July 21, 1958 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held on Monday, July 21, 1958, at 11:00 a.m. This was a telephone conference meeting and each individual was in Washington except as otherwise indicated in parentheses in the following 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. Mangels (San Francisco) Mr. Mills Mr. Robertson Mr. Szymczak Mr. Shepardson Mr. Vardaman Treiber, Alternate Member of the Federal Mr. Open Market Committee (New York) Mr. Riefler, Secretary Mr. Thurston, Assistant Secretary Mr. Solomon, Assistant General Counsel Mr. Thomas, Economist Mr. Young, Associate Economist Mr. Rouse, Manager, System Open Market Account (New York) Assistant Secretary, Board of Mr. Kenyon, Governors Mr. Keir, Acting Chief Government Finance Section, Division of Research and Statistics, Board of Governors and Marsh, Assistant Vice Messrs. Larkin Federal Reserve Bank of Presidents, New York (New York) Mr. Stone, Manager, Securities Department, Federal Reserve Bank of New York (New York) securities market that the Government Mr. Larkin reported the movement that this morning, continuing was moving up in price
developed late last Friday after the announcement appeared on the ticker that the Federal Open Market Committee had authorized the Manager of the System Open Market Account to purchase, in the open market, Government securities other than short-term securities. The movement on Friday, he said, was difficult to measure in terms of 32ds, but roughly the price advance in the last quarter hour of trading amounted to 1/ or 3/8 of a point. This morning the gains ranged up to an additional 14/32ds. For example, the 3-1/2 per cent bonds of 1990, which on Friday were purchased for the System Account below par, were up this morning to 100-7/8. Mr. Larkin said that offers were remarkably small, both in numbers and volume; so far this morning there had been only a few offers of bonds. Hence no action had been taken today by the System Account with respect to intermediate or long-term issues. On Friday between 3:00 and 3:30, roughly $32 million of notes and bonds in five different issues were purchased for the System Account. Nothing had been done on the rights. Mr. Larkin continued by saying that the consensus of the now is that the average rate at the Treasury bill auction market today would be below one per cent, although some people in the market the rate might go up to one per cent or a little higher. thought that the System might do in in the market as to what There was conjecture bills or let them run is, whether it would sell Treasury bills; that
off, particularly the latter. As to the rights, the situation had not improved. They were available in the market; although not in huge amounts, offers were appearing. It was more a matter of the level than one of magnitude. Together with the general atmosphere, the situation was not one which would encourage the exchange of maturing securities. Mr. Larkin then went on to report other aspects of the market situation this morning, including the picture on bank reserves and re serve projections. His report is sumarized in a memorandum by Mr. Thomas dated today. In accordance with the customary practice, Mr. Thomas' memorandum has been sent by wire to all of the Federal Re been placed in the files of the Federal serve Banks and a copy has Open Market Committee. report, Mr. Larkin said that the Treasury In concluding his There were some signs of a was taking care of itself. bond market went up, but that remained to two-way market developing as prices follow prices up, but did not intend to seen. The System Account be to stay out of the market. rather the question of whether anything Larkin then referred to Mr. and when-issued securities. respect to the rights should be done with decided to purchase Management had the Account All things considered, on the theory that rather than the rights the when-issued securities release of re defer the help and would contribute more this would could be perhaps the problem of August, when until the first serves
dealt with better than tomorrow or Wednesday. Mr. Larkin noted that the System Account held nearly $200 million of Treasury bills which would mature this Thursday and said that the Management was considering the possibility of running off some or all of them. However, a final decision would not be made until it could be seen what happened as far as market conditions were concerned. At present, it was the intent to run the bills off, but this was subject to change depending on market developments and the need for Federal Reserve operations in the market. Mr. Leach inquired whether the Treasury bought any securities Friday and whether it had any orders in now, to which Mr. Larkin replied that the Treasury was out of the market today and that it did not buy anything during the last hour on Friday. He added that the authority had been virtually used up. agreement with the thought that After Mr. Robertson expressed higher prices reported by Mr. System should not be buying at the the had been marked up rather the latter commented that prices Larkin, whether they would hold. He that it remained to be seen sharply and of foreign orders for the Desk had a couple went on to say that to supply from the at present it intended Treasury bills, which System Account. the System had done all commented that he thought Mr. Irons a disorderly market. standpoint of correcting it could from the that He then asked the Treasury bills. of running off favored the idea He
whether the System would gain much in the long run by making purchases of rights or when-issued securities. Mr. Larkin said he would like to think that some operations in that sector of the market would be helpful and might encourage holders of the maturing securities to exchange if they had been on the fence. Otherwise, as a leading dealer Friday, said the Treasury refunding could turn out to be the worst failure in the history of Treasury financing. Unless the rights improved in price, it might turn out to be just that. Mr. Irons stated that this would be a precedent suggesting a Treasury issue looked doubtful the Federal Reserve that whenever that the Committee should realize what should step in. He warned be building up for itself in the future. it might this was a most unusual situation, Larkin responded that Mr. situation. He said that in view of the international particularly the establishment of a did not have in mind the Account Management abhorred as much something that the Management precedent. It was that this should not full agreement, he said, anyone. There was as establishing a precedent. be regarded as in the views expressed said that he concurred Mr. Robertson points Mr. Irons had Larkin said that the by Mr. Irons, and Mr. said he had Mr. Larkin also and accepted. were recognized raised were at the start holding where they that prices were been informed (It was now 11:30.) of the telephone meeting.
Mr. Thomas was then asked by Mr. Larkin if Chairman Martin had any comments to make on the approach outlined. Mr. Thomas re plied in the negative. The meeting then adjourned. Secretary