June 16, 1959 FOMC Minutes

FOMC minutes

become severe in the money centers if there should be a change in the distribution of reserves. The consensus as to the appropriate degree of restraint, Mr. Hayes said, seemed to be that the System should stay about where it was in terms of the feel of the market. This was regarded as justified on the basis of general business and credit conditions, the imminence of the forthcoming Treasury financing, and the fact that the current situation in the Congress behooved the System to be sure of its ground. Thus, the System should give no evidence of easing and instead should follow a firm and steadfast course. Mr. Hayes noted that a number of those who had spoken ex pressed the hope that the Desk would strive to avoid errors on the side of ease and that any errors would be on the side of tightness. However, there were also a number who urged caution in appraising the effects of actions on the side of excessive tightness. The con sensus appeared to favor staying as close as possible to the existing degree of pressure. Mr. Hayes also called attention to the fact that there had of specific figures of net borrowed reserves. been very little mention While one or two of those around the table mentioned amounts, the majority appeared inclined to de-emphasize actual figures and give to the feel of the market considerable discretion according the Desk and the distribution of reserves.

Continuing, Mr. Hayes commented that it had been pointed out that the pressure on the discount window was becoming greater in several districts. This was giving or might give rise to problems of continuous borrowing or complacent borrowers. It seemed incumbent upon the Reserve Banks to consider that kind of problem and try to meet it if and as it developed. Mr. Hayes noted that there seemed clearly no desire to change the policy directive at this time or to change the discount rate. He then inquired whether he had expressed correctly the consensus of the meeting, and there were no comments to the contrary. Mr. Hayes next stated that it would be in order to confirm the directive to the Federal Reserve Bank of New York, Committee's general adding that he understood it to be the wish of the members of the directive in its present form. Again, there Committee to renew the was no indication of disagreement. Thereupon, upon motion duly made and seconded, it was voted unanimously Reserve Bank of to direct the Federal New York until otherwise directed by the Committee. sales, or exchanges To make such purchases, (1) of maturing securities, and (including replacement replacement) for to run off without allowing maturities in the open market or, the System Open Market Account maturing securities, by direct exchange in the case of in the light of as may be necessary with the Treasury, conditions and the and prospective economic current with a view (a) situation of the country, general credit market to the needs of funds in the to relating the supply

of commerce and business, (b) to restraining inflationary credit expansion in order to foster sustainable economic growth and expanding employment opportunities, 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 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 accomodation 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 indebted ness 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. that the next meeting of the Federal Open Market It was agreed Committee would be held on Tuesday, July 7, 1959, at 10:00 a.m. receipt, through Mr. Shay, Legislative Mr. Hayes reported of an informal request from the Counsel of the Board of Governors, staff of the Congressional Joint Economic Committee that certain York Bank, including the Manager of the representatives of the New an explanation of technical matters involved System Account, present a hearing to be held by the Joint in the operation of the Desk at 5, 1959. It was in New York City on August Economic Committee be connected with the Committee's that the hearing would understood Levels and that this part Growth, and Price study of Employment, and debt operations. Mr. Hayes would be devoted to monetary, fiscal,

said that Chairman Martin had expressed the view that it would be appropriate and desirable to comply with the request. Mr. Haye added that he would like to have the approval of the Committee for the Manager of the System Account and his associates to cooperate with the Joint Committee. After discussion, it was the view of the Committee that an indication of willingness to comply fully with the request would be in order, provided a formal request from the Chairman of the Joint Economic Committee was received. Secretary's Note: At this point, Mr. Hayes stated that, acting in his capacity as Chairman of the Committee on Emergency Planning of the Conference of Presidents of the Federal Reserve Banks, he had asked Mr. Harris, the Board's Coordinator of Defense Planning, to provide the Presidents with as much written information as possible regarding what would be expected of the Federal Reserve Banks in connection with Operation Alert 1959. This contemplated that questions might then be brought up by the Presidents when they were in Washington at the time of the July 7 meeting of the Open Market Committee. The meeting then adjourned. Assistant Secretary