October 21, 1958 FOMC Minutes

FOMC minutes

additional reserves during coming weeks, including consideration for the needs of the Treasury. He would lean in the direction of some free reserves during this period. Mr. Szymczak said he thought no change in the Committee's directive was needed at this time, that the policy it had been pursuing was correct, and that, while additional restraint on inflationary forces would be desirable, he did not think it feasible to increase the general level of credit restraint at this time. Acting Chairman Balderston said that the consensus seemed to call for no change in the Committee's directive and for a free reserve target about the same as during the past few weeks, but perhaps with some inclination toward more restraint. Mr. Treiber said that if an adjustment in the discount rate were to be made merely for technical reasons, not accompanied by another turn in the program of restraint through open market operations, the possibility of adverse effects would be small. Nevertheless, the New York Bank's directors had been fearful of another turn in restraint that might lead to adverse market developments. He did not know what the directors might do with respect to the discount rate at their meetweek, but he agreed with Mr. Deming that when a technical ing this adjustment in the discount rate was made there was great merit in having the New York Bank among the first group of Reserve Banks making desirable that several Banks and he also thought it such an increase, in the initial action. participate

In a discussion of meetings of directors of Reserve Banks, it appeared that five or six of the Banks might have meetings this week at which a change in the discount rate would be considered. The Chairman stated that it would be desirable to have the System move as a unit, but if a group of the Banks acted to increase the rate on Thursday of this week, that action would indicate to the market the nature of System policy and changes by other Reserve Banks could follow along a few days later. Mr. Deming reiterated his view that an adjustment at this time would be for technical reasons and that, because of this, he considered that the Reserve Bank in the country's principal it especially important first group of Banks to move. If this could money center be among the would be to delay action a few not be the case, his personal preference days. that if action were taken by several Reserve Mr. Bryan commented was included in the group--which he Banks and particularly if New York System's posture would be clearly agreed would be highly desirable--the the other Banks followed not matter much when indicated and it would along. directive and reverted to the Committee's The Chairman then comments as to policy. policy, calling for additional open market as Mr. ills had indicated, the Mr. Szymczak stated that, market for seasonal into the to put reserves would be having System other factors. and

Mr. Leach said that he was not sure there was a consensus for greater tightness through open market operations, in fact, he would have thought the comments indicated little change in the degree of tightness to be sought through open market operations. Mr. Treiber said that he thought it highly desirable that there be about the same target for open market operations, that he believed that in present circumstances it would be undesirable to aim toward greater restraint at the same time that an increase in discount rates was being made. Acting Chairman Balderston said that he personally agreed with this view and that unless there were objections it would be understood that the Committee was agreed on a range of free reserves between now and the next meeting about the same as during the past three weeks. No disagreement with this suggestion was indicated. The Chairman then inquired whether any change in the directive or in its limits was considered desirable, and no suggestion for change was made. Thereupon, upon motion duly made and seconded, the Committee voted unanimously to direct the Federal Reserve 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 in the case of open market or, Account in the Open Market 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 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 shortterm 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. of the Committee would be agreed that the next meeting It was held at 10:00 a.m. on Monday, November 10, 1958. Thereupon the meeting adjourned. Secretary