July 22, 1958 FOMC Minutes

FOMC minutes

would be helpful. Referring, however, to the current price level of the long-term bonds, for example, the 3-1/2s, the Chairman ob served that it would be hard to get down from that area if the Account got loaded up with bonds. The best thing for the Treasury, he said, might be to pick up attrition with a bill offering, rather than to make a market that might not hold. However, the Manager must decide. Chairman Martin also stated that he had told Under Secretary of the Treasury Baird that he would inform Mr. Rouse of the view Mr. Baird had expressed this morning that the System was not doing enough in the when-issued securities. The Chairman then said that he did not think it should be assumed that the market could be remade in a period of two or three said he agreed completely. Mr. Irons also days, and Mr. Robertson he questioned tampering with the expressed agreement, stating that market for a day or two. To do so, he felt, would only compound and Shepardson indicated Messrs. Robertson, Balderston, the problem. they concurred in Mr. Irons' comment. that then said that the attrition might be extremely Mr. Hayes which it was the System's was the extent to large. The question within reasonable limits. to keep the attrition responsibility would have a moral whether the System Mr. Irons inquired if it were to go into the long to maintain a price level obligation

market now as suggested by Mr. Mills. Mr. Rouse stated that he saw no moral obligation. By going in on a large scale the System might be accused of rigging the market for the Treasury. That was on the assumption that, following the System's withdrawal, the bond market might drop off somewhat. Mr. Rouse said that he would have no quarrel with going in if the market began to fall, that is, buying to steady the situation. However, before going in in a wholesale way he would like to have an expression from the Committee. Chairman Martin said that personally he thought it would be a mistake to go in wholesale, for the System could then legitimately be accused of rigging the market. The System went in to correct a disorderly condition, and he did not think there was justification in pushing the market up to create confidence. Marking up the market was a different matter from a steadying operation. Mr. Hayes said it seemed to him that in a way the Committee was not facing up to the real problem. The System went into the market because of a disorderly condition, there being an absence of and long-term bonds. At the same time bids for the intermediate disorderly tendencies could the Treasury refunding. The there was it was today, but there market stayed the way be corrected if the problem the and that was another extremely high attrition might be Committee must face. is always faced that the System Martin commented Chairman up attrition into picking not be panicked and should with that problem

in advance. On the other hand, if the market did not take the issue, the System must consider financing the Treasury by buying what was left over. That would be a problem confronting the System for a period of several months unless conditions should change. It would be difficult to find a middle ground, and the problem must be faced up to by the System. Mr. Rouse then stated that he was planning to go ahead as indicated and that he would do some touching up in the longer end of the market if that seemed advisable. Chairman Martin noted that the refunding might turn out a lot better than some people expected, and Mr. Rouse reported finding encouragement in the roll-over decision made by a large public utility. Mr. Robertson then commented that if touching up, as used by Mr. Rouse, meant steadying the market, that was fine. If it meant marking up prices, he was against it. Mr. Rouse replied that he thought his position was clear. was to make purchases in the longer-term market in a His intention to drift down but he would not push prices modest way if it began up. indicated that action along those Members of the Committee lines would be agreeable to them. In a concluding comment, Mr. Larkin stated that System pur now well over $100 million. securities today were chases of when-issued

meeting then adjourned. The