July 18, 1958 FOMC Minutes

FOMC minutes

had suggested earlier, the announcement itself might help a great deal and tend to minimize the volume of operations that may be necessary. Mr. Shepardson said that he would hate to see the market pegged at this level. No matter what had to be done, however, he would now favor going ahead with the announcement. Commenting on Mr. Shepardson's point, Mr. Rouse said that the longer-term bond market had declined so substantially that the risks were minimized compared with anything that had prevailed for many months. Mr. Shepardson then repeated that he would go along with the recommendation. However, he would hate to see a pegging at the that further adjustment downward was needed. present level. He felt did not have in mind pegging in Mr. Rouse responded that he a rigid sense; that is, at 32ds. said that if the System was going to peg, it Mr. Szymczak greatest and where there where the weakness was would have to peg be held at those the securities could assurance that was reasonable of rates. What that could follow a pattern prices. Then the System favor of an announcement but he was in he did not know, would take as soon as possible. and aggressive action Rouse's proposal. he favored Mr. said that Mr. Balderston down because see some scaling however, to be his preference, It would

he believed that the present level of prices was higher than could be maintained permanently. As to the announcement, he would confine it to a bare statement of the fact that the Fed eral Reserve was operating in the market and not confining its purchases to the short end. He would leave the interpretation of the action to others. Chairman Martin stated that he would support the recom mendation of the Account Manager and felt that the Committee should give him (the Manager) maximum discretion to handle the situation in the way he thought best. The Chairman then read the text of an announcement that had been drafted by Mr. Thurston, and certain minor changes were suggested. With reference to the comment made by Mr. Fulton in regard to the 2-5/8s, Mr. Hayes said that he would question letting them drift when they were the weakest point on the market. He felt that the Manager should be allowed to operate in them as well as other issues. Chairman Martin replied that the Committee would be giving take the comments of Mr. maximum discretion. He could the Manager would have to make up his own others as guides, but he Fulton and mind. intended to enter a caveat. stated that he had not Mr. Fulton with a show of reluctance toward the 2-5/8s. He would be content

Mr. Robertson said that the System would be in effect pegging at the existing level. If, however, the action were repealed and the Committee then entered into this another time, it would use a different level--hopefully a lower one--to do its pegging on. Chairman Martin commented that he thought this was under stood by all of the Committee members. However, it would not be easy to move out of this operation. The authorization would be in effect through next Wednesday at the minimum. Mr. Robertson stated that he agreed completely, and Mr. Hayes said that he and Mr. Rouse both agreed with the principle Mr. Robertson had expressed. The Chairman commented that he also would hope for a lower level at a later date, but that the Committee must realize the possibility of serious difficulties ahead. Question was raised whether a dollar limitation should be and the comments were to the put on the proposed authorization, that no need for a limitation was seen. effect Thereupon, by unanimous vote, au thority was granted to the Federal Reserve Bank of New York to purchase for the System Open Market Account in the open without limitation, Government market, in addition to short-term securities Government securities. System Open Mar The Manager of the to give in Account was authorized ket the immediate implementation structions for of this authorization.

The following announcement was ap proved by unanimous vote and the Federal Reserve Bank of New York was authorized to release the announcement to the ticker immediately: In view of the conditions in the U. S. Government securities market, the Federal Open Market Committee has instructed the Manager of the Open Market Account to pur chase Government securities in addition to short-term Government securities. Mr. Rouse said he understood that this authorization would include the purchase of rights, and there was no disagreement. Mr. Rouse considered mention of this point in the public announcement unnecessary, for if the System bought a few rights the word would get around quickly. Chairman Martin said that he would inform the Secretary of the Treasury of the action taken by the Committee. Thereupon the meeting adjourned. Secretary's note: Upon being informed of the actions taken by the Committee today, Mr. Vardaman said that he concurred in each of them. Secretary