February 18, 1957 FOMC Minutes

FOMC minutes

Chairman Martin said that he did not think the Committee at any time had intended to put reserves into the market by purchasing Treasury notes or securities other than bills. Mr. Hayes then stated that he would also like to make an observation for the purpose of keeping the record straight as to the references made earlier in this meeting to lack of tightness in the market in recent weeks. The fact is, he said, that in the three weeks ending February 13 there was an average net borrowed reserve figure of $236 million, which was in the $200-300 million average that had been suggested at the preceding meeting. It was true that in the first three weeks of January positive free reserves existed. The tone of the market recently may not have confirmed the figure of negative free reserves, but Mr. Hayes said that he wished to call attention to the fact that operations had attained the figures that the Committee seemed to have in mind. Chairman Martin stated that he was glad Mr. Hayes had brought out this point, adding that this was the thought back of his comment when he asked Mr. Bryan earlier in the meeting whether the ease he (Mr. Bryan) had referred to recently was in his judgment "inadvertent" or "overt." Chairman Martin said that it seemed clear that the ease that had been referred to was not overt. Mr. Vardaman said that he had understood the selling of was brought about because bills were certificates and notes recently it was clearly understood and he inquired whether in short supply,

that the System was not going to buy back any certificates or notes if any bills were available for purchase when funds were to be put into the market. Chairman Martin stated that he assumed this was clearly under stood, and none of the Committee indicated a different view. Mr. Rouse stated that he had raised the question because he wished to clarify the matter, and the Chairman said he thought it im portant to have that point clarified. Mr. Shepardson returned to the Chairman's comments on the con sensus, stating that he hoped that errors in carrying on operations during the next two weeks would be on the side of tightness rather than of ease. Chairman Martin replied that he did not think any purpose would be served in taking a vote on this question and that this was why he felt the record of the discussion should be used by the Management of the Account as a guide to carrying out its operations during the next period. during January credit was being liquidated Mr. Thomas noted that very rapidly during the period when "ease" was indicated in the market, He pointed out that it was in terms of some positive free reserves. to carry out the Committee's to add to tightness in order not necessary accomplishing what the of bank loans was objectives when the liquidation he said, was not referred to in January, desired. The ease Committee

because the System was not carrying out a restrictive policy but re sulted entirely because credit was being liquidated very rapidly. Chairman Martin stated that this was correct and that he was glad this point had been brought out. There was no point in trying to pursue a more restrictive policy if the objectives were being carried out. Chairman Martin then turned to the directive to be issued to the Federal Reserve Bank of New York, stating that if there was no objection the directive would be renewed without change in the wording. In re sponse to the Chairman's question, Mr. Rouse stated that he would suggest no change in the limitations contained in the directive and that if anything developed to make it necessary he would come to the Committee for additional authority. Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Re serve Bank of New York until otherwise 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 developments in the interest of restraining inflationary sustainable economic growth, while recognizing unsettled conditions in the money, credit, and capital markets and in the international situation, and (c) to the practical administration of the account; provided that the aggregate amount of securities held in the System account (including for the purchase or sale of securities for the commitments

Secretary 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 maturing 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 stated that the next meeting of the Committee would be held at the time tentatively agreed upon, that is, at 10:00 a.m. on Tuesday, March 5, 1957, noting that this would be the annual organization meeting of the Committee. The Chairman also stated that he had received word from Mr. Sproul that he would be in Washington on March 4, 5, and 6, and that he hoped all of the Presidents and others who knew Mr. Sproul would plan to attend a luncheon to be given for him in the Board's dining rooms on March 5. Committee that had been also noted that the Special Chairman Martin the questions raised by the suggestion appointed for the purpose of studying Mills at the meeting on January 8 would hold a meeting today. made by Mr. Thereupon the meeting adjourned.