January 27, 1959 FOMC Minutes: Full Text
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington on Tuesday, January 27, 1959, at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Hayes, Vice Chairman Mr. Balderston Mr. Fulton Mr. Irons Mr. Leach Mr. Mangels Mr. Mills Mr. Robertson Mr. Shepardson Mr. Szymczak Messrs. Allen, Johns, and Deming, Alternate Members of the Federal Open Market Committee 1/ Messrs. Bopp, Bryan, and Leedy, Presidents of the Federal Reserve Banks of Philadelphia, Atlanta, and Kansas City, respectively 1/ Mr. Riefler, Secretary Mr. Thurston, Assistant Secretary Mr. Sherman, Assistant Secretary Mr. Hackley, General Counsel Mr. Solomon, Assistant General Counsel Mr. Thomas, Economist Marget, Walker, and Messrs. Daane, Hostetler, Young, Associate Economists System Open Market Account Mr. Rouse, Manager, Secretary, Board of Mr. Kenyon, Assistant Governors to the Board of Mr. Molony, Special Assistant Governors Associate Adviser, Division of Mr. Koch, Board of Governors Research and Statistics, Chief, Government Finance Mr. Keir, Acting of Research and Statistics, Section, Division Board of Governors the point indicated meeting at joined the and Leedy Messrs. Allen 1/ at that time. entered the room Baughman also minutes. Mr. in the
Mr. Latham, First Vice President, Federal Reserve Bank of Boston Messrs. Roosa, Jones, and Tow, Vice Presi dents of the Federal Reserve Banks of New York, St. Louis, and Kansas City, respectively Messrs. Baughman and Einzig, Assistant Vice Presidents of the Federal Reserve Banks of Chicago and San Francisco, respectively Mr. Gaines, Manager, Securities Department, Federal Reserve Bank of New York Mr. Anderson, Economic Adviser, Federal Reserve Bank of Philadelphia Mr. Parsons, Director of Research, Federal Re serve Bank of Minneapolis Mr. Brandt, Economist, Federal Reserve Bank of Atlanta Chairman Martin noted that Messrs. Allen and Leedy had been delayed was running behind schedule and that Mr. Latham was because their train the meeting in the absence of Mr. Erickson. attending Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Com mittee held on January 6, 1959, were approved. to the members of there had been distributed Before this meeting Bank of New York at the Federal Reserve a report prepared the Committee the period January 6 through market operations during covering open covering the period January and a supplemental report January 21, 1959, have been placed of both reports 26, 1959. Copies 22 through January Open Market Committee. of the Federal in the files market had been steadily reported that the money Mr. Rouse funds had Federal of the Committee. the last meeting tight since some trading at on every day, although at the discount rate traded
rates slightly below the discount rate was reported on a few days, and market rates of interest on Treasury bills had increased sharply. Three-month bills traded yesterday at 2.9 per cent, and six-month bills went at an average rate of 3.34 per cent in yesterday's auction. The reserve figures had not worked out exactly as planned, Mr. Rouse said, principally because of erratic movements in float. In spite of average free reserves in one week, however, the average for the full period since the last meeting had been reasonably close to what he believed the Committee intended. In any event, the central money market had been consistently tight; the temporary buildup in reserves was concentrated at country banks while the New York and Chicago banks carried large basic deficiencies steadily. The new securities issued in the Treasury's cash financing earlier this month had not behaved well in secondary trading. Al bonds and notes were attractively priced and were though the new oversubscribed, a volume of offerings reached the satisfactorily books closed and drove both issues to market immediately after the influence behind this from issue price. A principal discounts of higher rates of interest was widespread anticipation development that the was generally anticipated coming months. It over the the near future, and the be increased in discount rate would pressure on rates. suggested steady demands for capital prospective Mr. Rouse commented that the Treasury was planning to refunding of its this week for the terms later announce financing
February maturities; meetings with the advisory committees were scheduled for Wednesday and Thursday. After completing this re funding, the Treasury probably would not have to return to market again until late March or early April, when cash financing would be necessary. Allowing 10 per cent attrition on the February refunding, it was estimated that the Treasury would find it neces sary to borrow about $6 billion in April and May. If attrition should be larger than estimated, however, it might be necessary for the Treasury to return to market a bit earlier and for larger amounts. The Treasury was faced with a difficult decision in pricing its refunding securities. In the present market atmosphere, it seemed likely that market yields would tend to rise to whatever level the Treasury set on its new issue, so that attempts to achieve a successful exchange through attractive pricing might be self defeating. to say that present projections suggested Mr. Rouse went on three weeks, if an even keel were a need for reserves during the next the System Account to absorb but that sales from to be maintained, in subsequent weeks. would then be necessary reserves the 10 per cent attrition mentioned by Mr. Robertson asked if or to the total of February maturities referred to the Mr. Rouse he had in mind replied that to which Mr. Rouse portion, publicly-held might be or $1.5 million, of the total maturities, that 10 per cent
the maximum attrition, while it might be possible to hold attrition to 10 per cent of public holdings, or $900 million. In response to an inquiry by Chairman Martin regarding the market attitude with respect to the possibility of an offering of 10-year bonds in the current refunding, Mr. Rouse said that when Under Secretary of the Treasury Baird met with the dealers in New York last week the market atmosphere was quite bad and dealer com ments did not encourage the idea of an issue in the 10-year range. While some extremely pessimistic comments suggested that the Treasury should confine its offering to two issues in the under-one-year range, it was felt generally that the Treasury could attract as much as $2 billion into a note in the three-to-five-year range. There appeared to be no interest, however, in anything beyond five years. Mr. Mangels stated that he had heard reports from banks in San Francisco to the effect that there was no interest in a longer-term obligation and that attrition would be quite high unless the Treasury offering was most attractive. Chairman Martin then asked what the one-year rate was at and Mr. Rouse responded that although the market rate was present, in the neighborhood of 3-5/8 per cent, the Treasury should pay 3.70 He added that beyond on a one-year obligation. to 3.75 per cent flat at 4 per cent. the rate curve was virtually two or three years in the three- to five-year the Treasury offered a security Therefore, if
range, it probably would have to carry a 4 per cent coupon and be priced at par or a small discount. Thereupon, upon motion duly made and seconded, and by unanimous vote, the open market transactions during the period January 6 through January 26, 1959, were approved, ratified, and confirmed. In supplementation of the staff memorandum distributed under date of January 23, 1959, Mr. Young made the following statement with respect to economic developments: Major sectors of domestic demand for goods and also of output have continued to show advance. Given the momentum of expansive forces, advance seems likely to proceed in the months ahead, with stimulus emanating particularly from active consumer buying and home pur chasing, business inventory reaccumulation, and more active investment, business and governmental, in fixed facilities. The most recent information from abroad for industrial nations of Europe confirms cessation of decline in activity and the beginning of recovery. While steel and textile output continue to be depressed, steel consumption at least appears to exceed output, a condition not likely long to persist. U. S. exports to Europe pickup during fall months, but downward showed significant in purchases of U. S. goods by the less-developed adjustment economies has continued. recent domestic and foreign develop The highlights of well detailed in the staff memorandum. My special ments are be concerned with recent employment and un comments will employment trends. output gains in this gains have lagged Employment however, has been usually do. The lag, recovery, as they periods, and the preceding postwar recovery greater than in has been both higher and level attained by unemployment in its response to rising activity. somewhat more sluggish production are currently Thus, while real GNP and industrial earlier highs, nonfarm distance of both within striking low--has regained from its recession 700,000 employment--up loss of 2.4 million jobs. than a third of its recession less
Since September, there has been little evidence of any extensive general rehiring of workers other than for seasonal reasons. In the two preceding postwar recession-recoveries, employment stabilized for a number of months after the reces sion bottom, but once recovery set in, employment increases were not halted until a new peak was reached. What accounts for the slower pickup in employment in this cycle than in preceding postwar cycles? Several factors may be mentioned. (1) Productivity increases in manufacturing industry have apparently been higher this time than in the earlier recovery periods, reflecting very high modernization investment in pre ceding boom as well as the greatly expanded industrial research and development programs of the boom period. For instance, automobile output in December, while only 4 per cent lower than in December 1956, provided one-fifth less in production worker employment than two years earlier. The railroads, while carry ing about as much freight as in late 1957, provided 10 per cent less employment. Similarly, the coal mines have been about equalling output levels of a year ago with about 15 per cent fever employees. The larger productivity gains of this recovery period may also be a factor in recent stabilizing of average hours of work per week in all manufacturing industry. Virtually all of the recession decline in hours worked had been recovered by last September and there has been no further gain since. In earlier postwar cycles, hours of work continued to increase long after this stage of recovery. It is important here to note that, since 1955, there seems to have been a downward drift in the length of the workweek. (2) It may well be that labor cost increases of recent years have made management more cost conscious than in any earlier period and that greater efforts are now being applied to limiting employment and overtime increases in order to keep postwar growth in fringe benefits now makes costs down. Also, record-keeping costs and benefit liabilities rise rapidly as this would operate to slow down new workers are hired, and additions to work forces. associated with and other industries (3) In machinery investment outlays, employment has shown little recovery rise investment has not yet shown marked because expansion in fixed worker expansion of nonproduction In the past, revival. especially with research and develop employment, associated In the with rising investment. has been correlated ment, had shown much more business investment preceding two cycles, up to the present point in this revival than has been shown cycle.
(4) Nonmanufacturing employment, which had shown strong growth through the whole postwar period, with only modest slackening of expansion in the two preceding downturns, de clined moderately in this recent recession and has shown little expansive tendency in recovery. Judging by the rise in nonindustrial GNP since last spring, as sharp or sharper productivity gains have been experienced in nonmanufacturing activities as in manufacturing industries during this recovery period. Presumably these nonmanufacturing activities are digesting earlier postwar increases in their working force. (5) The industries in which recession declines in employ ment have been highest and greater than in preceding recessions have been durable manufacturing, railroads, and mining. These industries have been subject to a secular decline in postwar years in employment of semi-skilled workers, with reductions in semi-skilled jobs more accentuated in each succeeding recession-recovery period. This means, of course, a sizable problem of transfer of employment to other gainful activities, a problem that can be only resolved slowly. With the rise in employment opportunities lagging, that is to say, showing slower advance than in preceding postwar recoveries, what about the unemployment problen and prospects over the months ahead? has been higher all through this recession Unemployment earlier postwar cycles. It reached a recovery period than in seasonally adjusted high of 7.5 per cent of the labor force in the summer and declined to about 6 per cent subsequently. decline has been about 1 million In numbers of unemployed, the workers. has been higher than in preceding While unemployment of rise and decline has not the general pattern cyclical dips, preceding cycles. The seasonally dissimilar to that of been 4.5 per cent of the did not fall below adjusted unemployment 12 months after until about the 1949-50 recovery labor force in this rate was not in the 1953-54 recovery recession ebb, and Korean boom, the rate 10 months. In the pierced until after boom, 4 per cent but in the 1955-57 under 3 per cent, fell to the rate fluctuated of the time a floor and most constituted just above 4 per cent. employment rose postwar recoveries, In the two earlier sizable addi same time that at the declined and unemployment In the recent working force. made to the tions were being due to the was rise in unemployment part of the recession, entered the working earners who number of secondary large
force when primary earners had their pay reduced or lost their jobs. The recent decline in unemployment has reflected in part withdrawal from the work force of many of these secondary earners as well as withdrawal of some older and younger workers for want of job opportunities. Recovery in job opportunities has been uneven for different groups of workers. Younger workers have faired better than older workers, and females better than males. Relatively high rates of unemployment persist for durable goods workers, semi-skilled and unskilled workers, and for nonwhite workers. Among those with long duration unemploy ment, durable goods workers, miners, and railroad workers are numerous in relation to their role in the labor force. Recovery re-employment has also been uneven geographically. In California, unemployment has fallen to reasonably normal levels. In Michigan, it has fluctuated only seasonally and unemployment is currently well above last year's rates. At midsummer, the number of substantial surplus labor markets was 89 out of 149, and by the present month the number of such markets had declined by only 13. The concentration of sub stantial surplus markets continues to be in the east and midwest. Two observations about current labor market conditions seem warranted from this review. First, on the supply side, a conjuncture of secular and cyclical forces seems to have contributed to the present volume and composition of have noted, a high proportion of the unemployment. As we in durable goods and related unemployed is concentrated making the continuing unemployment problem a industries, problems rather than a general problem. cluster of localized also work to make unemployment slack linger on. But this may to hear the terms "technological We should not be surprised and "labor immobility" used more frequently unemployment" slower decline in the unemploy again to describe a possibly rate than featured the earlier cycles. ment the labor market in the Second, on the demand side, experiencing a less on the whole, been recent period has, the comparable phase of for labor than in vigorous demand consumption expenditures cycles. But as the other postwar begin actively to further and as capital expenditures rise surely strengthen, and expand, demand for labor will goods areas where unemployment particularly in the durable productivity are Gains in worker is now concentrated. cycle and then phase of the in the recovery typically high in output in the phase. Gains down in the expansion slow of older require utilization phase increasingly expansion more manpower per facilities take and these facilities unit of output.
How fast available manpower resources will be taken up in the period ahead depends on the pace of further expansion in aggregate demand and especially of durable goods demand and on the strength of competitive responses, especially price response, in meeting additional growth in demand. If expansion in money demand is dissipated in price advance, the employment impact will, of course, be lessened. Taking into account the relatively larger pool of un employed manpower at this stage of the precent cycle compared with earlier postwar cycles, it seems reasonable to observe that manpower availability will not become a limiting factor on the further increase in total production nearly so soon as it did in the two preceding cycles. This is clearly a bullish factor for the length of the expansion period that now seems to be beginning. In our presentation at the last meeting, we suggested that an increase in the money supply in the period ahead somewhat above the average of recent years might be appro priate. This suggestion was on the basis of prospective manpower and other resource availabilities. If prevailing inflationary and speculative clouds can be effectively dispersed by a firm Federal fiscal policy and a firm policy, this problem of the proper rate of monetary monetary for a growth period without inflation will become expansion an urgent matter for the Committee's consideration. During Mr. Young's statement, Messrs. Allen, Leedy, and Baughman joined the meeting. bank reserves and on on the outlook for member Staff memoranda been distributed under requirements had for Treasury cash the outlook With further 26, 1959, respectively. 23 and January dates of January policy, Mr. Thomas and credit to financial developments reference made the following statement: potentials, prospects trends and In view of current for the next year continued economic expansion point to is already for such expansion monetary basis or more. The the area of mostly outside Forces largely established.
bank credit are likely to determine whether demands for consumption and investment will be of such magnitude and nature as to reduce the volume of unemployment, whether there will be sustainable growth, whether per sistent pressures on prices will produce creeping inflation, or whether speculative commitments will create a bubble on a boom that will burst at an early stage. The principal forces that may determine the course of events include, first, the decisions of consumers as to the rate and nature of their expenditures. Consumer incomes, together with accumulated savings, appear to be adequate to permit further growth in consumption. Incomes will be sup ported or enlarged by the high level of Government spending and by other elements of expansion now in process. The magnitude and nature of consumer expenditures, however, will be influenced by the second important set of forces, namely, the pricing and marketing policies of business. Will consumers be attracted by the goods and services offered at the prices established? Will producers, including labor, continue to endeavor to raise their prices or will consumers be offered some of the benefits of productivity increases? Will competitive forces under the impetus of unutilized resources halt the rising tendencies in finished goods prices and perhaps bring about some down ward price adjustments? Unless prices are kept down, can there be sustained growth in consumption? Sustained long-term growth in real incomes depends primarily upon continued improvements in productivity per person employed. This requisite for growth cannot be by increasing consumer incomes through obtained merely Government spending. Such measures may even programs of retard productivity increases. The next element needed for continued growth and to a extent for productivity improvements is an considerable of investment in equipment, plants, other appropriate volume and means of transportation. Pricing can also structures, factor in encouraging investment, as well as be an important consumption. that investment is not Finally, it must be recognized depends on the decisions of possible without saving. Saving savings are channeled into individuals and businesses. Most institutions. The commercial investment through financial these channels and by no means banking system is only one of marginal importance. The one, althogh it is of the dominant expansion of bank credit can at creation of money through the
times, by stimulating spending and investment, bring about increased production, but it cannot be a substitute for saving in real terms or for extended periods. True saving requires the production of goods that are withheld from consumption. This analysis leads to the conclusion that further recovery to reasonably full utilization of resources and then continued growth at a sustainable rate will depend upon individual decisions with respect to pricing and buying and investment and saving and do not now need any additional stimulants through fiscal or credit policies. There is danger that the forces already at work, including expectations as to the future, may induce commitments of a speculative or otherwise unsustainable nature or may lead to pricing policies that will first contribute to inflation but ultimately discourage buying. Tendencies of this nature could be aggravated by ready availability of credit to finance speculative ventures or discouraged by credit restraints. Turning to consideration of the present credit situation, it seems clear that further stimulants to credit expansion are not necessary. The forces that have been mentioned are not being held back by inability to obtain financing. Credit demands and the availability of funds for investment are the aggregate-to support further expansion and adequate--in even encourage excessive speculative commitments. Businesses and individuals already possess a substantial amount of liquidity. can meet a considerable volume of short-term credit Banks through the shifting of assets or by temporary needs of business of any needed reserves. This may mean some increase borrowing the Reserve Banks. A net increase in aggregate borrowing at a billion dollars, leaving out temporary of less than half all the reserves needed for adequate variations, could provide the next year. Under the in the money supply during growth any additions to reserves should conditions likely to exist, restraints, rather this manner, which imposes be supplied in than through open market operations. however, are not facing this country, Financial problems by the existence of this. They are complicated as simple as task of debt deficit and a formidable a heavy Government boom in the a period of incipient refunding in raising and of Treasury financing The prospective requirements economy. a separate memorandum. are described in the new Budget under debt on balance be able to retire the Treasury will Although receipts and timing of of June, the and the end between now
expenditures and shortly-spaced maturities will require frequent and substantial operations to raise new cash, as well as for refunding. In the latter half of this calendar year largely for seasonal reasons, there will be a deficit and further heavy cash borrowing needs, even if the projected balance is obtained in the budget for fiscal 1960 as a whole. Treasury borrowing, therefore, will continue to exert demand pressures on the available supply of lendable funds. At the same time Treasury expenditures will supply funds that could help finance economic expansion and reduce needs for private borrowing. The course of interest rates and of other economic pressures will depend on how much private borrowing demands increase. Developments in the money and Government securities markets since the turn of the year largely reflect the pressures and anticipations arising from Treasury financing operations in process and in prospect. The Treasury has just raised about $3.5 billion of new cash, much of which has not yet been distributed to firm holders. A major refunding operation is imminent. Some new cash borrowing--at least through increased bill issues--is likely to be needed this quarter and a considerable amount in April. It is no wonder that rates on Treasury bills, which did not show the customary increase in December, have increased in January, instead of declining as they usually do. Nor is it surprising that bond yields in general have risen to new These changes represent adjustments that were high levels. sooner or later under current prospects. It is inevitable than harmful to the attainment of a well balanced more helpful Continued strength in the market that they have occurred. been a source of pressure on the bond stock market has also been a further widening of the margin market. There has between stock and bond yields. Bank credit trends in general have not been startling no particularly strong private credit demands. and show conformed closely to the usual Credit increases in December Currency outside banks showed slightly seasonal pattern. while demand deposits the usual seasonal increase, less than basis. The a seasonally adjusted unchanged on remained 2 per cent or adjusted--was total money supply--seasonally while the turnover the peak level of mid-1957, more above level of that period. was still below the of demand deposits were about 12 per cent larger. In addition time deposits total loans and two weeks of January, In the first somewhat more than they of city banks declined investments
had in the same period of other recent years except 1958. In the third week, however, according to preliminary figures, holdings of Government securities increased by $1 billion, reflecting payment for the new Treasury notes, and loans showed little change. A smaller than usual decline in commercial loans was offset by an increase in loans on securities. Ordinarily loans and investments have continued to decline in that week. In addition to the increase in U. S. Government deposits, there appears also to have been a substantial increase in private demand deposits in the third week, following moderate declines in the two previous weeks. Reserves released by after-Christmas seasonal factors have been absorbed by a reduction of nearly $900 million in System holdings of bills and of repurchase contracts and a decline in float. Member bank borrowings, on a weekly average basis, have been as high as $700 million, although in the past week they have averaged around $450 million, reflecting a larger than usual mid-month float increase caused by weather conditions. There is no evidence that the low discount rate is encouraging credit expansion on the basis of borrowed reserves. Figures for the current week include the effects of a large increase in required reserves due to payments for the new Treasury securities through tax and loan accounts and of some decline in float, only partly offset by a return flow of currency, and will apparently show continued net borrowed reserves of well over $100 million. Indications for net borrowed reserves of over $300 million during are weeks, in the absence of System operations. If the next two private demand deposits con usual seasonal decline in the in Treasury accounts from tinues, along with the reduction there will be net free reserves the present increased level, and the first half of March, during the last part of February prevented by System operations. which should be for bank credit should strong demand pressures Unless be one calling for only the situation will probably develop, be advisable to let varying adjustments. It might moderate about their own in the market bring pressures that develop intervention, except a minimum of System adjustments with caused by variations in required reserves for large changes a procedure, any Under such tax and loan accounts. in reserve about a tightened would bring credit expansion result in an easier contraction would situation and credit money market.
Chairman Martin stated that the next meeting of the Federal Open Market Committee would be held on February 10, 1959, with the annual organizational meeting of the Committee on March 3, The views expressed during the discussion today therefore should be made with that schedule in mind. Mr. Hayes then made the following statement with regard to the business outlook and credit policy: It is encouraging to note that business activity has continued to expand at a vigorous pace and that this trend seems likely to be maintained in the coming months. This gradual recovery, marked by restrained optimism rather than exuberance, is more likely to bring sustained growth than a more rapid advance which would tend to generate exaggerated expectations and speculative tendencies. At present the stock market is the only area where such tendencies are clearly in evidence. Favorable business influences include the likelihood of some restocking by retailers and wholesalers after the good Christmas sales experience, the apparent cessation of inven tory liquidation at the manufacturing level, and the prospect of well-sustained residential construction. On the other hand, the vigor of automobile demand is still an open question, and the accelerated steel purchasing which has already com menced in anticipation of a possible strike is of course only One distinctly disturbing feature is a short-run stimulant. the prospect for seasonal increases in unemployment in despite the recovery in output. Per January and February, unemployment is disturbing both because sistent substantial the economic losses involved and because of the possibility of to unsound proposals for artificial that it may give rise Another fundamentally disturbing element, of course, remedies. doubt whether a balanced budget can really be is the serious the next fiscal year. achieved in price stability in evi a gratifying degree of There is the obvious inflationary dangers dence at the moment, despite price index was For example, the wholesale on the horizon. that recorded at at a figure lower than unchanged in December have been reported for of the recession. Declines the bottom
most sensitive commodity prices, and the consumer price index has receded slightly. The case for expecting inflationary forces to break out must therefore rest essentially on prospective financial and collective bargaining developments, rather than on excessive acceleration of business or consumer spending. The 5 per cent wage increase now being granted by the oil industry seems overly generous in relation to national productivity gains and will not help other industries to "hold the line" in the next few months. As for credit developments, the preliminary estimates for all commercial banks in December show an above-average growth of loans, with real estate loans continuing to expand rapidly and with business and security loans increasing seasonally. Fragmentary January data for reporting member banks suggest, however, that rather heavy seasonal repayments are now oc curring. Loan demand can still not be labeled ebullient; and I might add that the New York banks feel under sufficient pressure to be rather cautious in their lending policies. Viewing the Treasury's financing program for the rest of this fiscal year, it appears likely that, after the mid there will be a lull of something over a February refunding, cash borrowings, totaling around $6 month before substantial in April and May. Presumably the billion, are required of the April financing will be made late in announcement March. credit policy, the economic situation With respect to the present time. Open market call for any change at does not with the Treasury's financing operations, in conjunction tight money market have produced a reasonably activities, aim for about the same degree atmosphere. I think we should by the feel of the as we have had, as evidenced of tightness reason to change the would seem to be no market, and there directive. rate. With concerns the discount only area of doubt The per cent, we are excess of 2-1/2 rates now well in market rate would seem 3 per cent discount where a to the point close we are not free alone. However, technical grounds desirable on the prospective Treasury few weeks, for agents for the next the advisabil strongly indicates due this Thursday announcement the refunding is even keel from now until of maintaining an ity to digest the had a short time the market has completed and Treasury cash to the recent Moreover, subscribers new issues. time as a at this a rate increase look upon might offerings a 1/2 per market is expecting Since the sign of bad faith.
cent rate rise, and only the timing is really in doubt, our failure to raise the rate at the present time should not prevent a realistic pricing of the securities to be offered in the refunding. And there is always the danger that an increase now could be interpreted as a signal of intensified restraint, creating fears of a progressive rise in interest rates over the coming months, and thus adding to the Treasury's difficulties and perhaps inviting political trouble, especially if the prime rate were to move up as a consequence. Finally, there is some advantage in letting the dust settle a little longer on the recent international monetary developments before moving our discount rate higher. In short, the combination of these factors points to late February or early March as the first opportunity for a rate change. Action at that time is indicated in the absence of unforeseen developments in the interim. Mr. Irons said that in the Eleventh District the economy was moving along at a high level. While not too much higher than it had been, the strong and favorable level of activity was spread through the various sectors of production and trade. Unemployment was down a little in the last month, and generally speaking conditions were A strong demand for bank loans was reported, with the implica good. were trying to hold back and could tion that bankers in the district were so inclined. An increase their loans further if they increase with some of was being noticed, at the discount window in activity which seemed coming in occasionally, reserve city banks the larger of loan demand. the strength the reports regarding to bear out to the continuation with regard to be more confidence There appeared about the also, unfortunately, expansion and and business of economic about the seemed doubtful People of inflation. inevitability
possibility of balancing the Federal budget. It was difficult to see how this attitude could be dispelled until something actually was done to convince the public that perhaps there was not going to be inflation. As to policy, Mr. Irons said that he was in something of a quandary. He felt that open market policy should continue to be as restrictive as it had been, since he saw no argument for any relaxa tion, and whenever there were doubts he believed that they ought to be resolved rather deliberately on the side of restraint rather than ease. In these circumstances, the Manager of the Account must rely very heavily on his impressions and sensitivity to the market. The forthcoming Treasury refunding operation might be unusually difficult and result in a large amount of attrition, with the result that the Treasury then would be looking for money again rather soon. The seemed likely to be in the picture rather continuously, Treasury the developing economic situation with and it was hard to reconcile the most that could be done in the needs of the Treasury. Perhaps monetary policy about as it two weeks would be to continue the next any deviations on restrictive and with in no event less had been, there was doubt. restrictive side whenever the more Mr. Irons said that technically to the discount rate, Turning that it made a great While he did not think it should be raised. sooner than the side of acting would lean on difference, he deal of
the month of March, particularly because this would not be a startling change. As he had noted, the Treasury might have to come to market again early in March if attrition on the forth coming refunding was very high. In substance, while he did not feel strongly one way or the other, he had some question whether the System ought to wait for a considerable time before it gave confirmation to the prevailing interest rate structure by an in crease in the discount rate. Chairman Martin inquired of Mr. Irons whether he thought it would not be wise to change the rate before the next meeting of the Open Market Committee, to which Mr. Irons replied that he had not meant to suggest by his remarks that it necessarily would be unwise. If in the judgment of the directors of a Reserve Bank there should be an increase in the discount rate before the meeting on February 10, he would not object. Meetings of the directors of several of the Reserve Banks were scheduled shortly after the next meeting of the Committee on dates when it appeared that the Treasury Consequently, he did not know refunding would not yet be completed. if discount rate action were whether it would make much difference deferred until such time. on the West Coast was Mr. Mangels said that the situation Mr. Irons for the Eleventh to that reported by somewhat similar strength and were continued to show Business conditions District.
at quite a good level. As usual at the end of the year, bankers and businessmen had engaged in forecasting, and almost without exception the opinions reflected strong confidence in the progress of the economy. At the same time, no more than one or two of the forecasters expressed a feeling that boom conditions were in prospect for this year. Defense procurement and space programs of the Government now being developed in the Twelfth District continued to provide major support to the economy. This tied in with the increased consumer spending that the district had ex perienced. Preliminary data for December revealed that employment reached a new record, while unemployment was down to 5.4 per cent, about the level of a year ago. Through the first two weeks in January, unemployment figures were running a little lower than year-ago levels. The greatest improvement was attributable to durable goods manufacturing, the sector of business hardest hit during the recession. Metals and mining activity had now leveled off, while lumber showed increases in both orders and prices. Farm income prospects, however, were not as good for this year as they had appeared to be in the early part of 1958. Automobile registrations in the State of California in December were up LO November, thus producing the highest month since per cent over through mid-January indicated 1955, and scattered reports September store sales in the first had continued. Department that improvement
two weeks of January continued at the record December levels, 10 per cent over a year ago, and home appliance sales were up 25 to 30 per cent. Turning to banking developments in the district, Mr. Mangels said that demand deposits during the three weeks ended January 14 showed an increase larger than the increase during the corresponding period last year. Time deposits likewise rose, although the rate of increase had been declining in recent periods. All categories of bank loans except real estate loans reflected declines, though not to the extent anticipated; bankers reported that repayments had not been as heavy as they expected. During this same period district banks sold about $135 million of Government securities, and their purchases and sales of Federal funds on January 14 were almost in Reserve Bank had been experiencing a slight increase balance. The borrowing; as of Thursday, January 22, five member in member bank reserve city banks, were borrowing a total of banks, including two about $30 million. Mr. Mangels commented that a principal With respect to policy, would be the heavy Treasury financing, factor during the next few weeks to be heavy attrition unless the Treasury on which there was likely Under those condi very acceptable basis. its offering on a priced discretion to base should be given wide felt that the Desk tions, he market conditions, although operations pretty much on day-to-day its
he hoped that it might be possible to maintain net borrowed reserves of around $100 million. The directive seemed satisfactory. As to the discount rate, he hoped that no action would be taken until around the end of February or the first part of March. The next meeting of the San Francisco directors was to be held on February 11, with the succeeding meeting on March 11, which meant that if discount rate action were taken prior to the latter date the San Francisco Bank was likely to lag behind. In his opinion, the San Francisco directors would be favorable to an increase in the rate at that time. Mr. Deming said that the upward trend continued in the Ninth District, although muted by the seasonal laws. After commenting that he had been impressed by the presentations of Mr. Young and Mr. Thomas, he went on to say that the Minneapolis Bank had spent considerable time in the last three weeks looking into longer-run prospects for the economy and had come to conclusions not appreciably different from those given or implied by those papers. Therefore, long-run, if that was not too paradoxical an for the immediate he believed that appropriate monetary posture should expression, a drag, although not a strong and positive restriction. produce position taken by Mr. Thomas. This would be similar to the felt that there should next two weeks, Mr. Deming For the in pressure and no overt action. Following be no appreciable change
that period, however, he believed that it would be appropriate to adjust the discount rate upward to put it in line with the market. While he did not think the exact timing of such action made a great deal of difference, it was his view that the rate should be increased with reasonable promptness after the completion of the refunding operation. His preference, he thought, would be not to do anything until the refunding was completed. Mr. Allen said that with recovery under way for nine months it was now apparent that a number of Seventh District areas had lagged behind the nation, partly because of strikes in the automobile, farm machinery, and construction machinery industries, but more so because producers' goods are relatively important in the district. Machinery of all types and construction equipment accounted in 1957 in the district's five cent of manufacturing employment for 43 per for the nation, and the typical with 28 per cent state area, compared type of industry to recovery is for the district's pattern in a indicated that However, reports rapidly than others. improve less work was building proposed heavy construction a large backlog of News Record Engineering and manufacturing. in utilities up, mainly of 1958 at a at the end of proposed projects indicated backlogs 1958, a awarded during times the contracts to 10 new high, amounting the Midwest. States and the United for both held true that comparison of earlier the pattern should follow expansion business the current If
recoveries, the lags in Seventh District recovery would give way to rapid increases in output and employment later in 1959 and in In the three post-Christmas weeks ending January 17, Mr. Allen said, district department store sales were 3 per cent higher than a year ago, compared with a 4 per cent increase nationally. The district's larger banks had experienced tighter money market conditions since the end of the year, in large degree because deposits declined more rapidly than loans were paid off. At Chicago banks, the loan decline had been less than in either 1958 or 1957. Steel ordering was picking up smartly, doubtless due in part to the possibility of a strike next summer, but also due to the sharp decline in inventories in 1958. The district's steel mills were operating well above the national average, the rate in Chicago being 85 per cent and in Detroit 96 per cent. Continuing his comments on district developments, Mr. Allen survey of country bankers indicated a strengthening said that a January half the bankers in Iowa in farm real estate, with over of interest the current trend of land values was up and Illinois stating that bankers in other farm areas making the and about one-third of the than in other recent were larger report. These proportions same trend. The demand reported a downward and almost no bankers surveys, strong through December, especially for agricultural loans remained loans continuing to the volume of new areas, with in cattle-feeding year-earlier levels. exceed
With respect to the automobile industry, Mr. Allen commented that sales of new model cars through the first 10 days in January were high enough to be a pleasant surprise to the auto manufacturers and dealers. During December, approximately 490,000 cars were retailed in the 26 selling days for an average selling rate of better than 18,800, and for three weeks of that month Chrysler Corporation was handicapped by strikes that eventually choked off all production. Studies have indicated a typical seasonal decline in sales between December and January of 10 per cent, so when January opened at a lower sales rate than December it was not a surprise. In fact, sales during the first 10 days of January were a slightly less than seasonal 9 per cent below sales during the similar period in December and a significant 5.5 per cent above sales during the opening period in 1958. While some industry observers believed there was no question about public acceptance of the new models, a survey made last week by the Wall Street Journal mentioned that the dealers felt it would be necessary to wait until spring for the real market test. However, even those who thought that only March and April would tell the story were optimistic about 1959 bettering the dismal showing of 1958. As of unsold new cars totaled 14,000, more of January 10, the stock time last year. When based below the figure at the same than 100,000 this represented a 39.6 days' the selling rate of early January, on rate of the the average selling based on but a calculation supply,
last three periods and the January 10 stocks would indicate a more acceptable 33.5 days' supply. Since early October, Mr. Allen noted, automobile men had had one obstacle after another placed in the way of production plans. When strikes within the industry were settled, those at plants of suppliers of strategic parts remained a problem, Chrysler being particularly vulnerable because of its greater dependence on outside suppliers. With Chrysler now faced by a shortage of windshield glass, the pattern of January production was not entirely clear, but a conservative estimate of 570,000 would represent a 16.5 per cent improvement over Mr. Allen also stated that in early January the Chicago Business Economists Group was polled concerning expectations for been at least a few the past there had always 1959. Whereas in gloomy view of the outlook, this year members who took a relatively there was unanimous agreement on steady improvement during 19 9, only to the speed of the advance. differences of opinion relating expressed the view that open Turning to policy, Mr. Allen goals in mind as with the same should continue market operations on the side of restraint. and any doubts resolved in the recent past by all of the the view held the discount rate, reference to With economists and as by the Bank's as well Bank's directors, Chicago the pace of including economic considerations, was that himself, and fears of market rates, of money the structure industry, the rate to for increasing made a case pressures, inflationary
3 per cent. As a matter of fact, the Bank's economists had urged him to recommend such a change at the directors' meeting last week, it being their view that an increase was a technical necessity and that it would be unfair to purchasers of Government bonds if the change were not made. His answer, Mr. Allen said, was in terms that the economists were worrying about the fellow in the plugged hat rather than the fellow who shines shoes, for if the Federal Reserve should contribute in any way to the failure of the Treasury financing it would be doing a disservice to the majority of the people. For that reason, he felt that the discount rate should not be changed before the next meeting of the Committee. Although the directors of the Chicago Bank were in his opinion ready to act, it was not his present intention to recommend a rate change before the meeting scheduled for February 19. In the meantime there would be another meeting of the Open Market Committee, and the Chicago Bank could be guided in the light of conditions as they might develop. Mr. Leedy reported continued ample evidence of the expansive work in the Tenth District. There had been a severe winter, forces at with record-breaking cold spells in December and thus far in January recent weeks. While the weather had been and quite a bit of snow in wheat areas, the indications for winter wheat quite favorable for the than last year. Feeding of livestock pointed to a much smaller crop Mexico, the number of cattle on showed startling increases; in New
feed this year was 58 per cent higher than last year, and there were smaller but significant increases in the other States of the district. While insured unemployment in the district increased in December, the rate continued more favorable than in the nation as a whole, ranging downward from a high of 4.7 per cent in Oklahoma. Department store sales continued strong, with sales in the week ending January 17 running 11 per cent higher than in the comparable week of 1958 and a 13 per cent increase above the year-ago level indicated for the four-week period ending on that date. There had been a continued demand for credit; in the four weeks ended January 14, business loans increased contrary to the seasonal pattern. Mr. Leedy said he would continue to apply about the same degree Committee had been undertaking to apply in recent of pressure that the possible on the discount rate. He would move as quickly as weeks. he would not want to move the problem of the Treasury, Considering offering were closed, but after after the books for the exchange until of the rate was expected reason to delay. An adjustment that he saw no that it was overdue. seemed to agree generally, and everyone economic developments that Fifth District Mr. Leach said the pattern of the preceding appeared to have followed during January advance. The by no means booming continued but few months, with lull in the by the customary was limited gray goods business cotton on hand for orders mills had substantial January, but half of first orders for later delivery deliveries. While new immediate and nearby
of apparel fabrics were a bit slow, new orders for industrial fabrics reflected the steady improvement that had taken place in this end of the textile business in recent weeks. Representatives of the furni ture industry reported a rising volume of new orders, and with the exception of the export trade the demand for bituminous coal appeared to be improving. Seasonally adjusted department store sales in January were estimated to have held very close to the near-record volume of December, and available reports on general business condi tions indicated expectations of gradual increases in production, employment, and wage and salary payments during the first half of this year. Mr. Leach expressed the opinion that the System's policy of keeping a gradually tightening rein on bank reserves had appropriately contributed to the continuing, moderate, widely-based expansion of production and consumption experienced since last spring. However, he was concerned about inflationary dangers and felt that the objective of stability in the value of the dollar should be kept foremost in mind. Except for periods of Treasury financing, he had thought in appropriate policy called for a gradual tightening recent weeks that followed by an increase in the through open market operations, of rate alignment. In his judgment, discount rate for the purpose where an increase in had now reached the point short-term rates if it were would be appropriate rate to 3 per cent the discount Such a change had probably been not for other considerations.
discounted to a large extent and would not be interpreted as a move to aggressive restraint, as it might have been three weeks ago when the longest Treasury bill was trading under 2.70, For the time being, however, the condition of the Government securities market and the size of the forthcoming Treasury refunding clearly called for an even keel policy. In such circumstances it would not be feasible, practicable, or advisable to change the discount rate, and he hoped that during this period any doubts would not be resolved on the side of restraint. Mr. Mills said that during the two-week period between now and the next Committee meeting a continuation of the present type of System policy and policy actions seemed to be in order. In his judgment, last week would have been the appropriate time, and the time, to increase the discount rate. However, latest practical was not taken, there was now no appropriate way of since action Treasury had completed its financing operation. moving until after the the Treasury was now engaged in consultation As Mr. Rouse reported, Since the advice it receives the various financial groups. with prevailing discount rate and definitely be based on the would very attach to those consultations, he the pride of recommendation would mistake to consider an that it would be a serious believed strongly and run the risk of up in the discount rate immediately increase now in progress. basis of the discussions setting the
Mr. Robertson said that he saw no alternative to maintaining an even keel policy between now and the date of the next Committee meeting. This would be in accord with the position taken by the Committee consistently. His only suggestion would be that all parties keep their eyes peeled with a view to increasing the dis count rate whenever such action was possible without interfering with Treasury operations. At such time, he felt that the rate ought to be increased more than the amount already discounted in order to establish a proper posture to combat what he considered the real danger of inflationary pressures. Mr. Shepardson said it seemed to him that the national economy as a whole was in a healthy state of growth. He considered it fortu nate, in fact,that activity was not booming too fast. As to System policy, he thought it desirable to continue to exert some degree of pressure in order to prevent unduly exuberant economic growth. To reap the full benefit of the increased productivity that had been mentioned, it appeared that a little more time must elapse, and in his opinion it was all to the good that the country was not experienc ing too rapid an expansion. In view of the Treasury's problem and it seemed to him that inflationary pressures the budgetary situation, which suggested that the were still definitely in the ascendancy, as far as possible, a degree of System should try to maintain, would inhibit further accumulation of inflationary restraint that that System policy could do a great attitudes. While he doubted
deal to influence the thinking on Capitol Hill with respect to the Federal budget, the System should endeavor to exert such force as possible at all times on the side of correcting the unbalanced budget situation. In the period immediately ahead, there was little that could be done so far as any change in System policy was con cerned, but he urged maintaining fully the degree of pressure that had prevailed recently, with any deviations on the side of a little greater restraint rather than the reverse. Regrettably, it had not been possible to work in a discount rate adjustment, and it would be unwise to contemplate a change in the immediate future. However, he would hope that a change might be made shortly after the next Committee meeting. In his summary of developments in the Fourth District, Mr. series of disastrous floods that pro Fulton reported on a recent suffering and interrupted manufacturing duced considerable human industry, he reported a situation processes. As to the steel Mr. Allen in the Seventh District, to that described by similar above the national rate of operations running with the average to build up inventory of steel were endeavoring average. Users which did not augur of a strike, of all types in contemplation sales had been very Department store for the third quarter. well sales for the result that season, with the Christmas large during since the 1957, but per cent below about 2 year ran only the
Christmas season trade had slackened a little. Persistent unemploy ment continued of concern despite the record upturn in activity in many areas of business and service throughout the district. Member banks had been borrowing at the discount window in rather large volume, perhaps because the district had not gotten its proportionate share of the increase in the money supply. Requirements for business loans were comparatively small, but the outflow of payments had caused a diminution in the availability of reserves and banks had been borrowing to replenish their reserves. Mr. Fulton said that he would not favor an increase in the at this time in view of the Treasury situation and also discount rate had been rather stable. Whether the rates on long-term issues because additional Treasury offerings he that would persist in the light of longer to see if the would like to wait a little did not know, but he adjustment probably would hold. In March a rate recent levels would were equal. The Cleveland if all other factors be appropriate to a technical rate adjustment he felt, would be favorable directors, signalling a change in as overt action which would not be interpreted the degree of he would favor continuing In the meantime, policy. no relaxation of recently, with that had been exerted restraint had been doing a good his opinion, the Desk in any way. In pressure float fluctuations. period of erratic job in a the Third District activity in said that business Mr. Bopp all odds the were by store sales slowly. Department to rise continued
strongest sector, continuing to run well above a year ago. Comparatively, sales for the latest week were 12 per cent higher and sales for the past four weeks were 16 per cent higher. On the other hand, automobile registrations were faring more poorly than reported from other areas. After being about 10 per cent above a year ago in December, registrations in Philadelphia turned downward and were considerably below year-ago levels in the first three weeks of January. Manufacturing employment rose slightly in December, in contrast to a small decrease nationally, but employment was 4.4 per cent below a year ago compared with a drop of 3.6 per cent for the United States as a whole. Mr. Bopp went on to say that at the meeting of the Philadelphia Board of Directors last week a number of the directors expressed the view that business sentiment was not quite as optimistic as a few weeks ago. Also, the rise in business activity was expected to be somewhat slower than earlier anticipated. Regarding the recent wage settlement in the oil industry, it was reported that although the industry wanted to hold the line on wage rates, most companies preferred to grant an up to 5 per cent rather than to risk a strike. There had increase been no increase in wage rates in that industry last year, so the 5 increase was really a two-year adjustment, and it was hoped per cent year 1960 without another adjustment. the industry could pass the that period the oil industry was a comparatively low In the early postwar a relatively small fraction of industry because wage costs were cost
total costs. Now, however, the percentage of total costs attributable to labor had grown considerably. Mr. Bopp said it seemed to him the System should maintain an even-keel policy at this time because of conditions in the Government securities market. There had been some discussion by the Philadelphia directors concerning the discount rate at their meeting last week, and he felt that the directors would not be unwilling to go along with a discount rate increase following the Treasury refunding operation. Mr. Bryan said there was nothing of particular note to report from the Sixth District. The recovery had a hard core and was proceed ing satisfactorily. There could well be virtue in the fact that the country was not experiencing a spectacular boom; even without such a the statistics were at or approaching previous peaks. boom, most of Recovery thus far had been characterized by relatively stable price some underlying difficulties in the industrial levels, with perhaps however, by the unsatis price component. It was also characterized, which tended to cause a nature of the employment figures, factory Another thing he saw on the part of the public. great deal of dismay securities market was very in the situation was that the Government it would grow weaker. that if anything indeed, and he believed sick position without doing held to its reserve If the Federal Reserve were destined to go higher he felt that money rates anything overt, and because economic recovery incident to of normal pressures because
the public was beginning to get apprehensive about inflation and fiscal affairs and Federal finance. Therefore, whether or not the budget for fiscal 1960 was balanced, he felt that the Government bond market was going to be in difficulty. After allowing for the reduction in reserve requirements, figures seemed to indicate that as against a year ago there had been about a 7 per cent increase in reserves, with a lesser percentage increase in the money supply. It seemed to him that the 7 per cent increase in reserves available to support the recovery was altogether ample and that no increase in total reserves of the banking system was called for in the near future. Accordingly, it was his view that the Federal Reserve ought to discard day-to-day or week-to-week adjustments based on reserve projections and come out for the foreseeable future with no net addition to total reserves. Believing as he did that reserve avail ability was ample for the time being and that there would be a tightening in money rates incident to further recovery of the economy, he felt that a natural and normal restraint would be developing. to the discount rate, Mr. Bryan said, one must When it came face up to the fact that the System, on the basis of strict logic, rate more closely to short-term rates probably ought to conform the difficult because of the that would be very in the market. However, of maintaining an even keel during the period of Treasury necessity of moving on the questioned the advisability Moreover, he financing.
discount rate for some time because, even though such a move would have elements of logic, he doubted whether it would accomplish much more than could be accomplished by keeping a tight rein on the reserve position. As he saw it, about all that would be accomplished by an increase in the rate would be that the System would step forward and accept responsibility for events that probably were going to occur anyway, and he did not see the necessity or desirability for taking such a step. Also, as he had said before at Committee meetings, he disagreed with the idea of increasing the rate promptly after a Treasury financing. Even without a discount rate increase, the rug be pulled from under the financing by virtue of a was likely to of money market rates, and action on progressive upward tendency give the Federal Reserve the credit the discount rate would simply advocate no change in Accordingly, he would for the rug-pulling. other hand, he would favor for some time. On the the discount rate growth of reserves. If an tight rein on the keeping an extremely an even keel in interpreted as meaning policy--which he even-keel reserves, he felt putting in some of short-term rates--forced terms he would avoid In summary, be removed promptly. that they should for the System public merely would gain overt actions that any in the cards anyway. for events that were responsibility for a change he had argued heretofore Johns recalled that Mr. discount rate change in the of a through announcement in policy, both
and through open market operations, prior to the period of the Treasury financing. At present, he was resigned to, but not happy about, waiting until an even-keel policy was no longer applicable. After referring to the problems dealt with in the statements presented by Messrs. Young and Thomas, Mr. Szymczak expressed the view that in the current situation monetary policy quite obviously should assume a posture of restraint, tempered only by considerations relating to the management of the public debt and the unemployment statistics. He used the word "tempered" advisedly, he said, because, like it or not, monetary policy cannot be administered in a vacuum. The System would be expected to make a contribution in the areas dealing with the management of the public debt and with unemployment, which suggested careful study of the papers of Messrs. Young and Thomas. If it were not for those two factors, it would be relatively easy to see the proper course of monetary policy in the period ahead. Until the date of the next Committee meeting, Mr. Szymczak said, it seemed necessary to stay about as at present as far as open market operations were concerned. As soon as practicable, however, should be given to increasing the discount rate. consideration Mr. Balderston said that the most significant policy con to be financial ones. The high rate at siderations today seemed increased between February and August which the active money supply now decelerated to the 8 per cent annual rate--had last year--about
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
Also: Record of Policy Actions