July 15, 1958 FOMC Minutes

FOMC minutes

on the other hand, heavy selling pressure developed, with offerings by institutional investors, some action might be called for. Mr. Leach suggested another meeting of the Committee in about an hour, or sooner if the Manager of the Account should want to have one called. Mr. Rouse then returned to the meeting with advice that the Treasury had authorized the Desk to activate orders for the Treasury up to $85 million. The authorization was to buy on an "if necessary" basis, he said. The Treasury was apprehensive of wholesale liquida tion today and felt that the System should be concerned. Pressure was anticipated particularly on the 2-5/8s and the 3 1/4s of 1985. In these circumstances, the Treasury had authorized the execution of orders to try to avoid a sheer drop in prices without any market which would tend to "scare people to death." activity, the view that the Committee should Mr. Rouse then expressed to Washington in the light any decision about coming wait and make of what developed in the market. meeting of the and said that another Martin agreed Chairman Mr. Rouse to He asked would be planned. about an hour Committee in rely on Mr. would the Committee and said that with him keep in touch time that a disorderly believed at any it if he Rouse to inform market had developed. 11:00 a.m., at and reconvened then recessed The meeting Secretary Assistant Mr. Thurston, except that same attendance with the

of the Committee, and Mr. Molony, Special Assistant to the Board of Governors, also were present. Mr. Rouse reported that the market was giving quite a remarkable performance. The market was calm and was not losing its head. There had been some selling of Government securities and of corporate bonds, but the United States Steel offer of $300 million bonds, scheduled for tomorrow, was going ahead, as was the Boeing issue scheduled for this week. There had been some price decline in the 3-1/2 per cent bonds of 1990 and the 3-1/4s of 1985, along with some rather strong offerings of the 2-5/8s of 1965, and the prices were off from last night's close. The Desk had only bought a little over $15 million for the account of the Treasury, the bulk being 3-1/2s which apparently were held in some speculative account. While there was very little outside buying, one bank bought a small lot and one dealer reported getting some small orders. By and large, the market was giving a good demonstration. As things stood, Mr. Rouse said, he could not say that there was a disorderly market. Asked whether it would be advisable to have another meeting Mr. Rouse suggested standing by at 2:30 to see around 2:00 p.m., after he had brought Chairman another meeting was called for whether If a meeting should be called Martin up to date on developments.

at 2:30, there would still be time to act, if necessary, before the close of the market. Agreement was expressed with the procedure suggested by Mr. Rouse. With respect to the earlier suggestion that the members of the Committee come to Washington, Mr. Hayes stated that in his opinion this was clearly not necessary at this time. Mr. Rouse then stated that it had been estimated that the average of free reserves for the statement week ending Wednesday should be about $510 million but that there were some doubtful factors. He would favor buying up to $75 million of Treasury bills in order to be sure that free reserves would average $500 million for the statement week. Messrs. Mills, Irons, and Robertson indicated that they questioned such action. The latter stated that he thought free reserves had been maintained at too high a level during the state ment week which ended last Wednesday. (These comments were not audibile in New York.) When the Chairman indicated that some members had reservations, Mr. Hayes inquired as to the nature of but no detailed explanation was heard in New York. these reservations Mr. Rouse said that he wanted to assure having average free statement week with the $500 million for the reserves of at least and in the light of the general Treasury refunding approaching

situation. He felt that going below $500 million might give credence to the rumors of a change in the objective of System policy which circulated several weeks ago. Mr. Robertson then stated that he thought the proposed purchase of bills would be unwise, but that the action would be within the scope of the authority that had been given to the Management of the Account. (Mr. Robertson's comment was not heard in New York.) Following some further discussion, Chairman Martin stated that all of the members of the Committee agreed that to Mr. Rouse purchase of bills was within the scope of the present the proposed was some disagreement as to the advisability authority. While there of the Account should follow his own of the action, the Manager judgment. The meeting then adjourned. Note: In the light of sub Secretary's developments, no further sequent market the Committee was called meeting of during the day. Secretary