September 10, 1957 FOMC Minutes

FOMC minutes

"of August 3, 1955 to the Presidents of all Federal Reserve Banks transmitting essentially the information given in the policy record entry for the same date is also enclosed in accordance with your request. "Another request was that we furnish you with sample copies of the weekly report of the Manager of the System Open Market Account, plus a description of other reports made at regular intervals. Two of the weekly reports pre pared during the calendar year 1956 are enclosed--those for the weeks ending May 23 and June 20. Because of the nature of these reports, their contents should be held confidential. "Reports in substantially the same form as the weekly report are prepared prior to each meeting of the Federal Open Market Committee. The Manager of the System Account prepares these reports of open market transactions to cover the interval since the most recent meeting of the Committee. They are brought to date on the morning of the meeting by a supplemental report from the Manager. "Among the reports prepared and distributed to members of the Federal Open Market Committee is a monthly statement show ing the volume of transactions in United States Government securities and in bankers' acceptances, both outright and under repurchase agreement, with dealers under authorizations of the Federal Open Market Committee. An annual report cover ing operations of the securities function of the Bank designated to execute transactions for the System Account is prepared early each year. Also, the Manager of the System Open Market Account periodically prepares a report containing financial and operat ing data regarding individual dealers in United States Govern ment securities. This report is compiled from information provided in strictest confidence. It is confidential and the Committee would not be in position to release it. "While not falling strictly within the description of re ports, members of the Committee are kept informed by telegrams in the course of the day concerning activity in the Government securities market and operations for the System Account. that this letter comments on all of the matters "I believe several letters having to do with Open Market mentioned in your other questions which you presented Committee matters. The of penalties for deficiencies as those relating to waiver such and examination reports, expenses in reserve requirements, audit transactions in Government Reserve Banks, and of the Federal either have been or for member banks and others, securities in separate letters." will be covered be helpful to he believed it would stated that Mr. Balderston that he had made lines of a statement Riefler comment along have Mr.

before the directors of the Federal Reserve Bank of Chicago last week concerning a number of the arguments presented by critics of the System's current credit policies at the recent hearings before the Senate Finance Committee. Mr. Riefler summarized his comments having to do with the following propositions or assertions: (1) that higher interest rates account for an important part of the inflation of prices; (2) that the American economy today is not characterized by a shortage of man power, since unemployment is one-third higher than in 1952 when prices were stable; (3) that the American econony today is not confronted with a shortage of physical capacity to produce since new capacity has been and still is being greatly enlarged; (4) that consumer disposable income, in terms of real purchasing power, has not grown during the past year; and (5) that it is generally recognized that more production is the best cure for inflation. Mr. Riefler stated that the first of these assertions was now being less confidently asserted than when the hearings began. Statistics presented at the hearings showed that interest costs were in fact a very small proportion of total business expense, and these statistics had made this assertion a pretty farfetched one. He then commented on the remaining four principal assertions, pointing out their respective these four assertions, he said, the con pitfalls. Given assent to that measures to stimulate consumer spending, rather clusion followed than saving, would so increase the output of goods and services, for

which both manpower and capacity are available, as to cure inflation. This conclusion really asserts that the creation of more money, by increasing the demand for output, would curb inflation. Mr. Riefler went on to say that the logical validity of any conclusion could be tested by stating it in reverse. In this case, the reverse proposition would be that the sure way to cure a deflation would be to raise interest rates and force contraction of the money supply. However, such logical refutation of the main conclusion does not meet the need for refuting each of the assertions separately, he said, and he then commented more fully on each of these four assertions. After Mr. Riefler had concluded his remarks, Mr. Allen stated that following the presentation of these points by Mr. Riefler at the meeting of the Chicago Bank's Board of Directors, three of the directors asked whether the statement could be prepared in written form for dis persons. He suggested that it would be desirable tribution to interested if Mr. Riefler would do this, and Mr. Riefler stated that he would pre pare a summary of his comments. Secretary's notes In accordance with the foregoing, a summary of Mr. Riefler's comments was distributed under date of September 12, 1957. Mr. Riefler had made discussion of the comments During a brief of the points improving public understanding the desirability of and of Reserve Bank of that yesterday the Federal Mr. Hayes stated discussed, in the with leading businessmen a series of sessions New York started

area in which such men would be invited to the Bank in groups of about ten in number, to have luncheon and to spend a couple of hours discussing Federal Reserve policies and related matters. He was encouraged with the first meeting in that these men, who were from the top executive group, showed complete agreement with what the System was doing. Mr. Hayes stated that it was also contemplated that businessmen who were not necessarily in the top executive positions would also be invited to participate in similar sessions at a later stage. It was agreed that the next meeting of the Committee would be held at 10:00 a.m. on Tuesday, October 1, 1957. Thereupon the meeting adjourned. Secretary