, bearing in mind the uneasy international situation. The Account Management had been wise in making credit as readily available as it had recently, he said but he hoped there would not be much more need for buying of bills by the System account since float and other factors might provide most of the reserves necessary to meet year-end demand, Mr. Powell said that he would not favor an increase in discount rates at present and that the policy the Committee had been following should be continued he felt after the turn of the year, until the picture became clearer there had been no developments in the Mr. Allen said that since the preceding meeting that had Seventh District in the 13 days Representatives of the auto the economic outlook materially. affected the middle or the end of that it would be mobile industry indicated of their new models. determine the acceptance before they could January year and with high prices had excellent crops this Most of the corn belt farm income in that area, and cattle, the leading sourcesof for hogs and currently was of farmers had improved the financial position
probably stronger than a year ago. This had not yet had much effect on spending attitudes, however. The number of feeder cattle purchased this fall exceeded the large number purchased a year ago and this was reflected in bank loans to farmers in the cattle feeder areas. The net income and financial position of dairy farmers was about the same as a year ago. Mr. Allen reported a good outlook for the major Mid west live stock products, stating that further gains in farm income were expected in 1957. The large surplus of feed grains on hand can be expected to result in lower feed grain prices and larger supplies of live stock products at some future time unless production is reduced substantially by the Soil Bank program. The recent improvements in farm income had been due largely to increased Government assistance and and choice cattle. Mr. Allen said that he to smaller supplies of hogs with those who had spoken thus far this morning as to national concurred during the next few weeks, and he noted that there monetary policy agreement thus far in comments on this seemed to be almost unanimous point. development on which the only Tenth District Mr. Leedy said that situation: merchants seemed was the Christmas trade he would comment in the last sales, as reflected department store well satisfied and than a year ago, notwithstanding were slightly higher weekly report, associated him the District. He conditions in the widespread drought The offering by by Mr. Hayes. with the views expressed self completely from the week, arising bills last special of additional the Treasury
British crisis, had taken him completely by surprise. Mr. Leedy felt that the program the Committee had been following during the past few weeks should be continued over the year end, Mr. Leach said that since the meeting two weeks ago he had seen no changes in the economic picture, either in the Fifth District or in the nation, warranting an increase in restraint. Rather, the condition of the capital market seemed to be the Committee's major concern in spite of the slight improvement that had occurred. In this period of strong seasonal pressures, aggravated by the new Treasury financing, Mr. Leach felt the market appeared likely to continue in an unsettled condition. In his judgment, there would be considerable danger of ad verse effects from any increased restrictiveness. It was clear to him that there should be no increase in the discount rate now. The amount of free reserves was of little significance at this time, Mr. Leach said, and it was his view that if the market seemed to feel any tighter at all, reserves should be added. There should also be a liberal atti tude toward the use of repurchase agreements. Mr. Leach said he could see no reason to change the Committee's directive at this meeting. Mr. Mills said that he, too, would subscribe to the approach to outlined and the reasons he that Mr. Hayes had open market operations that the market for U. S. for that approach, with the qualification gave Committee's very close at continues to demand the Government securities year. As he looked at the remainder of this tention at least through his position has been reinforced by events since the preceding it,
meeting. Under these circumstances, it was Mr. Mills' view that the Committee as far as possible should anticipate relief to the U. S. Government securities market by purchases of Treasury bills rather than delay action until the need for relief had been unquestionably indicated by market conditions. In further explanation of his views, Mr. Mills made a statement as follows: Now that the United States has indicated its willing ness to aid Great Britain in its defense of the pound, the eyes of the economic world will focus on this country and the steps that it must take to fulfill its commitment for British aid. Inasmuch as the mechanics of United States support to the pound are known to involve U. S. Treasury actions, including the Treasury's offering of $1 billion of Treasury bills to be auctioned December 12 and paid for on December 17, it would be unfortunate if the System's monetary policy should be allowed to conflict with any question of stability in the market for U. S. Government securities. An unsettled market for U. S. Government securities could cause foreigners to question the ability of the United States to help defend the British pound sterling this time. It is, therefore, of critical im portance that System open market policy be conducted through the remainder of 1956 with the primary purpose of maintaining stability in the market for U. S. Govern ment securities. of that purpose is entirely practicable Accomplishment even though the process of doing so is likely to involve purchases of Treasury bills by the continued substantial System Open Market Account. Under other circumstances, purchases of Treasury bills in volume, in supplying new would expand the availability of bank credit reserves, which, if that were to happen at the present time to any to the System's determination degree, would be contrary restraint over the growth of bank to maintain reasonable present in and fortuitous factors However, normal credit. to work on the side of the money market can be expected the undesired expansion of policy in preventing any System's pressures on the money The factor of seasonal bank credit. on the side of the System's market is a normal influence which is heightened this year by policy objective and one
unusually large demands for cash on the part of corporations arranging their dividend distributions. The year-end window dressing activities of commercial banks and corporations are an additional normal factor operating against an undue expan sion of bank credit incident upon the provision of new reserves through System action. Of the fortuitous factors that are present to prevent new reserves from effecting an undue increase in bank credit is, first, the disinclination of the commercial banks further to increase their loans in the face of their already abnormally high loan-to-deposit ratios; secondly, the influence of the issuance of the Treasury's special tax anticipation bills of January 16 and February 15 maturities and, now, the offering of its further issue of a special Treasury bill carrying a March 22 maturity, all combine to permit and require the System Open Market Account to purchase Treasury bills in volume, but free of stimulating an unwise expansion of bank credit. This is because these issues of Treasury bills were or will be originally subscribed largely by commercial banks against their Treasury Tax and Loan Accounts, the lives of which will have expired or will expire prior to December 31, 1956, which will cause a substantial volume of these instruments to come back on the market at a time that corporations, who might normally acquire them, will be prevented from doing so by their own reduced liquidity and other fiscal necessities. As that is the case, it will be incumbent upon the System Open Market Account to acquire such surplus of the special Treasury bills and cannot be absorbed at reasonable as comes into the market so that the System's operations will serve to yields, all the market for U. S. Government securi preserve stability in develop that greater amounts of re ties. Even if it should the market because of desirable are injected into serves than of that situation should not prove such a program, correction of events transpiring after difficult in the normal course projected withdrawal of the year. In fact, the the end of reserves intended for early January may need to be tempered over January 16 when the refunding so as to assist the market on that date Treasury bills maturing special issue of of the must be handled. that will indirectly act A final fortuitous circumstance bank credit is the the expansion of as an influence preventing of System monetary which it is a purpose very rise in prices the reduced restrain. Considering credit policy to and corporations, it is both commercial banks and liquidity of stand to be reflected in higher that rising prices will obvious accounts receiva inventories and in by corporations investments credit in order for new bank consequent demand ble and in some
to finance such investments. Due to the liquidity factor mentioned, it is unlikely that either corporations or com mercial banks will seek to expand their positions of already strained liquidity, and as that is the case, rising prices may prove to be a restraining rather than an expansive credit influence and should certainly tend to minimize the use of credit for speculative inventory purposes or the like. Mr. Robertson said that he saw no reason to vary during the next three or four week period from the policy that the Committee had been maintaining during the past two weeks. Mr. Shepardson said that his views were essentially the same as those already expressed regarding open market policy for the next three or four weeks. However, he felt the Committee should be in position to take up slack after the turn of the year. Mr. Fulton said that in the Cleveland District activity was still very high. Farmers by and large were in very good shape. The steel in dustry was operating above capacity as it had been during 15 of the past expected during the first six and capacity operations were 16 weeks, were not buying ahead as of next year. Automobile manufacturers months in previous years; along with others, heavily as they have at this season they were reducing their inventories in terms of number of days supply to deliveries were less likely to because they felt that interruptions of labor con a result of renewal years as now than in earlier occur example, the automobile industry the past few months. For tracts during instead of for twenty days of steel for about now carrying supplies was said that Mr. Fulton earlier years. the case in as had been sixty days, exports of scrap in greater scrap was resulting price of steel the high
than the steel industry felt to be desirable, and was causing increases in costs of steel production with the result that a further increase in steel prices was considered likely soon after the first of the year. Mr. Fulton did not favor an increase in the discount rate at this time. Free reserves during the next few weeks would not have an important impact be cause of the feeling of tightness that existed in the market, and because banks and corporations have a reduced liquidity position. The present policy has been good, Mr. Fulton said, adding that restraint could be maintained with comparatively little effort on the part of the System, and reserves should be supplied willingly through the end of the year. Mr. Williams said that a survey of Christmas retail business in the Philadelphia area last week indicated that the dollar volume was disappointing, although retailers were anticipating they would end the year with sales 1 or 2 per cent higher than last year and none of them were predicting a decline. The international situation had affected toward spending, but price considerations did not consumer attitudes showing of retail sales. seem to be a factor in the recent disappointing in the Philadelphia District was the Another development of interest coal industry around Wilkes Barre which improvement in the anthracite United States to come out of the high un was the last area in the improved sales stemming from This was because of employment category. improvement also had Williams said. Some British position, Mr. the General plans for in textile firms in the district. taken place be higher in 1957 than indicated that they would capital expenditures
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
Also: Record of Policy Actions