June 18, 1957 FOMC Minutes

FOMC minutes

while recognizing uncertainties in the business outlook, the financial markets, and 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 commitments for the purchase or sale of securities 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 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; To sell direct to the Treasury from the System (3) 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 referred to a telegram addressed to him under date of May 31, 1957, by Congressman Wright Patman, reading as follows: "I am taking this particular opportunity, presented by the resignation of Secretary of the Treasury Humphrey and the nomination of Mr. Robert Anderson to be his suc to ask you and the entire Open Market Committee cessor, Reserve System to carefully study the of the Federal financing situation that confronts the incoming critical you as Chairman of the Open Mar Secretary. I am asking of the Board of Governors of ket Committee and Chairman to carefully weigh the consequencesthe Federal Reserve and the Federal Reserve of the both for the Treasury of the Open Market Committee to facili continued refusal Treasury is faced with a Treasury borrowings. The tate

"formidable refinancing task in the immediate period ahead. It is confronted by one of the tightest money markets in recent times. A repetition of the attrition experienced by the Treasury on its last refinancing will surely have critical repercussions throughout the entire bond market. "The Federal Reserve stands at an historical cross roads. Its actions will be closely watched by the people of the country and above all by the Congress of the United States, whose agent it is. The time has come for the Open Market Committee to make a decision. Will the Federal Re serve be restored to its intended function of providing the economy with the money and credit necessary to carry on commerce and trade, and of aiding the Treasury in its borrow ings at such times as may be necessary, or shall the System insist on standing aloof, ignoring its responsibilities to the people and the Government, and let the money market become the master instead of the servant? "I fervently hope that you will use your great influence, Mr. Chairman, with the members of the powerful Open Market Committee and bring home to them the gravity of the situation with which the Treasury is now confronted, and the opportunity for the System to make a wonderful contribution to the country. I urge you, Mr. Chairman, to recommend that the Open Market Committee commence purchases of Government bonds until they are restored to par. If it is deemed necessary to offset inflationary credit expansion, there are several alternatives, including raising reserve requirements and other methods of immobilizing bank reserves. "Russia repudiates her bond 100%. The Federal Reserve Board representing a majority on the Open Market Committee is permitting and causing our people who are holding market able United States Government bonds to be required to accept 12% discount on their bonds if sold today, which is 12% repudiation. "This is certainly a national disgrace, and I hope the firm, positive action at once to remove this Board takes and the reflection on our great system blight on our economy of government." this telegram had been placed on the The Chairman stated that certain that it would not be overlooked, although agenda in order to make the Committee and to all to all members of copies had been furnished upon receipt. His suggestion Reserve Bank Presidents immediately other

was that no action need be taken at this time. In response to a question from Mr. Mangels, he stated that the telegram had been acknowledged by Mr. Balderston as Vice Chairman of the Board while he (Chairman Martin) was in Europe. Mr. Hayes stated that he had wondered whether the Chairman himself might wish to respond further, and Chairman Martin stated that in his judgment no further action was needed at this time. Chairman Martin then referred to the Guides for Emergency Operations for the Federal Open Market Committee, copies of which had been distributed to all members of the Committee and to all Reserve Bank Presidents under date of May 27, 1957. The guides had been prepared pursuant to the program contemplated in the report of the Subcommittee on Defense Planning, approved at the meeting of the Open Market Committee on January 10, 1956. As one of the steps necessary to implement that program, the Committee at its meeting on January 24, 1956, requested members of the staff to prepare guides for open market operations with the understanding that they would be brought before the Committee for whatever discussion or action the Committee desired. Chairman Martin stated that he felt that a splendid job had been done in preparing these guides and unless there were addi tional comments he felt that they should be accepted. There was no with Chairman Martin's suggestion, and it was understood disagreement furnished to all relocation or records centers, that copies would be had been sent to the Federal Reserve in addition to the copies that Banks.

Chairman Martin inquired of Mr. Robertson whether he had any comments to make on the program for Operation Alert 1957, and Mr. Robertson stated that he felt no comment was necessary at this time since the matter would be discussed at the joint meeting of the Presidents and the Board this afternoon. Mr. Vardaman withdrew from the meeting at this point. Chairman Martin stated that yesterday he had lunch with Mr. Anderson, Secretary of the Treasury-designate, and that he anticipated that the System would be very fortunate in its relations with the new Secretary. It was agreed that the next meeting of the Committee would be held at 10:00 a.m. on Tuesday, July 9, 1957. Thereupon the meeting adjourned. Secretary