November 10, 1958 FOMC Minutes

FOMC minutes

to usual questions regarding monetary and credit policy and the terms eventually set for the refunding security, the Reserve Banks would be prepared to consider refunding some or all of their maturing securities under such a proposal. None of the Committee members or of the Reserve Bank Presidents not presently on the Com mittee had differed with this conclusion and, pursuant to the October 29 letter, it was expected that Chairman Martin would send a reply to the Treasury today in the form of the draft distributed on October 29 except for minor editorial changes. Mr. Riefler went on to say that the November 7 letter from the Treasury appeared to be concerned only with bringing about a more even distribution of certificate maturities during each year, that the Treasury felt that an important step would be taken if of certificates, as well as public holdings, Federal Reserve holdings distributed over the four maturities, could be somewhat more evenly advice as soon as possible that the Treasury would appreciate and Open Market Committee to go as to the willingness of the Federal along with this suggestion. during which of this proposal followed a discussion There of the Committee of all of the members to be the view it appeared proposal for redistribution objection to the would be no that there Chairman Treasury certificates. holdings of Federal Reserve of Rouse be Thomas, and Messrs. Riefler, that Martin suggested of October 29, 1958. to Mr. Riefler's memorandum * Refers

requested to prepare a draft reply to be transmitted to the Com mittee members and other Reserve Bank Presidents with a request that if they had suggestions for change they send them to Mr. Riefler by Wednesday afternoon, November 12, in order to permit the Chairman to send a reply to the Treasury before the end of that day. This suggestion was approved unanimously. Secretary's note: Pursuant to the foregoing discussion, Chairman Martin sent to Under Secretary of the Treasury Baird under date of November 10, 1958, the following letter: "This refers to your letter of October 24, 1958, in which you state that the Treasury has been exploring the idea of refunding some of its maturing securities in a manner whereby attrition would be eliminated. "For that purpose you have been considering a plan under which the Treasury would offer an amount of new securities approximately equal to the amount of the maturing securities, and would give preferential allot ments in full to all subscribers tendering the maturing securities in payment of their subscriptions. This would apply to any holdings of the Federal Reserve Banks in the same manner as to any other holdings. Subscriptions for payment in cash would be allotted on an equal percentage basis. Total allotments would approximate the amount of the maturing issue. You enclosed a tentative draft of an offering circular illustrating how the proposal would work. "The Federal Open Market Committee has concluded that acquisitions by the Reserve Banks pursuant to such a re funding would not be subject to the $$ billion limit stated in section 14(b) of the Federal Reserve Act, and that, subject, of course, to usual questions regarding monetary and credit policy and the terms eventually set for the refunding security, the Reserve Banks would be prepared to consider refunding some or all of their maturing securities under such a proposal."

Secretary's note: In accordance with the foregoing understanding the Secre tary also transmitted to the Committee members a draft of reply to the letter of November 7, 1958, from the Under Secretary of the Treasury and, having received no suggestions for change other than of an editorial nature, the letter was sent by Chairman Martin to the Under Secretary under date of November 12, 1958, in the following forms "Your letter of November 7, 1958 outlines a plan for exchange offerings of forthcoming maturities of Treasury Certificates of Indebtedness. Under the plan, the Treas ury would work toward a pattern in which it would have only four regular issues of one-year certificates out standing, maturing on or about February 15, May 15, August 15, and November 15. The exchanges proposed, to be offered to the public including the Federal Reserve Banks, if the Federal Open Market Committee so chose, to rearrange their holdings so that their portfolios would contain securities in approximately equal amounts of the various maturities. "You will appreciate that it would not be appropriate for the Federal Open Market Committee, in view of its responsibilities, including the provisions of section of the Federal Reserve Act, to make a definite 14(b) with the Treasury with respect to its future commitment actions on a matter affecting the composition of its portfolio of open market securities. However, the Committee has considered the ad Federal Open Market the Treasury which might ensue from this vantages to proposed redistribution of its holdings and is disposed sympathetic consideration to seeking such to give most if an appropriate opportunity is a redistribution presented." up the question of dates for Chairman Martin then brought the remainder of this to be held during meetings of the Committee

year and early in 1959, at the conclusion of which it was agreed that meetings would be scheduled for December 2, 1958, December 16, 1958, and January 6, 1959. Thereupon the meeting adjourned. Secretary