September 9, 1958 FOMC Minutes

FOMC minutes

selling bills to dealers. It would be possible to do a good job, he thought, and the Account Management would do the best it could. Nevertheless, operations might result in higher reserve figures. He felt sure that he understood what the majority of the Committee desired, that is, what it was trying to bring about, and he felt that this could be accomplished. However, as Mr. Thomas had pointed out, it was quite doubtful whether it would be possible to get free reserves too much lower in the ensuing period. Chairman Martin stated to Mr. Rouse that the Committee would have to rely on his judgment from the standpoint of the stability of the market. Mr. Rouse then stated that he would think of the matter in terms of trending toward zero, with the qualification of avoiding a serious upset in the market. Mr. Robertson said that, despite the difficulties with respect he felt that there was actually general agreement withto terminology, the term "trending toward zero" did not mean in the Committee. Use of possible to get there. The Account necessarily that it would be developments might work do the best it could, but Management would out in the other direction. to feel that the that he continued Mr. Hayes then commented in terms of atmosphere. where we are" wanted to keep "about majority Mr. Robertson Mr. Hayes' comment, based on In discussion if this was not downward but that should be that the trend stated

possible in the light of market conditions the Account Management, of course, could not do it. The Chairman referred again to the maintenance of an even keel, and Mr. Shepardson inquired whether continuing to exert some pressure would still be contemplated. Mr. Hayes responded that an even keel meant an even keel to his way of thinking; he did not think one could say "even keel" and keep exerting greater pressure. Mr. Szymczak commented that an effort to keep free reserves around $125 million would mean, according to the projections, that the Desk would have a problem of absorbing considerable reserves. Mr. Hayes then commented that if the Management of the Account tried to get the free reserve figure below $128 million it would have to put a considerable and increasing pressure on the market. Mr. Shepardson said he would accept that statement and that it would be agreeable to him just to continue the degree of pressure now being exerted. Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Reserve Bank of New Ycrk 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, case of maturing securities, by direct or, in the may be necessary in the with the Treasury, as exchange prospective economic conditions light of current and credit situation of the country, with and the general

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 aggregate 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 indebtedness purchased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the 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 indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed in the aggregate $500 million. the speculative situation in the GovernMr. Rouse referred to the summer and said that a meeting of ment securities market during New York Money Market, the appointment Technical Committee of the the to the Committee, had been had previously been reported of which the Committee that been suggested to Monday. It had called for next question of the possifor study would be the an appropriate subject of the conditions which brought bility of avoiding a recurrence anything would the market. Whether fever in about the speculative was on notice. but the committee an open question, of it was come out on a memorandum was preparing of New York Reserve Bank The Federal and of the committee for the use nature of a factual the matter Market Committee. Open to the Federal be furnished copies would

It was agreed that the next regular meeting of the Federal Open Market Committee would be held on Tuesday, September 30, 1958, at 10:00 a.m. No objection was interposed to Vice President Tow of the Federal Reserve Bank of Kansas City attending the next two meetings of the Federal Open Market Committee as an observer in the absence of Mr. Leedy, or to First Vice President Wayne of the Federal Reserve Bank of Richmond attending as an observer in the absence of W. Leach. Thereupon the meeting adjourned. ecre ,