January 28, 1958 FOMC Minutes

FOMC minutes

directors against a situation such as that which developed recently at the Bank of England. We should all realize that this could be a very real problem. We should never get into the record that the directors of a Reserve Bank were recommend ing a change in reserve requirements since many directors are also bankers. Chairman Martin said that this had come up on the Hill a number of times and that it raised a very real ques tion. He was defending all of the Committee members and the Presidents against the charge of being dominated by the bankers. The Committee wished to have the views and judgments of each of the Reserve Bank Presidents, but these should be their own. Mr. Hayes said that he agreed that we should not indicate to the directors in any way knowledge that the Committee members or the Presidents might have of the likelihood of any change in System policy. However, he said he had thought that the directors should be allowed to cover all phases of Federal Reserve policy in their discussion and in making suggestions. that each President should handle Chairman Martin responded fit. The Presidents should feel this problem in the way he saw of System policy in any way they free to discuss every aspect us should protect the di point was that each of wished. His where their motives could from initiating recommendations rectors reserve requirements for determining be questioned. Responsibility

was specifically placed in the hands of the Board of Governors, according to statements made to him by several Senators, because the Congress did not want that authority in the hands of the boards of directors of the Federal Reserve Banks. He reiterated the views he had expressed before that he thought these Open Market meetings should be just as free as possible and we should not hesitate to discuss any of the System problems whether they be margin requirements, or reserve requirements, or something else. At the same time all of us should remember that changes in the System might come about in the next three or four years and that director recommendations about reserve requirements might be the sort of thing that the Congress would criticize Committee was careful to see that the perspective in unless the were reported was correct. He did not intend by this which views to preclude any director from giving the Committee his views. He the Committee members recognize that was simply trying to have there was a problem in this area. if there were no further com Chairman Martin then stated that form with the renewed in its present directive would be ments the further at the meeting to that it would be discussed understanding the System Account operations for 11 and that held on February be of the fore along the lines be carried on meantime would in the going discussion.

Thereupon, upon motion duly made and seconded, the Committee voted unani mously to direct the Federal Reserve Bank of New York until otherwise di rected by the Committee: (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 exchange with the Treasury, as may be necessary in the light of current and prospective economic condi tions 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 cushioning adjustments and mitigating recessionary tendencies in the economy, and (c) to the practical administration of the account; provided that the aggre gate 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 indebted ness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; direct from the Treasury for the (2) To purchase account of the Federal Reserve Bank of New York (with in cases where it seems desirable, to issue discretion, one or more Federal Reserve Banks) participations to of special short-term certificates of such amounts necessary from time to time for indebtedness as may be of the Treasury; provided the temporary accommodation certificates held at any that the total amount of such Reserve Banks shall not exceed one time by the Federal in the aggregate $500 million; from the System to the Treasury (3) To sell direct such amounts of Treasury Account for gold certificates within one year as may be necessary securities maturing time to time for the accommodation of the Treasury; from of such securities so that the total amount provided $500 million face exceed in the aggregate sold shall not be made as nearly as may and such sales shall amount, quoted in the at the prices currently be practicable open market.

Chairman Martin stated that discussion of the New York Clearing House Report dated October 22, 1957, would be carried over until the next meeting of the Committee to be held on Tuesday, February 11, 1958. Thereupon the meeting adjourned. Secretary