August 19, 1958 FOMC Minutes

FOMC minutes

of the money supply. In response, Chairman Martin suggested that the proposed wording was designed to leave the Account Management some latitude in its operations. Mr. Balderston said that the concept he would like to see embodied in any directive for the next three-week period would be something like "to adjusting the money supply to the constructive needs of the economy." At a time like the present he felt that this was especially important. Mr. Shepardson noted that it had been suggested by some of those around the table that it might be possible to eliminate clause (b) of the directive and to add to clause (a) a few words such as "without inducing inflation." In further discussion of alternate possibilities, Mr. Treiber commented that he was not sure how a directive such as "tempering the would work out in practice. of the money supply" rate of expansion of outlining the climate more in terms thought of the directive He had the Account Management was to operate. in which repeated his Mr. Irons then of the Committee, At the request in the fostering conditions was "to (b) which for clause suggestion and growth." recovery economic to balanced conducive money market was inclined he upon consideration that he indicated Subsequently, "and growth." the words to delete be preferable it would feel that to

With reference to the comments that had been made about wanting to avoid any disruption of market conditions, Mr. Shepardson said he considered it important that this not be interpreted to mean that no pressure would be exerted, for he felt that the System must exert some pressure to obtain the desired results. On this point, Mr. Balderston remarked that he would be unhappy if the System did not get rid of free reserves by the time of the next Open Market meeting. Martin pointed out that the Committee did not appear Chairman it was unanimous with regard to be unanimous in that view. However, Committee wanted to be moving It was clear that the to the trend. reserves by the time of of the elimination of free in the direction the next meeting. level of free reserves conceivably a zero Mr. Larkin said that and, if so, that three-week period in the next might be achievable that was the He inquired whether become the target. presumably would sense of the Committee. anyone would he did not think replied that Chairman Martin if it of free reserves a zero level reaching toward quarrel with was achievable. was the objective did not think that he Irons remarked Mr. any not like pinpointing zero. He did get back to to necessarily in his because $500 million, zero or it was whether fixed figure,

opinion the System only got into difficulty by trying to specify any particular figure, no matter what it was. Mr. Larkin then stated that he thought he understood the sense of the meeting. Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Re serve Bank of New York until otherwise directed by the Committee: (1) To make such purchases, sales, or exchanges (including replacement of maturing securities, and allowing maturities to run off without replacement) for the System Open Market Account in the open market or, in the case of maturing securities, by direct exchange with the Treasury, as may be necessary in the light of current and prospective economic conditions and the general credit situation of the country, with a view (a) to relating the supply of funds in the market to the needs of commerce and business, (b) to fostering conditions in the money market conducive to balanced economic recovery, and (c) to the practical administration of the Account; provided that the aggre gate amount of securities held in the System Account (including commitments for the purchase or sale of securities for the Account) at the close of this date, other than special short-term certificates of indebted ness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; direct from the Treasury for the (2) To purchase account of the Federal Reserve Bank of New York (with discretion, in cases where it seems desirable,to issue participations to one or more Federal Reserve Banks) such amounts of special short-term certificates of as may be necessary from time to time for indebtedness accommodation of the Treasury; provided the temporary total amount of such certificates held at that the time by the Federal Reserve Banks shall not any one exceed in the aggregate $500 million.

that the next regular meeting of the Committee It was agreed 9, 1958, at 10:00 a.m. be held on Tuesday, September would the meeting adjourned. Thereupon Secretary