January 8, 1957 FOMC Minutes

FOMC minutes

1/8 /57 -41 The Chairman went on to say that he felt the System should not tell the Fund or any other agency how it should carry out its responsibilities. In keeping with this, the System should follow monetary policies that fitted the circumstances whenever external factors occurred. Thus, if the Committee approved the resolution he was proposing, he would also want it to be understood that the Committee's operations would be used to offset the influence of the operations of the Fund in accordance with whatever the Committee's policy might be. In this specific case, the System might not have a sufficient volume of bills to carry through this procedure and Chairman Martin suggested that if approval were given to the resolu tion, the Committee also expressly authorize the Management of the System Account to sell up to $500 million of Treasury certificates if it became necessary to do so as a means of offsetting the Fund's operations. If this were to be done he suggested that the Account Management might wish to notify dealers in advance. The Chairman noted that if Treasury certificates were used it would be in keeping with the Committee's general policy of effecting its operations in short-term securities, preferably bills. Mr. Hayes stated that he had given some thought to this question and that the net result of his since receiving Mr. Riefler's memorandum essentially the same position was that he had arrived at consideration by Chairman Martin. as that stated With this thought in mind, Chairman Martin said that he would pro pose adoption by the Committee of a resolution as follows:

RESOLVED, that the Federal Open Market Committee express no views with respect to the form in which the International Monetary Fund chooses to draw upon its dollar resources. Upon motion duly made and seconded, and by unanimous vote, the Committee ap proved the foregoing resolution presented by Chairman Martin, with the understanding that in transmitting the substance of the resolution to Mr. Southard he would be in formed that the Open Market Committee ap preciated having had an opportunity to know of and consider the proposal. In taking this action, the Committee also unanimously approved Chairman Martin's suggestion that it expressly authorize the System account to sell up to $500 million of Treasury certificates if that became necessary in connection with operations related to the transactions of the Inter national Monetary Fund. Secretary's note: In accordance with the foregoing action, the following letter was sent to Mr. Frank Southard, U. S. Executive Director, International Monetary Fund, by the Secretary under date of January 8, 1957: "The question which you presented informally last week as to whether the Federal Reserve System would see objections to the use by the International Monetary Fund of some of its gold holdings in meeting prospective drawings against the Fund was discussed today at a meeting of the Federal Open Market Com mittee. In addition to the members of the Committee, all Re serve Bank Presidents who are not now members of the Committee were present. conclusion of the discussion of the question which "At the you raised, the Federal Open Market Committee agreed that it to the International Monetary Fund with would express no views

"respect to the form in which the Fund chooses to draw upon its resources. This action was taken to preserve the utmost freedom to the International Monetary Fund in meeting its problems and in the hope that the Fund will inform the Fed eral Open Market Committee in advance of its operations in the American market. "In taking this action, the Open Market Committee ex pressed its appreciation for having had an opportunity to know of and consider your proposal. None of the Reserve Bank Presidents who are not currently members of the Com mittee indicated disagreement with the action taken by the Federal Open Market Committee regarding the proposal." Chairman Martin stated that in presenting the resolution that had been adopted, he had in mind that it should be included as a part of the record of policy actions to be reported to the Congress at a later date, and there was no disagreement with this suggestion. Mr. Robertson referred to the authorization for transactions in Treasury certificates, stating his understanding that when the "bills was adopted, there was an implication that if the System only" policy out of bills, its transactions would be conducted in the account ran next shortest maturity. was his understanding that this would Mr. Rouse stated that it now showing rights values but would include not include certificates certificates, and there was type of Treasury issues, i.e., the shortest concurrence in this comment. the next meeting of the Com a discussion of the date for In schedule a meeting for Tuesday, January 29, mittee it was agreed to of the Conference that a meeting it being noted at 10:00 a.m., 1957, arranged for January 28 with a joint of Presidents had tentatively been

meeting of the Presidents and the Board to be held on Tuesday after noon, January 29. In taking this action it was understood that if need arose the Federal Open Market Committee could call an additional meeting if desirable, to be held by means of a telephone conference hookup, prior to January 29. Chairman Martin also called attention to a request that had been received from the Bureau of the Budget under date of January 3, "to establish a national monetary 1957, for comments on a draft bill and financial commission." At his suggestion, there was distributed to each of the Presidents of the Reserve Banks at this time a copy of the Budget Bureau's request, along with a copy of the draft bill and the Board's reply that had been sent to the Budget Bureau a copy of on January 7, Thereupon the meeting adjourned. Secretary