May 5, 1959 FOMC Minutes

FOMC minutes

financing operation to be completed only on May 15, he felt that this would mean maintenance of the even keel policy possibly until the next Committee meeting. Mr. Thomas inquired what reason there was to think that the banks would have a large amount of securities to distribute. In view of cash redemption of maturing bills and certificates, the net addition probably would be not over $500 million. In the circum stances, he suggested that the distribution might largely take care of itself. Mr. Rouse agreed that there was a chance of this but added that he would hope not to have a positive instruction to do what Mr. Balderston had suggested. Mr. Balderston said this was the reason he had stated the consensus before presenting his own view, and Mr. Rouse responded that perhaps what Mr. Balderston had suggested would be possible. If it were, he felt sure the Committee would like to see it done. However, he (Mr. Rouse) would not care to have a positive instruc tion to start tightening at a fixed time regardless of what might develop. Mr. Balderston said he agreed with that completely. Mr. Rouse then commented that one payment date would be May 11, while the second payment date (May 15) would be for $1.5 anticipation bills. The latter, presumably, would billion of tax be sought after at first by business corporations. At this time,

it was hard to offer an opinion on the distribution of whatever might be offered for the 1-1/4 per cent certificates. In response to a question by Mr. Balderston, Mr. Rouse said he considered the policy directive adequate in its present form. Mr. Robertson said that, as he understood the exchange between Messrs. Balderston and Rouse, there was no instruction to Mr. Rouse to begin tightening on May 21. However, if things should just happen to work out right, it would be possible to tighten during the week beginning on that date. Mr. Rouse replied that this was his understanding. Mr. Bryan said he agreed fully with Mr. Balderston's state ment of the consensus of the meeting. Certainly, it was the unanimous view that an even keel policy should be maintained until the Treasury financing was out of the way. However, he did not know precisely what was meant by an even keel policy. Should it by net free reserves, net borrowed reserves, the feel be measured market, or the intuition of the Account Manager? of the he thought it was a mixture of the Mr. Rouse replied that things mentioned by Mr. Bryan. should not be left on Robertson said that the matter Mr. exact figure of net borrowed which suggested that the a basis In the present instance, certainly, reserves was the criterion.

the criterion had to be the feel of the market. If there was any difference of opinion on that score, he felt Mr. Rouse should under stand it. Mr. Rouse said he understood the instruction to be to carry on as during the past three weeks. There were no exact figures in dicated, although he would take into consideration a band of figures. If net borrowed reserves got as high as $300 million, or much under $100 million, he would wonder whether the Desk was doing its job properly, but he would be guided primarily by the feel of the market. Therefore, he felt that he had been correct in saying to Mr. Bryan that an even keel involved a mixture of the things Mr. Bryan had mentioned, all within the scope of the general instruction given by the Committee. Thereupon, upon motion duly made and seconded, the Committee voted 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 (including replacement of maturing securities, and allowing maturities to run off without replacement) for Account in the open market or, the System Open Market in the case of maturing securities, by direct exchange as may be necessary in the light of with the Treasury, economic conditions and the current and prospective the country, with a view general credit situation of in the market to the supply of funds (a) to relating commerce and business, (b) to fostering the needs of market conducive to sustainable conditions in the money (c) to the practical and stability, and economic growth

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 Re serve 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 Re serve Banks shall not exceed in the aggregate $500 million. With reference to the comments that had been made suggesting discussion of the possibility of some overt action at the time of the next Committee meeting, Mr. Balderston said he supposed that the Presidents would not wish to discuss that possibility with their directors in the meantime. However, if such a discussion took place three weeks from today and an overt action was favored, he felt that the System ought to be prepared to move rather deci sively and expeditiously, and as a unit to the extent possible. next meeting of the Federal Open Mar It was agreed that the May 26, 1959, at 1000 a.m. Committee would be held on Tuesday, ket SecretaryThe meeting then adjourned.