May 28, 1957 FOMC Minutes

FOMC minutes

of the statement made by Messrs. Robertson and Shepardson. The other was the suggestion he understood to be implied in Mr. Mills' comment, that is, a rise in the discount rate would provide greater settlement and stability in the capital markets on the theory that the existing uncertainty as to rates was a drawback in the capital markets and that perhaps elimination of that uncertainty would help provide a better equilibrium. With respect to the second objective, Mr. Hayes said that he had very grave misgivings as to whether an increase in the discount rate now would produce an equilibrium, be cause of the whole atmosphere in the securities market. It was very much open to question, he said, whether dealing with such a delicate problem ratewise might not have an effect just the opposite of that desired. Personally, Mr. Hayes said that he had misgivings as to whether such a move was needed strictly as a monetary measure. He had not reached a conclusion that the inflationary forces were very definitely and strongly in the ascendency. He stressed the confused and mixed character of the picture, as he and some of his colleagues saw it. It was true that sentiment had improved, Mr. Hayes said, but he was impressed by the statement Mr. Williams had made that sentiment has improved but statistics have worsened. He thought it whether this was a desirable time to make an overt very questionable greater restraint. He did not believe such action was move toward called for, with the business picture looking the way it does, There was wide room for judgment on that, of course.

Mr. Erickson said that it seemed to him that business sentiment in the spring of each year following a good year was always tending down early in the year, and later on it improved. He would like to be sure that we did not overemphasize such de velopments this year. Mr. Vardaman said that he was wholly in agreement with the comments Mr. Hayes had made. Without meaning to be presumptuous, he noted that there were some forty persons in the room, and he suggested that if word of this discussion got outside the room it would have almost as disturbing an effect on the market as though the discount rate were raised. Chairman Martin said that he had already commented on the latter point and that he was glad that Mr. Vardaman had reiterated the need for not commenting about discussions in this room On the other hand, it was essential that the Committee discuss these prob lems, and it must rely on the intelligence and discretion of the persons attending the meetings. the Chairman said that he would gather that As to policy, the consensus was that the Committee should maintain the status quo to study the problems that had been and that it should continue discussed at this meeting. he had no objection to that state Mr. Shepardson said that ment. However, the comment Mr. Hayes had just made regarding the

difficulty of judging the business situation was one that always faced us; the Committee would always be behind the figures, and it was part of the Committee's job to reach a judgment before the figures reached it. Chairman Martin inquired of Mr. Rouse whether he had any sug gestions regarding the directive, and he responded that he had none. 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 (including replacement of maturing securities, and allow ing 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 wi;h 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 restraining inflationary developments in the interest of sustainable economic growth while recognizing uncertainties in the business outlook, the financial markets, and the international situation, and (c) to the practical administration of the account; pro vided that the aggregate amount of securities held in the System account (including commitments for the purchase or sale of securities for the account) at the close of this date, other than special short-term certificates of in debtedness 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 certificates of indebtedness amounts of special short-term as may be necessary from time to time for the temporary

accommodation of the Treasury; provided 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 accommoda tion 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. It was agreed that the next meeting of the Committee would be held at 10:00 a.m. on Tuesday, June 18, 1957. Thereupon the meeting adjourned. Secretary