January 27, 1959 FOMC Minutes

FOMC minutes

point where the rate of growth for the full year 1958 was only about 3-1/4 per cent. This seemed quite a satisfactory outcome for a year which began with a short recession and ended with eight months of recovery. He was not entirely sure what change in the money supply should be planned for the remainder of the current year, but he thought it probably should be less than 3-1/4 per cent despite residual unemployment in places like Detroit resulting, in part at least, from technical changes in agriculture, manufacturing, and even the service industries. Other financial considerations that impressed him as relevant at this time were, first, the fact that total credit and total loans at city banks during the first two weeks than anticipated and, second, the fact that of January declined more the Treasury bill rate and the discount rate the differential between about misuse of the member bank did not seem as yet to have brought course, that situation might change quickly borrowing privilege. Of of the discount window. put some strain on the administration and discount rate at the beginning of Since no action was taken on the had an obligation to that the System now it seemed to him January, the completion of present rate until not to alter the the Treasury Mr. Hayes and others. set forth by refunding, for reasons the February the rug from under would not pull that the System Further, he hoped the reasons Mr. refunding, for after the the Treasury immediately he felt that was made, however, When a change Bryan had indicated.

Mr. Robertson was correct. It must be remembered that the "open hunting season" for the System would not be a very long one; the times when it could act during the remainder of this year would be lessened due to the plight of the Treasury. Consequently, when the System did act, the action should be decisive. This time it would not be feasible to move, as in 1955, in small steps of 1/4 per cent. Current policy, Mr. Balderston said, should be continued until the next meeting of the Committee. Chairman Martin said he could add nothing to today's discus he would reserve any comments until the February 10 sion and that seemed virtually unanimous. There was meeting. Opinion, he noted, and it was felt that the call for a change in the directive no an even keel during the forth should endeavor to maintain System of the Open Market Account recognizing that the Manager coming period, in the light of the comments meaning of "even keel" must determine the around the table. there was any disagreement then asked whether The Chairman with this summary. like to make but would he had no disagreement Mr. Hayes said Balderston had Bryan and glad that Messrs. He was one observation. pulling the rug," of "immediately about the undesirability commented to a earlier references concerned about had been somewhat for he on the Treasury soon as the books rate as in the discount change

refunding were closed. Deliveries were scheduled to be made on the 16th of February, and he felt that a decent interval ought to be observed before any change in the rate was made. Mr. Mangels stated that he concurred in the view expressed by Mr. Hayes, and Mr. Szymczak observed that this whole subject could be discussed further at the next meeting of the Committee. Mr. Deming referred to comments by Messrs. Robertson and Balderston regarding a stronger than normal action on the discount rate and asked for interpretation. Mr. Robertson replied that he had had in mind something more than 1/2 per cent, for he felt that a 1/2 per cent increase had already been discounted. Thereupon, upon motion duly made and seconded, the Committee voted unani mously to direct the Federal Reserve Bank of New York until otherwise directed by the Committee: (1) To make such purchases, sales, or exchanges (in cluding 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 sustainable economic growth and stability, 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 securi ties 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 accom modation 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. It was stated that the next meeting of the Federal Open Market on Tuesday, February 10, 1959, at 10:00 a.m. Committee would be held and that the next succeeding meeting would be on Tuesday, March 3, Thereupon the meeting adjourned. Secretary