October 1, 1957 FOMC Minutes

FOMC minutes

experience with net borrowed reserves of around $200 million, he urged that the Committee keep the $400 million level as the current guide. Mr. Thomas, in response to Chairman Martin's invitation that he comment, said that he had nothing to add other than to say he agreed with the conclusion stated by Mr. Balderston. His suggestion was for a lower level of net borrowed reserves than the $500 million or more common during the spring and summer of this year, but not for a level of $200 million or less that prevailed during the late months of 1956 and early Chairman Martin said that there was a surprising degree of unani mity today. He observed that he had visited with seven Ministers of Finance and six Governors of central banks at the annual meeting of the Boards of Governors of the International Monetary Fund and the Inter national Bank for Reconstruction and Development during the past week. He was impressed with the unanimity of their views that inflation in each instance had gotten ahead of them, that it was the primary problem in their countries, and that there would be no way of coping with the inflation other than a little decline in business. The Chairman said with two minor exceptions, he found no apprehensions concerning that, but there was a general view that the main problem was that prospect, public relations in dealing with the feeling in some quarters one of seeking a depression or was endeavoring that central banking policy was decline in business. This was the problem faced in to precipitate a said, and each of the individuals of these countries, the Chairman each

with whom he had talked was seeking ways of explaining the problem to the people. That problem was similar to the one presented to the Federal Reserve System, Chairman Martin said, adding that it was interesting to get this synthesis of views, with the same awareness on the part of each of the individuals of the inability of monetary policy to supply a magic solution. Chairman Martin said there was also an awareness that there would be pressure on the monetary authorities to reverse their policies in order to prevent an adjust ment from taking place, and an equal awareness that they did not have a means for pulling the levers and avoiding a readjustment. Chairman Martin then said that it appeared that the consensus clearly was that there should be no change in policy or in the Com mittee's directive at this time. Mr. Robertson said that his understanding of this statement was that the Committee desired to follow the same policy during the next three weeks that had been followed during the past three weeks. While the Chairman had not mentioned the volume of net borrowed re serves, he (Mr. Robertson) would assume that the averages of net that had been sought during the past three weeks borrowed reserves to be sought during the next three weeks. would continue understood the Committee's discussion Mr. Rouse stated that he in terms of degrees of pressure and instructions to be principally that the Committee but he understood net borrowed reserves, rather than borrowed reserve objective. no change in its net intended

Chairman Martin added that this would be with a view to seeking the same degree of restraint that had been sought before. 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 Committees (1) To make such purchases, sales, or exchanges (including 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 ex change 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 restraining inflationary developments in the interest of sustainable economic growth while recognizing uncertainties in the business outlook, the financial markets, and the inter national situation, and (c) to the practical administra tion of the account; provided that the aggregate amount of securities held in the System account (including commit ments for the purchase or sale of securities for the ac count) 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 ac count of the Federal Reserve Bank of New York (with dis cretion, in cases where it seems desirable, to issue par ticipations to one or more Federal Reserve Banks) such amounts of special short-term certificates of indebtedness may be necessary from time to time for the temporary as of the Treasury; provided that the total accommodation of such certificates held at any one time by the amount Federal Reserve Banks shall not exceed in the aggregate $500 million; from the System direct to the Treasury (3) To sell certificates such amounts of Treasury account for gold maturing within one year as may be necessary securities the accommodation of the Treasury; from time to time for such securities so the total amount of provided that

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. Mr. Rouse then referred to the comments Mr. Mills had made earlier in the meeting regarding new securities offerings by various Federal agencies. He said that during the past one and one-half years there had been a substantial increase in the volume of such issues, both in number and amount, and the spread between Treasury issues and agency issues had increased markedly in order to absorb this rise. Within the past few months the demand for the agency issues had not increased as rapidly as had the volume of such issues and the market was now faced with the possibility of a substantial FNMA issue. Mr. Rouse expressed the view that such an issue probably would have to be in the six to eight month maturity range, although there was the possibility of a fairly long issue if it was not in a very large volume. Mr. Vardaman suggested that it might be of interest to the Committee members if the Board's Division of Research and Statistics a list showing the labor management negotiations that would prepare calendar year 1958 as a result of expire might take place during the tion of existing contracts. It was agreed that the next meeting of the Committee would be held at 10:00 o'clock on Tuesday, October 22, 1957 Thereupon the meeting adjourned.