March 25, 1958 FOMC Minutes

FOMC minutes

discriminatory. Aside from this question, it seemed to him a little unusual to fix a rate at 1/4 of 1 per cent below the discount rate for special short-term certificates purchased from the Treasury, and then perhaps to accommodate nonbank dealers at a lower rate. For these reasons, he would be inclined to continue the current policy although he recognized the problems in the market. In this connection, he would not be disturbed about buying and selling bills for short term; he thought some of that might not hurt. If loans to dealers were made at less than the discount rate, it might increase that business to an extent which would be beyond emergency or necessary levels. Mr. Allen concurred in the views of Mr. Irons. He thought that it was better not to lower the rate when it was not vital, for this might give ammunition to critics of the System who would claim that dealers were being favored as against the member banks. Governor Robertson said he felt strongly that it would be a very bad move to start making loans to dealers at less than the dis reason stated by Mr. Allen, and he saw no need to count rate for the type of operation on a large scale in the near future. engage in that basis had now been developed and that Furthermore, the cash-sale that the change would be He agreed with Mr. Irons could be used. suggest that the He would, therefore, harmful than helpful. more and that all concerned study Committee take no action at the moment the matter carefully.

Chairman Martin said that, with the bill rate at its present level and the discount rate at 2-1/4 per cent, the effect would beif the repurchase agreement mechanism was used at all--to penalize dealers if they wanted to use this instrument. There might be a question whether to use repurchase agreements at all, which would involve a different study, but in terms of logic he would go along with the comments of Mr. Rouse. However, since there was a difference of opinion within the Committee, he would suggest that the matter be carried over until the next meeting. Mr. Rouse made the further comment that some of the remarks a very strong inference of favoritism toward the dealers had left think was valid. He then said that the making of which he did not an open market operation conducted under repurchase agreements is Reserve Act; while repurchase agreements section 14 of the Federal the dealers, from the stand from the standpoint of might be loans they are security transactions. point of open market operations the Committee's policy. they are operations to facilitate Primarily, to go into and out confusing to the market He thought it was more and he noted sales and purchases, market through outright of the the Account Management Committee had wanted in the past the that The rate suggestion, as much as possible. stay out of the market to no other source. said, arose from he taken at a vote had been that, if Leach commented After Mr. rate proposal, Mr. in favor of the he would have voted this time,

Thomas remarked that free reserves fluctuate widely from week to week and that it is very convenient to use the repurchase agree ment in order to take care of those temporary fluctuations, for example, around the end of the week. The arrangement, he said, actually tends to benefit the banks because it relieves them of the necessity of borrowing. He considered the repurchase agree ment ideally suited for that purpose and felt that the rate should be related realistically to current conditions in the money market. With respect to the current maturity limitation, it was his recol lection that the Committee at first thought that the limitation should be within one year but that the 15-month limit was fixed because the Treasury at some times issues certain securities with a 13- or 14-month maturity. Later, the Comptroller of the Currency made a ruling which stipulated 18 months as the maximum maturity securities eligible for repurchase agreements by for Government member banks without the usual limit on loans to one borrower. that the Committee might want to consider Accordingly, he suggested maximum maturity as fixed by the Comptroller. fixing the same Mr. Hayes stated that he had a great deal of sympathy with He was rather puzzled, he and Mr. Thomas had said. what Mr. Rouse feel this was a seemed to the Committee members that some of said, authority for a lower because the or undesirable thing, dubious in effect for a long time. rate had actually been

Chairman Martin concluded the discussion by stating that in view of the differences of opinion around the table it would seem advisable for everyone to think about the matter further and then to consider it again at the next meeting of the Committee. It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, April 15, 1958, at 10:00 a.m. Martin said he had been asked In this connection, Chairman Committee meetings for the balance the tentative schedule of about it seemed to him that for the year. Looking at the calendar, of order to think in terms of it would be quite in planning purposes of the year. At this every three weeks for the remainder a meeting the appropriateness of would seem to be point, the only question a meeting on the 23d of December. Thereupon the meeting adjourned. Secretary