January 6, 1959 FOMC Minutes

FOMC minutes

problem of saving and investment. In this connection, he suggested looking at what had happened to the man who bought United States Savings Bonds as compared with the person who bought common stock. One source had indicated to him recently that in the case of a large trust company handling nothing but investment funds, the amount of money put into fixed investments had declined something like 25 per cent in the last six months. While this was not important in itself, it afforded an indication of a trend. Continuing, the Chairman pointed out that this problem was one that could not be corrected by a single change in the discount rate or by any one move, for it involved a continuous process, but he suggested that in 1959 all should be seriously concerned with the problem. Referring to the chart show presented earlier during this meeting, he called attention to the disparity illustrated by the charts between the rates of return on equities and fixed investments. That situation would not last forever, but in the meantime the Treasury had to live with the market and devise means of attracting bona fide savings into Government securities. He did not pretend to know the answer, but no one could afford to be complacent about Treasury was facing. He did not think there was the problem the anything the Federal Reserve could do directly, although this was the System's problem. However, as mentioned by Governor partially the System decided upon must be Balderston, whatever actions the Treasury's problem when actions, for it complicated decisive

the System was split within itself on what it was going to do. The System should endeavor to have a clear position which would make things easier. Summarizing the meeting, Chairman Martin said that with the Treasury financing imminent, it seemed clear that all who had spoken wanted to maintain an even keel. He agreed with Mr. Irons, however, in feeling that any mistakes should be on the side of restraint rather than on the side of ease under present conditions, recognizing the burden that this placed upon the Management of the Open Market Account. He then went on to say that an even keel policy, as debated from time to time at Committee meetings, seemed to mean many different things to different people. However, he was talking about the feel of the market generally, and he felt there was a reasonable the Committee intended to do. There was meeting of the minds on what discount rate at this time, while no sentiment for a change in the the same degree of restraint be a continuation of about there would in order to give the Treasury as that had been maintained recently free an operation as possible. that the Treasury would Martin said he was hopeful Chairman be complementary to security which would come out with a long-term monetary policy. that he felt Martin repeated comments, Chairman In concluding the battle against one in to be a crucial 1959 was going the year

inflation. He hoped that inflation would not get out of hand to such an extent that a very serious price would have to be paid for its correction, that instead it could be contained at least within reasonable limits. Mr. Szymczak again referred to his concern about the possibility of Congressional actions in the light of the unemploy ment problem and the extent to which the Government in such circum stances would permit the Federal Reserve System to follow the monetary policy it should be pursuing from the standpoint of the inflationary problem and long-range needs of the economy. Chairman Martin inquired whether there was any disagreement of the meeting, and there were no indications to with his summary asked Mr. Rouse whether he had any comments, such effect. He then and the latter replied in the negative. Thereupon, upon motion duly made seconded, the Committee voted and unanimously to direct the Federal Re serve Bank of New York until otherwise directed by the Committee: purchases, sales, or exchanges (1) To make such securities, and allow replacement of maturing (including replacement) for the to run off without ing maturities market or, in the Account in the open System Open Market exchange with the by direct case of maturing securities, the light of current be necessary in Treasury, as may and the general economic conditions and prospective a view (a) to of the country, with credit situation to the needs in the market supply of funds relating the

of commerce and business, (b) to fostering conditions in the money market conducive to sustainable economic growth and stability, and (c) to the practical administration of the Account; provided that the aggregate amount of securi ties 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 certifi cates 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 may be necessary from time to time for the temporary as of the Treasury; provided that the total accommodation such certificates held at any one time by the amount of Reserve Banks shall not exceed in the aggregate Federal $500 million. the Committee would be that the next meeting of It was agreed January 27, 1959, at 10:00 a.m. held on Tuesday, Thereupon the meeting adjourned. Assistant Secretary