April 24, 1957 FOMC Minutes

FOMC minutes

policy. If the Committee permitted conditions to get too tight at this stage it might build up trouble for itself later in the year. Mr. Irons said that the Committee's primary responsibility was appropriate credit policy from the standpoint of the economic situation. He saw nothing in that picture that would change his view of policy from that discussed at the meeting week last which called for a degree of restraint. In fact, Mr. Irons felt that the economic picture was showing improvement or gradually increasing strength rather than a tendency toward increasing weakness. We were dealing with an inflationary danger that might get away if there were definite easing. Mr. Irons said that he was not concerned with the net borrowed reserve figures and he had stopped using them. He was concerned with the tightness in the market as measured by the behavior and feel degree of of the market. A decline in net borrowed reserves of $100 or $150 of a rise in float would not concern him and he would million because for a day or two. He was con interfere to offset that position not problem implied by the Treasury's actions cerned by the nature of the of open market operations. He doubted if in opening up another arm by sales of securities from time to oppose that action this was the this was something to be discussed System account, but he felt the position, Mr. Irons Committee. As for the Treasury's fully by the the refunding the Com to the announcement of did not feel that prior a necessary and de what it regarded as should deviate from mittee that was tending to for an economic situation sirable credit policy

be inflationary. If the Treasury offered a security priced in line with the market and if the Committee's credit policy was appropriate, then it might have a responsibility to "see the Treasury through." This, however, was not the present situation. Summing up, Mr. Irons said that the comments Chairman Martin had read from the minutes of last week's meeting would reflect his judgment. The Committee should maintain a degree of tightness. He understood that the Manager of the Account must be given some leeway to operate on the basis of feel or behavior of the market and not as reflected by some figure of net borrowed reserves. He was not concerned about the net borrowed re serves figure going to $400 million instead of $700 million. Mr. Leedy said that the comments of Mr. Irons represented his views. He thought the decision at last week's meeting would permit the kind of approach that Mr. Rouse had outlined. Mr. Leedy would not be too much concerned about the statistical ease appearing as a result of float, nor would he offset what the Treasury had done in the way of reducing its balances at the Reserve Banks. Repurchase agreements might serve a purpose, but Mr. Leedy said that he would favor staying completely out of the market as far as purchases and sales were concerned for the moment. There should be no departure from the basic policy of restraint. Martin said that he felt this discussion had been Chairman views of the members of the Com helpful in bringing out the quite then called upon Mr. Rouse. mittee. He

Mr. Rouse commented that perhaps we had seen the worst of the situation on Monday of this week. This meeting had served the purpose of indicating that he would not be violating the Committee's policy by not offsetting the Treasury's operations. The net result of the discussion this morning gave him the discretion needed to do what had to be done, Mr. Rouse said, although he indicated that this would be a difficult period. He would try to keep the market as in the circumstances, and he gathered that this was tight as possible what the members of the Committee wished. Chairman Martin said that he thought this was correct. Mr. Hayes noted that one or two members of the Committee had spoken about the Treasury having created its problem, indicating that it was not the Committee's responsibility to help the Treasury out of into. Mr. Hayes said that there was a situation that it had gotten but at the moment the Treasury was not something to this comment, the rate; it was talking about the difficulty of making talking about success regardless of the rate because of any refunding operation a the market. Mr. Hayes said that to him the degree of tightness in should hold to its general policy this meant that while the Committee question, there might have to be some shading. of restraint without any the thinking he was said that this reflected Mr. Williams a few moments earlier. to express in his comments trying felt the Committee's posture Chairman Martin said that he do everything it could that it wished to be clear at all times should

to help the Treasury in its problem short of sacrificing credit policy responsibility. He felt that the problem had been well summarized at this discussion and stated that we would have to rely on the good judgment of the Management of the Account, Mr. Allen referred to his earlier comments on the Treasury's attitude and to Mr. Rouse's comments on what he referred to as the Treasury's "open market operations." Mr. Allen went on to say that he would not be disposed to criticize the Treasury for these opera tions. The Committee had its responsibility and the Treasury had its responsibility. said that he thought this subject was one that Chairman Martin should be discussed at another meeting of the Committee. Mr. Hayes stated that this discussion had been very helpful and that the New York Bank was prepared to give its attention to carry ing out the Committee s wishes. SecretaryThereupon the meeting adjourned.