October 22, 1957 FOMC Minutes

FOMC minutes

still to be demonstrated and that recent developments were largely psychological with the basic factors remaining strong. When it came to what should be done, Mr. Hayes said, it was much easier to find an approach to unanimity. It was clear that at this juncture the Committee did not wish to make any overt move or give any public signal that it was changing policy. It wished to supply seasonal needs reasonably freely. It certainly did not wish to increase restraint from what it has been. There was a mixture of feelings on the other side, some feeling that the Committee should actually diminish restraint a little, but more members feeling that it should resolve doubts on the side of ease. Mr. Hayes noted in this connection that the suggested target or benchmark figures of net borrowed reserves including the target figures suggested by those who wished to hold steady, were a little lower than the net the Committee had wanted during the past three borrowed reserves weeks. At its preceding meeting, the Committee had been thinking million range, possibly nearer to $500 million, whereas of a $400-$500 at this meeting was around $350 million. the average of suggestions Be that as it may, Mr. Hayes said that he thought it clear that policy Account considerable latitude, give the Manager of the System was to ease, and not to emphasize the figures to resolve doubts on the side of some of the other factors. To much because of the importance of too in, there was quite good unanimity the extent that figures do enter average for the coming three figure of $350 million as an around the

weeks although some had suggested a lower figure. On the question of the directive, Mr. Hayes stated that it seemed quite clear that most members of the Committee did not wish to make a change at this time. The consensus was that the Committee give consideration to the question whether a change might be desirable in the near future. He recommended that between now and the next meeting all of those present give careful thought to the suggestions of Messrs. Leedy and Balderston for a change in the wording of the directive. With respect to the discount window and defense contracts, Mr. Hayes said it was apparent that while views had been expressed in different language, none of those who had commented wanted other Government agencies to refer to the discount window as a specific solution to the problem. The Reserve Banks probably did not wish in their own statements to member banks to make much of this as a specific problem, although they wished to take this factor into consideration in the same manner as any other factor affecting the seasonal needs of an individual bank. Summing up, Mr. Hayes said that general policy was not to be :hanged appreciably, although it should tend a little on the easier it had been in recent weeks. The Committee wished side from where to give the Manager of the Account substantial leeway to be guided by should be no overt public move and no the feel of the market. There in the general directive at this time, and there was no desire change

for a change in discount rates. Mr. Hayes inquired whether anyone differed from this evaluation. In the absence of comment, he sug gested that this summary be considered the consensus of views at this meeting and that the directive be renewed without change. 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 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 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 indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; from the Treasury for the ac (2) To purchase direct count of the Federal Reserve Bank of New York (with dis in cases where it seems desirable, to issue par cretion, to one or more Federal Reserve Banks) such ticipations special short-term certificates of indebtedness amounts of as may be necessary from time to time for the temporary of the Treasury; provided that the total accommodation amount of such certificates held at any one time by the Reserve Banks shall not exceed in the aggregate Federal $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 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. Mr. Hayes noted that Mr. Balderston had suggested the possibility of setting the date for the next meeting of the Committee two weeks from today. There was brief discussion of this suggestion, at the conclusion of which it was agreed that the next meeting would be set for Tuesday, November 12, 1957, at 10:00 a.m. Thereupon the meeting adjourned. Assistant Secretary