July 15, 1958 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held on Tuesday, July 15, 1958, at 9:30 a.m. This was a telephone conference meeting and each individual was in Washington except as otherwise indicated in parentheses after his name in the follow ing list of those participating: PRESENT: Mr. Martin, Chairman Mr. hayes, Vice Chairman (New York) Mr. Balderston Mr. Fulton (Cleveland) Mr. Irons (Dallas) Mr. Leach (Richmond) Mr. Mills Mr. Robertson Mr. Shepardson Mr. Szymczak Mr. Vardaman Mr. Riefler, Secretary Mr. Thomas, Economist Mr. Young, Associate Economist Mr. Rouse, Manager, System Open Market Account (New York) Mr. Kenyon, Assistant Secretary, Board of Governors Mr. Keir, Acting Chief, Government Finance Section, Division of Research and Statistics, Board of Governors Chairman Martin stated that this meeting had been called pur by the Treasury. He was not in suant to a suggestion made yesterday only this morning. However, at the time and had returned Washington the thought of the Treasury that there might he understood it to be in connection with of action by the Government be some announcement be of such a nature that Middle East which would the crisis in the want to consider what, if Open Market Committee would the Federal
any, action should be taken with respect to the Government securi ties market. As yet there had been no announcement, Chairman Martin said, but since the meeting had been set up and there might be some announcement, he thought that there might well be a review of developments in the market. Chairman Martin then called upon Mr. Rouse for a report, particularly concerning any developments subsequent to those which he reported to Washington yesterday afternoon and which had been related by the Secretary to other members of the Committee. Mr. Rouse reported an increase in the volume of bank selling in after-hour trading yesterday, but said that the price declines were not as sharp as they had been during the day, when the declines were very large. There was little indication of buying interest. The Committee, he said, was of course familiar with the announce ment by the Treasury last week that it was supporting issues, particularly the new 2-5/8 per cent bonds of 1965, by purchases account. Certain dealers had stated that they did not for its own feel that the international situation had affected the market the other hand some equally competent observers yesterday, but on developments were responsible in some measure thought that such for the trend of the market in the afternoon. Mr. Rouse said that it is difficult to determine what in the market. He was concerned constitutes a disorderly situation
about the possibility of developments that might come out of the crisis in the Middle East, for they suggested the possibility of a situation involving a total bear market, i.e., characterized by virtual absence of buyers. Mr. Rouse then commented that an announcement had been made of a special press conference at the White House, but that as yet there was no further information. Shortly thereafter, however, he reported that an announcement had appeared on the ticker regarding the landing of United States troops in Lebanon. He then read the text of the White House statment on that subject. Mr. Rouse said he feared that a heavy volume of selling might develop as the result of that announcement, which raised whether the Account ought to take any action. He the question that the Desk would be authorized by then spoke of an indication purchases of securities for its the Treasury to make further he was going to talk with At that point he stated that account. and that he would then return of the Treasury Baird Under Secretary the Open Market meeting. to that the members of was made by Mr. Vardaman The suggestion to come to Washington today Committee might be asked the Open Market troops had been few days now that for the next and be available landed in Lebanon. come but that he would be glad to stated that he Mr. Hayes to him that time. It seemed at this it was necessary did not think
the Committee could make any decisions in telephone conference meeting. Chairman Martin then outlined alternative possibilities. The Committee could do nothing, it could let the market drop and decide to come in at lower levels, or it could decide to buy on a scale down. He said that he would like to have expressions from the members of the Committee. Mr. Hayes commented that the market had not yet opened and that it was difficult to make a decision until it could be seen what the market was doing. It might be that there would not be much selling; on the other hand, there might be a deluge and, if there was, he felt that the System Account should buy right away. Chairman Martin asked Mr. Hayes if he or Mr. Rouse had any views as to whether there was a disorderly market, and Mr. Hayes responded that he would rather have Mr. Rouse talk about that. Chairman Martin said he gathered from Mr. Rouse last night that he did not think the market was as yet disorderly, and Mr. Hayes then said that up to the moment he would say that it was not. How ever, the market was not yet open today. Mr. Fulton stated that he would rather wait for an indication passing any judgment on the situa of what the market was doing before merely professional probing of If it developed that there was tion. he would stand aside, at least for the time being. If, the market,
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