October 13, 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, October 13, 1959, at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Allen Mr. Balderston Mr. Deming Mr. Erickson Mr. King Mr. Mills Mr. Robertson Mr. Shepardson Mr. Szymczak Mr. Treiber, Alternate for Mr. Hayes Messrs. Bopp, Fulton, and Leedy, Alternate Members of the Federal Open Market Committee Messrs. Leach, Irons, and Mangels, Presidents of the Federal Reserve Banks of Richmond, Dallas, and San Francisco, respectively Mr. Riefler, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Hackley, General Counsel Mr. Thomas Mitchell, Parsons, Roosa, Messrs. Jones, Marget, and Young, Associate Economists Associate Adviser, Division of Research Mr. Koch, and Statistics, Board of Governors Mr. Keir, Chief, Government Finance Section, and Statistics, Board Division of Research of Governors Chairman, Board of Consultant to the Mr. Knipe, Governors Daane, Tow, and Rice, Messrs. Ellis, Hostetler, Reserve Banks of the Federal Vice Presidents Cleveland, Richmond, Kansas City, of Boston, and Dallas, respectively Vice Presi and Einzig, Assistant Messrs. Larkin Banks of New Federal Reserve dents of the Francisco, respectively York and San
Mr. Anderson, Economic Adviser, Federal Reserve Bank of Philadelphia Mr. Holmes, Manager, Securities Department, Federal Reserve Bank of New York Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Committee held on September 22, 1959, were approved. Before this meeting there had been distributed to the members of the Committee a report of open market operations covering the period September 22 through October 7, 1959, and a supplementary report cover ing the period October 8 and 9, 1959. Copies of both reports have been placed in the files of the Committee. Mr. Larkin commented that open market operations had been on a very limited scale during the period since the last meeting of the Com mittee. The System absorbed reserves early in the period mainly through run-off of Treasury bills that had been arranged prior to the last meeting. Later in the period, the System supplied reserves through a agreements. Over the period as a whole, moderate amount of repurchase slightly more than million in repurchase agreements an increase of $76 holdings of Treasury bills. of $71 million in outright offset the decline off $60 million of was submitted to run October 9, a tender On Friday, Account so that the 15 bills held in the System the maturing October projected for the next increase in reserve availability float-induced projections had been be as great as the week might not statement after allowing for this run-off of bills, suggesting. However, even week might be substantial. in the next statement the reserve bulge
The Government securities market, Mr. Larkin said, had been dominated in the interval since the last meeting by the overwhelming response to the new 5 per cent notes. The response in part reflected, and in turn reinforced, the improved market atmosphere that had been developing throughout the period. A great deal could be said about this Treasury financing operation, but it might be sufficient to note that total subscriptions amounted to $11 billion, of which $940 million were paid in full. In attempting to guess how much would come from small investors, the market had estimated figures starting at $300 million and then, as the enthusiasm developed, raised the estimates to $500 million and then to $750 million. The actual response exceeded these estimates. The rest of the market put on a splendid performance during the period, except perhaps for the three-month bills. Prices were generally firm before the Treasury's announcement of its cash issue, then dipped temporarily, and recovered immediately thereafter. There was only moderate trading in the market during the period, and prices of the longer-dated issues rose with virtually no trading at all. The 5 per cent notes traded on a when-issued basis as high as to the announcement of 100-5/8. The market reaction 101 and as low as on Friday, October 9, was allotments on the Treasury offering the dropped 1/4 of a point The price of the new 5's relatively mild. appeared and but demand also selling did develop, initially and some trading, closing at 1/8 of a point in two-way the 5 s recovered
100-26/32 bid. Other issues were little affected by the announcement of the results of the cash offering. In Friday's bill auction, the rate on the 91-day Treasury bill moved up sharply to an average of 4.26 per cent, a new high level. This reflected mainly a lack of substantial progress dealers by in moving the heavy awards of bills they had received in the previous Monday auction and a relatively light volume of corporate demand for the three-month issue. Corporations at the present time seemed to be extending the maturity of their holdings and showed preference for the six-month and longer bills. The average rate on the six-month bills, Friday's auction at 4.66 per cent, showed little change established in As a result, there was a narrowing of the from the previous auction. spread between the 91-day and the 182-day issues. Thereupon, upon motion duly made and unanimous vote, the open seconded, and by market transactions during the period 22 through October 9, 1959, were September approved, ratified, and confirmed. under date of memorandum distributed the staff Supplementing statement with respect Young made the following October 9, 1959, Mr. to economic developments: economy has been of the U. S. The over-all poise impact of the by the cumulative obscured increasingly shifts in economic recent major strike. Indeed, steel direct and largely reflected statistics have indicator effects of that strike. indirect been other there have time, however, At the sa.e since late spring that economic developments important the total in appraising into account to be taken need hold more fact, may in These developments, situation.
portent for the future than those most immediately associated with the steel strike. The more important of them merit brief citation: (a) More diversity has emerged in the month-to-month movement of various industry and sector data than was shown earlier in this cyclical upswing; (b) Construction activity has tapered off some as con struction finance has tightened, and mortgage finance tightening has now come to an almost critical pass; (c) Monetary factors-money supply and velocity-have shown a flattened trend; (d) Wholesale commodity price averages have held fairly steady, with component movements about offsetting; (e) Market expectations of new commodity price advances and of profit windfalls therefrom have progressively dampened; (f) Investment in bonds vs. equities has made rather impressive strides towards regaining status, It cannot be said yet that the danger of inflationary boom has definitely been overcome, but there is a possibility, at least, that this has happened. More positive judgment must await (a) the steel settlement, (b) assessment of its indus trial pricing effects, (c) a test of whether poststrike inventory scramble and build-up will occur, (d) valuation of poststrike profit potentials by the stock market, and (e) of foreign reappraisal of our domestic outlook. indications In other words, a chain reaction inflationary break-through could still occur on the basis of explosive poststrike On the other hand, there would seem to be less developments. of a "likelihood" about such a break-through than prospects a few weeks earlier might have suggested. As to specific facts about the current situation: (1) It now appears that the steel (and copper) strikes third quarter GNP by $5 to $6 billion, annual rate, reduced cent. This would bring GNP for the third or about 1 per down to something under a $480 billion rate. quarter effects of the steel strike have thus (2) Secondary because of the large inventory holdings far been limited of it. For the entire economy, accumulated in anticipation shifted from a $10 billion inventory accumulation evidently to a zero accumulation or rate in the second quarter annual in the third quarter. slight decumulation from 155 in which declined Industrial production, (3) back in September another point June to 149 in August, fell output all durables, and minerals to 148, with nondurables, will hit steel strike effects a little. Secondary declining there is a return even if hard in October, industrial output not become available products will next week. Steel to work of output curtailments prevent a spread soon enough to fabricating industries. through metal
(b) Abstracting the 700,000 workers put out of work by the steel strike, the labor market has continued to manifest a fair degree of strength. Unemployment, however, failed to show its usual seasonal decline in September so that the unemployment rate rose from 5.5 to 5.6 per cent. Nonfarm employment over all about held even. Major labor market areas not directly affected by the steel strike made employment gains, and this removed 19 markets from the substantial surplus cate gory. There were 35 major market areas still classified in this category in September compared with 89 so classified in September 1958 and 24 in September 1957. (5) With strikes in primary metals curtailing industrial output, new orders and sales at durable goods manufacturers, which had declined some in July, fell sharply (10 per cent roughly) in August. The further decline more than offset strength in nondurable goods lines, so that total manufacturing sales were down 5 per cent. The fall-off in durable goods orders would suggest that fourth quarter expansion in business plant and equipment expenditures may not attain the earlier projected volume. (6) Total retail sales, which were at a record level in July, fell 1 per cent in August and 2 per cent in September. Reduced sales were fairly general, but were more marked for durable goods stores than others. expansion in August main Consumer instalment credit (7) tained its $6 billion annual rate attained in July. For retail sales indications point to some September, however, of growth. Expansion of home mortgage indebtedness, slackening half year at a record pace, may also which proceeded the first Secondary markets for insured and have slowed some since. mortgages have been under mounting pressure, with guaranteed continuing to widen. Conventional mortgage rates discounts with West Coast quotations recently as have risen further, high as 7.2 per cent. some from the exports fell back In August, U. S. (8) close to the high but they were still swollen July volume, and some 8 per cent above the late winter-midspring June rate, below the high late remained a little level. August imports in the trade balance, level, so that improvement spring extended for another and July, was earlier for June reported month. have strengthened materials prices While some basic (9) commodities generally prices of industrial recently, average at levels reached in May. have continued to change little in recent weeks. little changed have also been Farm prices has been steady. all wholesale prices the average of Thus, in Europe business activity state of (10) The general in industrial with advances be very strong, continues to
output widespread and substantial. In Canada, industrial production leveled out from late Spring through July, but most recent indications are of resumed advance in Canadian economic activity. Memoranda on the outlook for Treasury cash requirements and on the outlook for member bank reserve positions, prepared by the Board's staff, had been distributed under date of October 9, 1959. With further regard to the current financial situation, Mr. Thomas made the following statement: Leveling of economic activity noted in recent weeks and the passing of mid-September cash needs have been reflected in a marked lessening of pressures in financial markets. To what extent these developments may be attributed to the ef fects of the steel strike and to what extent restraints on credit expansion and rising interest rates have been an influence is a matter for conjecture. In any event, the need for stringent restraint has lessened--at least for the present. Early settlement of the steel strike would most likely rapidly change the situation. The underlying forces of expansion have by no means run their course and there are still risks of speculative commitments and of cost and price increases that will sooner or later lead to instability. The most spectacular and significant recent development has been the change in the tone of the Government securities market. Following marked weakness and a pervasive feeling of fear as to the future that reached an apex around the middle of September and brought interest rates to new high has appeared in the market and levels for 30 years, buying have turned down or stabilized. To a sub interest rates degree the severe tightening was due to pressures stantial of holders of Treasury securities resulting from attempts to obtain cash to meet usual large liquidity needs around this period had passed, pressures mid-September. When as might have been expected. Retirement of Septem relaxed, securities in the supply of short-term ber tax bills reduced the market. factor in the change, however, was the An important a long note at offering. By offering Treasury financing savings into the market rate, the Treasury drew an attractive possible a reduction in amounts and also made in large
demands on the short-term market. As a consequence both sectors of the market responded favorably. It is significant that the September-October develop ments corresponded in many respects to those of June-July. Both included large quartely cash demands for taxes and other payments that exerted temporary pressure in the bill market. These pressures were later reversed as the funds flowed back to the market. Both included large Treasury cash financing operations, which the market feared in prospect but which were effected with unexpected smoothness when the Treasury offered new high and attractive rates on its offerings. One possible difference between the two periods was that in July large financing needs for the Treasury still lay ahead, whereas after the October operation the future task will be much lighter. The mid-year Budget Review, indicating the prospect for a balanced budget in this fiscal year, provides the basis for concluding that cash financing needs for the next eight months will be relatively light and will be more than offset by other debt retirement in the period. Three cash issues of $2 billion each, in addition to refunding operations, may suffice. To provide securities to retire the excess of tax receipts in June, half or more of the new issues, in addition to the one now being offered, will need to mature in that month. An additional offering will be needed to complete the cycle of bills maturing quarterly. Further exten sion of public debt maturities, which presents a formidable task, may need to be effected through refunding issues rather than through new cash offerings. That task deserves some study. These cash borrowing needs could prove to be larger than estimated. Expenditures might be larger than have been allowed for in the budget estimates; prolonged strikes might reduce incomes and profits and lower tax receipts; or heavy net redemptions of savings bonds could bring an added drain on the cash. Any bias in the estimates is probably toward attain ment of a surplus; it is less likely that the surplus will be greater than that there will be a deficit. Capital market financing by corporations and by State and local governments was relatively light in September. Yields on high-grade issues rose during September to new high levels. Moderate increases in offerings of new securities are expected in October, and some rather large issues are scheduled for offering later this year. Reports also indicate that a sizable volume of private placements and of term loans at banks is being arranged. Common stock prices declined in September, trading and stock market credit has declined. activity has been lighter, to some extent to the higher interest This may be attributed to shift to bonds. growing tendency by investors rates and a
Residential mortgages are being written in very large volume. There are indications, however, of a leveling off and perhaps reduction in new commitments for future acquisi tion of mortgages. Interest rates on mortgages continue to rise. Consumer credit is expected to continue to expand at a rapid pace and may result in heavy demands on the capital market, particularly if finance companies find difficulty in obtaining loans at banks, Bank loans have continued to expand at a substantial, though not unprecedented, pace. Seasonal borrowers have shown rather substantial increases. Public utilities have also borrowed heavily at banks. Loans to processors of metals and metal products have shown a decline, which might be attributed to the steel strike, but decreases frequently occur at this time of the year--perhaps reflecting in part auto-model changeovers. Bank loans to finance companies declined in September after increasing in July and August. Consumer loans at banks, however, have increased rather steadily, as have real estate loans. Bank loan expansion at city banks since mid-year has been largely offset by reductions in bank holdings of securities, which continued at a substantial pace in September. Country banks, however, showed only a small decrease in their holdings of Government securities in September and a net increase for the third quarter as a whole, in addition to a substantial loan expansion. As a net result of the loan expansion and the decrease in holdings of securities, total loans and investments of all commercial banks showed little change in September and a moderate June. A large part of the growth has been ac increase since by an increase in United States Government deposits companied at banks. Time deposits have increased only moderately. The deposits and currency--which increased money supply-demand in July, showed seasonally-adjusted more than seasonally On balance, there has been declines in August and September. money supply--seasonally adjusted--since little growth in the a daily average basis, the total is about 2 per March. On 4 or 5 per cent larger than than a year ago and cent larger in the third quarter of 1957. Treasury deposits have been In the first half of October, again in the next they will be increased reduced, but sharply and then drawn made on the new financing, as payments are week The effects of these latter part of November. down until the In view of remain to be seen. on private deposits cash shifts should be a note issue, there in the new public participation on private deposits, with than usual initial drain heavier course of events The subsequent bank credit creation. less
will depend on the strength of other demands for credit, the pressure on banks to continue to liquidate Government securi ties to meet these needs and hold down their own borrowings, and the public's desire to add further to their holdings. Reserves have been supplied in recent months to meet seasonal and other temporary demands for bank credit and money. Except for temporary variations, member bank borrowings at the Reserve Banks have averaged around $1 billion, with net borrowed reserves close to $$00 million. Banks have met loan demands by selling securities, which have been absorbed by nonbank buyers. Thus it may be said that the restrictive policy has been effective in checking expansion in the money supply, although the public's liquid asset holdings have increased through the purchase of Government securities--both from the banks and from new issues. At the same time, turnover of demand deposits has shown little change since last spring. This would appear to indicate that the increase in the public's liquid asset holdings, principally short-term Government securities, has not been accompanied by a further acceleration in the use of existing cash balances. Question may be raised whether the prolonged postwar trend toward increasing monetary velocity is reaching its zenith. The rate is approaching, but still has not level that prevailed in the late 1920'sreached, the high latest period comparable with the present. the seasonal needs for currency and required To meet customary restraints, little or no without increasing existing reserves, reserves will be needed until the end further addition to bank November about $500 million or of October. In the course of and another $400 reserves will be needed more of additional half of December. In be supplied in the first million should will amount to over $1 billion. January the reverse flow in the expansion of view of the current slackening In apparent flow of savings and in view of the economic activity may be raised as to securities, question into Government applied. Some needed as has been restraint is whether as much bank credit and the money supply resumption in the growth of is a risk, however, in supplying well be appropriate. There may credit will go into that the increased additional reserves speculative or longer into financing more consumer loans and in under current should be engaged than banks term commitments would become particularly The danger or prospective conditions. or other activities inventory buying a spurt of in case of great The situa the steel strike. cessation of follow a that might to be alert in order careful watching one that bears tion is some modera for the present if for more restraint to any need prospect for The most likely considered appropriate. tion is that if not elements, based on unsustainable is a boom, in 1961. to a recession will lead restrained
Mr. Marget commented substantially as follows with respect to the United States balance of payments: It seems to be an unfortunate characteristic of some topics of discussion that once they make the newspaper headlines, confusion becomes worse confounded. That was true, certainly, of the matter of international gold movements, when our gold outflow was at its peak last year. Now that our balance-of-payments situation has made the headlines, as a result of Secretary Anderson's speech at the Annual Meeting of the International Monetary Fund two weeks ago, the same kind of thing seems to be happening. On the one hand, there has been talk--in the New York Times the Sunday before last, and, a few days later, in Walter Lippmann's column--of how the deficit in the balance of payments has not only been "persistent", but has been "growing." On the other hand, the Times itself, just a week earlier, had published an article in which it cited some unnamed "officials" of the U. S. Government as believing that if the rate of recent improvement in our exports keeps up, "it is reasonable to expect next year's exports to come close to or reach $20 billion. At that level... the payments deficit would be reduced sharply or eliminated." And the London Economist said virtually the same thing at about the same time "While Mr. Anderson's sense of concern, if not alarm, is obviously genuine, it should be pointed out that a number of other experts inside the government do not share it. It and outside is entirely possible to estimate conservatively exports next year will that American commercial level; at this point the reach the $20 billion deficit would probably be so small as payments to be negligible." when one finds such categorically Who is right? As usual be matters of fact, neither views on what should contradictory has a sound basis of fact. which talks to begin with, view, extremely pessimistic The "growing," has been deficit as still of our balance-of-payments when our imports stopped date since June of this year, out of a marked improvement. began to show and our exports increasing hand, which on the other optimistic view, The extremely commercial exports billion level for forward to a $20 looks deficit would point "the payments next year, at which for is based upon be so small as to be negligible," probably
hopes, which may or may not come to be realized; it certainly does not represent anything that deserves to be called a "conservative estimate." What has happened to our balance of payments since June of this year does, indeed, justify a revision of those projections which assumed that the second half of this year would show a continued deterioration. This is true, for example, of the projection produced under the auspices of the National Foreign Trade Council, which fore cast a balance-of-payments deficit for this year of $4.5 billion, as against a deficit of $3. billion last year. But our figures for gold and dollar movements in July to September of this year (though they are still incomplete) would suggest that the over-all balance-of-payments deficit for that period was still in the neighborhood of $4 billion seasonally adjusted annual rate. That is still a long way from the average deficit of $1.5 billion that we ran from 1950 to 1957. The change in direction in our balance-of payments deficit that seems to have occurred in June is certainly to be welcomed, but there is no reason why it should lead us to suppose that our problems with respect to our balance of payments have ceased to exist. Mr. Treiber presented the following statement of his views with respect to the business outlook and credit policy: The steel strike is the most important factor in the current economic situation. It is now having an important on steel using industries. Increasing shut-downs impact are in prospect if steel produc and resultant unemployment tion is not resumed promptly. steel strike have spread, it has As the effects of the increasingly difficult to assess the underlying become While there have been declines in strength of the economy. indicators, one may properly con a number of statistical that there has not been a significant clude, we believe, strength of the economy. weakening in the basic the unions do not resolve steel companies and If the atmosphere of continuing un their deadlock soon, the damage the underlying strength certainty could seriously Should a settlement be and consumer demand. of business over-all activity seems a renewed upsurge in reached soon, of settlement are course, if the terms likely. And, of will certainly be widespread. inflationary, the ramifications increase in bank witnessed a further While September rapid as in the was not as the rate of expansion credit,
preceding months. A sharp decline in security loans was accompanied by a less brisk growth of business loans. The banks have continued to liquidate U. S. Government securities at a substantial rate, thus reducing total loans and investments. Consumer credit continued to expand in August, although at a somewhat slower rate than the record upsurge of July. Consumer credit bears watching. General credit controls have limited effect on the expansion of consumer credit. If con sumer credit continues to expand rapidly, the possibility of direct controls will need consideration. There has been increased public interest in intermediate and long-term Government securities, and a resultant decline in the yield on those issues. On the other hand, public interest in short-term issues has lessened. The yield on three-month Treasury bills awarded in the auction last Friday reached an all-time high. The Treasury is halfway through its current $4 billion cash financing. One financing operation is hardly finished before there is another. By the end of this month the Treasury will launch a refunding operation, and next month it will probably announce plans to raise perhaps $2 billion in cash. The money market has continued tight. In the fourth quarter of the year seasonal factors will put further pressure on bank reserves. The present business uncertainties counsel a Federal Re serve policy of marking time over the next three weeks. The general strength of the economy, the relatively well-sustained and the still likely prospect that demand for bank credit, steel strike will be followed by a period of settlement of the suggest that a firm rein be recovery and expansion, all rapid At the same time, circumstances kept on credit availability. to increase the degree of credit do not call for any action market operations, changes in whether through open restraint, the discount rate, or changes in the directive. the high short-term interest in the light of Especially to seek to offset the tempo rates, it would seem unnecessary arise in the next statement bulge in reserves that may rary in float. If there large increase from the mid-October week within the next three of the steel dispute is a settlement will have to be the System Account Management of weeks, the in the financial possible repercussions alert to particularly markets. regard to Third as follows with commented substantially Mr. Bopp and monetary policy: economic developments District
The "fabulous 5's" certainly have cast doubt on the oft repeated statements that the rate of interest isn't of much significance to savers or that there is something inherently wrong with Government bonds. In the Third District five per cent apparently pulled savings "out of the ground," from under the mattress, and from every type of savings institution. To use a phrase from the Radcliffe Report, the five per cent coupon seems to have been a "change of gear." We had 6,287 subscribers whose fully paid subscriptions totaled $50 million. The total number of subscribers was 6,957, for an aggregate of $412 million. In the Third District, the secondary effects of the strike have not snowballed as much in the last few weeks as earlier anticipated. Indirect unemployment has increased only moderately in the past three weeks--about 7,500. Most of these newly idled were in metals and metal products manufacturing. A few locali ties have been hard hit. In Johnstown, Pennsylvania--a chronically depressed area--about one-fourth of its prestrike employment has been idled by the strike; in the Allentown Bethlehem-Easton area about 10 per cent have been idled. In some of the harder hit areas, the effects of the strike are spreading to other economic sectors such as retail sales and In the Philadelphia Metropolitan electric power consumption. there is little evidence as yet that the adverse Area, however, are spreading. Factories closely dependent effects of the strike estimate they have sufficient inventories to last well on steel into or even beyond October. in the district continues to The unemployment situation In September two major labor market show moderate improvement. raised from Classification D areas--Philadelphia and York--were to C (3 per cent to 5.9 per cent to 8.9 per cent unemployed) (6 removed from the substantial cent). One minor area was per major and 11 minor areas remain surplus list. However, five surplus classification. New unemployment in the substantial somewhat in the last few although up claims in Pennsylvania, running at about the a year ago and are weeks, are well below 1957 level. sales have been erratic in department store Weekly changes past four weeks were 3 weeks. Sales for the in the past few 5 per cent above, last below, and for the year-to-date per cent year. in August and declined seasonally sales Automobile same trend in indicate the data for Philadelphia preliminary above a year ago. sales were well September; however,
Construction contract awards in August were 13 per cent below a year ago, all major categories showing declines, but the total for the year-to-date was 7 per cent above last year. There was little change in total loans of district reporting banks in the three weeks ending October 7. Increases in security loans and loans to consumers were largely offset by reductions in loans to business firms and nonbank financial institutions. Banks continued to liquidate securities, and total investments of reporting banks were nearly $350 million below a year ago. All categories of deposits decreased but the total decline was less than in the same period last year. The basic reserve position of the large Philadelphia banks has been somewhat easier during the past three statement weeks; the daily average deficiency has ranged around $50 million as compared to $70 to $85 million in the first part of September. These banks met their deficiencies by selling securities, borrowing from the Reserve Bank, and purchasing Federal funds. Their daily average borrowing from the Reserve Bank during the past three weeks ranged from $26 million to $38 million. Borrowing from the Reserve Bank by country banks rose from a daily average of $4 million to $11 million in the latest week. As to monetary policy, I find it difficult to make a recommendation even for three weeks. This difficulty arises from what appears to me to be an incipient divergence between basic forces and anticipations-or psychology. it seems to me that economic developments and Basically, financing call for no change in the next three current Treasury weeks. On the other hand, a rapid change to pessimism concerning quarter, including diminished consumer prospects for the fourth could result in a rapid advance and other demands for credit, bonds and speculation in the Novem in the prices of Government ber rights that might cause us difficulty. from the volatile nature of anticipa My uncertainty arises level of interest rates is tions. One reason for the present The System has been of further inflation. the anticipation long time. Should it be that anticipation for a trying to curb of rates would be appropriate. curbed, a lower level is interpreted as in rates, in turn, If, however, a decline markedly at the first System will ease credit meaning that the up by reinforcing the we may end sign of adverse developments, is the more likely long run inflation that in the judgment prospect. to wide and frequent may lead Thus, changing anticipations and by basic developments prices, unwarranted in bond movements harmful in their effects. thus of the Account that the Manager conclusion is My tentative of reserve positions leeway in terms should have considerable
and interest rates but should endeavor to maintain the present degree of restraint in terms of the total feel of the market. I would not favor a change in the directive or in the discount rate. Mr. Fulton characterized the prolonged steel strike as represent ing a serious situation, adding that many users of steel were understood to be getting into desperate straits. Plants had been swapping inven tories and substituting types and gauges of steel, but these possibilities were now becoming exhausted. There had been many layoffs of workers, and the layoffs would become cumulative if the strike should continue for even another week. After reviewing reports concerning the tenor of representations before the Presidential board of inquiry, Mr. Fulton said it was believed that the steel workers would go to work if the provisions of the law were invoked, although there was the possibility that Taft-Hartley delaying tactics. If the men returned they would engage in slowdown or production might rise to around mills, it seemed possible that to the about a week, barring slowdown tactics, 50 per cent of capacity within be slower because of of production might after that the improvement but any event, the pipelines factors. In furnaces and other damage to the of the rate of of steel that regardless in certain types were so empty could obtain time before manufacturers it would be some production be problems with apparently would Also, there supplies. satisfactory there were Cleveland harbor, ore. In the shipment of regard to the customary for but it is to be unloaded, ore boats waiting now 10 or 12 crew members and some the winter jobs during to take other the crews
reportedly already had taken other employment. Therefore, although there were rather large stockpiles of ore, the prospects for hauling them down were rather dim, aggravated by the limited capacity for transportation of ore by rail. While neither management nor labor favored the invoking of the Taft-Hartley Act, management was at least willing to have it invoked. If the strike should resume after the 80 days provided by the Act, Congress would be back in session, and it seemed possible that legislation unwelcome to both labor and management might be enacted. Mr. Fulton went on to say that the glass container industry was now crippled by strike, which closed off an alternative for industries marketing their products in containers. Rather surprisingly, even in the hardest hit steel communities, the rate of delinquencies in loan repayments thus far was not excessive. Fourth District employment 5 per cent in July and August, a period of the year when declined about about 1 per cent. Department store sales had employment normally rises in steel towns, but for the year to date slipped somewhat, particularly last year. Reflecting sustained demand for were still 6 per cent above to accommodate borrowers but banks had been selling investments loans, Reserve Bank had not been excessive. borrowing from the Mr. Fulton expressed the view that the Desk had been doing a he was not concerned operations and said job with open market good picture from time to time. may have crept into the that a little ease should be given a wide degree the Manager of the Account He felt that
of latitude and that the general feel of the market, as it had existed recently, should be continued. He would not favor a change in either the discount rate or the directive at this time. Mr. King referred to an observation by Mr. Thomas to the effect that the current leveling-off trend in several areas of the economy could represent either the results of the steel strike or a natural leveling-off process that would have taken place regardless of the strike. It was his guess that the situation reflected to some extent the latter process. The analysis of monetary policy presented by Mr. Bopp reflected his own thinking, and he subscribed to that analysis entirely. It was Mr. King's feeling that the steel strike was likely to play havoc with the economy before it was settled. The strike involved matters of principle that were being argued vigorously on both sides and it seemed possible, therefore, that negotiations could drag out for a long time. Also, as Mr. Fulton pointed out, if the Taft-Hartley Act were invoked, it would take some little time before the mills could get back to substantial production, and the lack of enthusiasm on the part of the workers was bound to be felt even though no instructions were given for slowdown. In spite of this serious situation, Mr. King expressed the hope, of restraint could be that the present degree as to monetary policy, He would prefer not to err on the side of ease. Although maintained. to meet seasonal such reserves as necessary he would favor supplying
needs, he would not care to give the impression of any change in policy, especially on the side of ease. Mr. Shepardson expressed the opinion, in view of the existing uncertainties, that this was a period in which it would be appropriate to mark time and not to make any change in policy. He questioned somewhat any suggestion that the Desk not try to offset the rather marked drop in negative free reserves projected for next week, because a failure to offset might be regarded as an indication of easing that was not intended. By this he did not mean to say that restraint should be increased, but he wondered if the projected decrease in net borrowed reserves was not a wider swing than would be justified. Mr. Robertson expressed agreement with Mr. Shepardson's view that this was a time to sit still and watch, because the situation could turn in either direction. As Mr. Bopp suggested, a depressant psychological attitude could develop rapidly but, on the other hand, be an upward surge. It might even be possible that between there could this date and the next scheduled meeting of the Open Market Committee there would have to be a special meeting of the Committee. In the interim, however, he felt that the current degree of restrictiveness Shepardson that the Desk He agreed with Mr. should be maintained. some extent, the projected to offset, at least to should attempt to avoid misleading the net borrowed reserves in order decrease in necessary to do whatever was words, he would In other public.
indicate that the System was maintaining its existing position. Mr. Mills commented that when the discussion turned to maintaining the existing degree of restraint or temporarily standing still, he was disturbed by the thought that the rigid maintenance of a high level of net borrowed reserves tended to produce a relentless contraction of banking resources, the effects of which were only now beginning to be felt in full force. In his thinking, everything in the economic discussion suggested the kind of moderating of System policy that he had advocated on earlier occasions, Mr. Mills then read the following statement: The Federal Reserve System's most pressing problem is to discover the means of extricating the economy from the delayed effects of a contractive monetary policy that is identified by a high level of negative free reserves and which has only now come into full view in the sharp reduc tion that is taking place in the money supply and in the dead center position that has been reached by commercial bank loans and investments. Whereas a more moderate policy of credit restraint has, in my opinion, long been in order, even a slight shift in policy under present conditions threatens the possibility of promoting an upward movement in the prices of U. S. Government securities that would be out of line with any easing of reserve pressure. Public response to the Treasury's current offering of five per cent notes and a sympathetic strengthening in prices over the entire list of U. S. Government securities testifies not only to the investment attractiveness of this issue, but also to what might be the explosive market System should supply reserves if the Federal Reserve effects too freely. Any solution of the problem that would not provoke an distortion in the structure of interest rates artificial demands a cautious approach in shaping the supply of the availability of credit. reserves and expanding situation that is symbolized the present Fundamentally,
in the response to the Treasury's five per cent note involves a public reorientation in the choice of in vestment outlets in favor of the Treasury and at the expense of previous investment positions. Whether this kind of process can go on without starving some deserving field of investment remains to be seen. What is happening gives dramatic effect to what I understand is the theory of evolving a monetary policy that has as its objective equating the supply of and demand for investment funds through an interest rate that will attract all available idle funds into the investment market. In the light of present experience, however, the mechanical result of implementing such a policy is to limit the money supply to a level that, as represented by the total volume of commercial bank loans and investments, will compel the banks to desist from any new creation of bank credit and to confine their activities to substituting existing loans for invest ments or vice versa. In effect, this process seemingly contemplates that new capital formation shall depend exclusively on savings without any intermediary assist from commercial bank created credit, and espouses Irving Fisher's proposal for "100% money." Although it is obvious that the ineluctable results of the monetary policy that the Federal Reserve System has been following the dangers to economic growth and are not intended, stability implicit in such a policy cannot be overlooked. commercial bank credit under proper central Newly created bank control is an essential solvent to economic progress, it is because of that truism that current System and should be judiciously moderated so as to prevent policy the reserve pressures that have been built up from barring commercial banking system from its normal and accepted the functions. although the Fifth District economy re Mr. Leach reported that continuing steel strike lines of activity, the strong in most major mained industry continued in a strong effects. The textile was having increasing and shipments were industry production while in the furniture position, Cigarette production for recent years. new records both establishing 3 per cent or would be that 1959 output to expand, assuring continued
more above the previous record. Reflecting the widening effects of the continuing steel strike, man-hours worked in manufacturing in dustries, especially primary and fabricated metals, had been declining at a quickening rate, coal production remained at reduced levels, and retail trade was showing further weakness. For the district as a whole, cash receipts of farmers in 1959 seemed likely to show little change from last year. A recent survey of selected bankers indicated that farm costs and the need for capital improvements had continued to increase, resulting in a growing demand for credit and weakening in the cash reserve position of farmers in some areas. The heavy pressures on district member banks had eased somewhat since the last meeting of the Committee, as indicated by a slackening loan demand, a slowdown in the reduction of investments, a much lower level of borrowings from the Reserve Bank, and net sales of Federal funds by banks active in this market. In view of the increasingly adverse effects of the steel strike on the economy and uncertainty as to the time and nature of settlement, Mr. Leach felt that it would be a mistake to increase the intensity of other hand, he did not believe the restraint at this time. On the a change of policy in the direction economic situation called for current situation, Treasury financing con of ease. Aside from the economic or easing for the that there be no tightening siderations suggested change in the directive, no He would therefore favor no time being. change in the degree discount rate, and no appreciable change in the
of pressure being maintained. He would continue to resolve doubts on the side of ease and make reserves readily available to take care of seasonal needs. Mr. Leedy reported signs of leveling off in some sectors of the Tenth District economy. Construction contracts awarded in August were 11 per cent below the year-ago level, marking the third consecu tive month in which such awards were below the corresponding month of 1958. An important factor in the two most recent months had been the lower level of residential construction awards. Since June, the cumulative total of such awards had fallen from 33 per cent above last year to a margin of only 19 per cent above. It was residential con struction that had kept total district awards ahead of 1958; other types of construction were down more than 7 per cent for the 8-month period. Insured unemployment in States of the district for the first part of September was little changed from the previous month. Depart also showed a leveling off, and in the past four weeks ment store sales averaged only slightly better than a year ago. On a cumulative basis, store sales were about 7 per cent above last year. Total department loans of reporting member banks were virtually unchanged during the weeks with commercial and industrial loans declining slightly; past few ago, and demand deposits from three weeks were down slightly investments increases in both business While there were in September also declined. more than offset in interbank deposits deposits, decreases and Government those gains.
Turning to policy, Mr. Leedy expressed concurrence in the thought that during the period immediately ahead the System should engage in watchful waiting, with emphasis on the word watchful. The longer the steel strike continued, the greater seemed the possibility that public psychology and sentiment might change rather rapidly, and the cumulative effects of the strike must be taken into account. Nevertheless, he subscribed to the view that the System should not undertake any easing of reserve positions as matters stood at the moment. On the other hand, he would favor responding to seasonal needs readily, and he certainly would undertake to see that no further tighten ing occurred. If the target was to be missed, he would be inclined to undershoot it slightly. Mr. Allen presented the following comments on economic and financial developments in the Seventh District Aside from the accumulating effects of the steel strike, there appears to be little evidence that the underlying strength of business in the Seventh District has waned in recent weeks. Aggregate employment and trade are holding near pre-strike levels, and credit demands for business, real estate, and consumption purposes remain vigorous. Wholesale and retail merchants are preparing for a high level of fall and holiday business. The only important exception to this to be in the field of residential construction picture appears have sharply curtailed new commitments. But where lenders there seems to be general agreement that an upsurge overall, activity will develop upon conclusion of in general business the strike. of the strike thus far have not The immediate effects been important. The number of persons receiving unemployment in our major cities is only slightly higher compensation
than it was when the strike began. Aside from Gary, only 4,500 Chicago area workers have been laid off because of steel shortages through the first of October--a small number in a city which has about one million manufacturing workers. In Detroit automobile assemblies have not been far from pre-strike programs. General Motors says it can main tain scheduled assembly until October 31; Ford and Chrysler until November 15. But the cumulative effects are another matter. Before the strike passenger car assembly in the fourth quarter was estimated at 1,900,000 cars. As of October 1 it was believed that steel shortages to come meant that 400,000 cars must be deducted from the 1,900,000 figure, and that for each October week of the strike the anticipated quarterly total must be reduced by another 125,000, or by 500,000 plus if the steel strike continues through October. Thus it seems certain that, even if steel operations begin very soon, automobile assembly plants will operate at reduced schedules or will have shut-down periods during the balance of the year. At a recent meeting of this Committee I reported that one of our important steel companies had told us that, follow ing the end of the strike, they would reach 60 per cent of capacity by the end of one week and would be close to capacity production by the end of two weeks. We inquired of the same company a few days ago and they gave us the following revised which are on a weekly production average--a slightly estimates different basis. They assume that the first crews will go to work on October 15. week--average 32 per cent of capacity First Second week--average 74 per cent of capacity Third week--average 88 per cent of capacity 95 per cent of Balance of 1959--average capacity say they would average 86 those figures together, they Putting capacity from October 15 to December 31, and they per cent of the same, with some companies could do about think that other a greater percentage of cold allowance for those producing rolled steel. the Seventh District remains fairly strong. Loan demand in quarter at our weekly re loan growth during the third Total 3 per cent for all totaled 6 per cent against porting banks part of the difference reflecting in the country, with reporters a larger portion dealers have obtained fact that security the our area where from banks in in recent weeks of their financing severe as in New York. had not been as reserve pressures
Loan concentration appears greatest at our largest banks, which banks have been borrowing more at the discount window and through the Federal funds market, whereas the volume of country bank borrowing has dropped markedly, as has the num ber of borrowers. Continuing, Mr. Allen said that, while flexible monetary policy called for detecting any change in economic conditions as quickly as possible, he agreed with the views expressed to the effect that the System should mark time for the next three weeks and that the Account Management should attempt to maintain about the current degree of re straint. If possible, the Desk should avoid a very low figure of net borrowed reserves in the next statement week, but he was not greatly concerned on that point. He recalled another week recently when the net borrowed reserve figure was lower than usual and the market apparently understood that the situation was attributable to a temporary increase in float. point Mr. Treiber commented, in amplification of his At this on the anticipated temporary bulge in reserves, previous statement try to maintain the current feel of the that he felt the Desk should be necessary, but it some offsetting might market. For that purpose action would be required. not appear that any vigorous did he was not happy about economic develop Mr. Deming said that steel strike and the month-long Ninth District. The ments in the significantly and in primary metals strike had hurt activity copper steadily. While secondary effects had been growing the secondary
unemployment was still relatively small, it was increasing week by week. Coupled with a decline in cash farm income in August to a level 17 per cent below a year ago, the situation added up to a noticeable slowing down in the pace of economic activity. One bright spot was that there had finally been some moisture in the form of rains and snow so that the district was going into the winter with somewhat better soil moisture conditions. Fifty-nine ore boats were now tied up in the Duluth-Superior harbor, and ore could begin moving in a couple of days if the strike was settled. With the best of luck, however, the ore shipping season was not likely to extend beyond mid December. Under the most favorable conditions, as much ore could be moved in 1959 as was moved in 1958, but 1958 was about 40 per cent below the good years of the postwar period. In September, for the time in several years, bank clearings in the Twin Cities first which might or might not be a develop declined from a year earlier, ment of significance. he were to suggest a policy prescription Mr. Deming said that if developments, he would suggest some based solely on Ninth District much in the way of he thought it could accomplish easing, not because of declining farm income activity in the face expansion of immediate it would seem strikes, but because of the steel and copper and effects picture was brighter While the national to be generally appropriate. any increase in it hardly warranted District picture, than the Ninth mild backing away might argue for a very and, on balance, restraint
from the present level of restraint. To accomplish this, he would be inclined to meet seasonal demands for reserves with little or no reluctance but not go beyond that. As he saw it, this represented no significant difference from the views expressed by Mr. Bopp and others who advocated a policy of watchful waiting, with no appreciable de parture from the present degree of restraint. Mr. Mangels said that such changes as had appeared in the Twelfth District economy were of a minor nature. Employment, personal income, new car sales, and department store sales were still somewhat higher than a year ago, but the rate of unemployment was increasing. In August, unemployment stood at 4.8 per cent, an increase of .3 per cent over July, and it seemed likely that the September figures would show a further increase. Construction awards declined 7 per cent from July to August, the principal reduction (25 per cent) being in nonresidential construc tion. This had exerted an effect upon the lumber industry, and there had been some further easing of lumber prices. In the three-week period ended September 30, bank loans increased $148 million, with the largest increase in business loans. During the same period, real estate loans increased $27 million but there was no change in such loans in the large San Francisco banks had raised their week ended September 30. Two rates on conventional mortgage loans to 6-1/2 per cent and one bank had loans of 20 per cent down and a 20-year now established a pattern on FHA with the previous pattern of 15 per cent down maturity, as contrasted was somewhat less in Consumer credit expansion and a 25-year maturity.
August than in July and there were reports of increasing delinquencies. Member bank borrowings at the Reserve Bank were quite nominal, with no loans outstanding on some days. Net sales of Federal funds by district banks showed a marked decline, indicating a possible tightening of the liquidity position of banks, and they sold $173 million of securities. Mr. Mangels was inclined to agree with those who felt there should be no increase in restraint at this time. He would not be too unhappy if there should be some change in the total amount of net borrowed reserves for he thought it would be healthy to have some moderation for a temporary period. The persistency of a given figure of net borrowed reserves had perhaps exerted a somewhat greater tighten ing effect than the Committee wished to exert. During the forthcoming period, the banks would feel the effect of withdrawals from savings accounts that had been made to purchase the 5 per cent Treasury notes, and a $2 billion offering of tax anticipation bills was to be made tomorrow. All things considered, he would recommend no increase in his personal preference would be to go somewhat on the restraint and side of ease, with no change in basic policy. District conditions continued Mr. Irons reported that Eleventh to 6 weeks. As he had had been for the part 4 to be about as they meetings, the district was operating at a high mentioned at recent off from the earlier toward some tapering level but with a tendency areas, such as trade and agriculture, rate of increase. In various favorable, while and the outlook were very high levels of activity the
the problems of the steel strike had not yet exerted a marked effect and unemployment figures continued below the national average. There did not seem to be much change in attitudes and no traces of pessimism appeared to be creeping into the picture. On the financial side, loans continued to move up slightly and the reserve positions of banks were firm. Borrowing from the Reserve Bank was running about as it had been in the recent past, and district banks were net borrowers of Federal funds. Mr. Irons stated that he would endeavor to maintain as nearly as possible the policy of the past three weeks. There appeared to be a mixture of uncertainties and other problems resulting from the steel strike and from the gradual effectiveness of a restrictive monetary policy, as reflected in the trend of the money supply. While he felt that the Manager of the Account should observe the color, feel, and tone of the market closely, he would not be greatly disturbed if, should be a little less restraint in during the ensuing period, there should tend to make any errors and he felt that the Desk the picture, on the side of less restraint. It should be possible to recapture quickly and easily in view of the restraint, if necessary, rather strong seasonal demands now building up. Mr. Erickson reported that business activity in the First well, with the steel strike not having District was holding up fairly index for manufacturing production The New England too much effect. with a drop of from June, which compares was down 1 per cent August
4 per cent in the national production index. The September survey of New England purchasing agents revealed that 49 per cent of the respondents expected an upward movement in production, compared with 51 per cent in the August survey. In August, construction contracts were 22 per cent under August of last year, which was an unusually good month. For the first 8 months of the year they were up 5 per cent compared with the corresponding period last year. The fall follow-up survey of New England manufacturers showed that they expected to spend for plant and equipment 13 per cent more than they had expected to spend last spring, which would mean an increase of 15 per cent over expenditures in 1958. The expenditures, however, were primarily for equipment rather than plant. Nonagricultural employment was up in August from July, but the increase was not as great as the increase from June to July, while insured unemployment for the 9-week period ending September 11 was down 24 per cent. As to labor market areas, two showed an improvement in classification. During the past three weeks, there had not been as heavy use of the discount window, either in terms of the number of discounts or dollar volume, but in the first nine months of 1959 borrowings totaled $1-1/h billion more than in 1958 and $147 million less than in 1957. System should mark felt that the to policy, Mr. Erickson As or the discount rate. In open with no change in the directive time, latitude to the Account Management, operations, he would leave market
hoping that the situation might be handled as well as during the past few weeks, with any errors on the side of less restraint rather than more. He would not be disturbed if net borrowed reserve figures were somewhat lower than the Committee had been looking for recently. Mr. Szymczak expressed the view that the time had not come for a change in policy. However, in view of the uncertainties mentioned at this meeting, he felt that the time might have arrived for the System to got into position if a change should be indicated. Somewhat lower net borrowed reserves therefore would not be disturb ing to him. For the next three weeks, he would suggest easing somewhat the pressure on reserves, not to the extent of changing policy but allowing reserve positions to determine their own level. Mr. Balderston commented that since the visability was low at the moment he would continue the present degree of restraint. However, he wished to call attention to certain cautions. First, Mr. Treiber had referred to the rapid buildup of consumer credit, a matter that seemed to him to demand the attention of and this was because of the possibility of a the System during the months ahead accentuation due to the newly developed repetition of 1955, with some credit plans of banks. of stores and the check revolving credit plans that the System not of Mr. Bopp there was the admonition Second, that it was by the he (Mr. Balderston) felt pulled off base, as get public psychology to the shifting of Suez crisis, by permitting
blind it to the real economic situation. As an analyst observed in a recent issue of Barron's, the sophisticated public would be watching with great care to see whether or not the Federal Reserve was shifting policy. Also, there was the adverse balance of payments situation, which he supposed would result in an additional outflow of gold, and the fact that foreign bankers would be alert to the posture of the Federal Reserve during the steel strike and afterward. In all the circumstances, if the System did not stand firm and got pulled off base by what he regarded as a temporary change in public psychology, he believed that this would be regretted later. In particular, if the steel strike should come to an end, he had the feeling that the System should be prepared for a sharp upswing in business. That, of course, was the major uncertainty of the moment. Chairman Martin commented that an interesting feature of the small amount of attention paid to discussion today was the relatively market aside from remarks concerning the the Government securities notes. Actually, there was still a very success of the 5 per cent financing problem, one certainly not solved by a single real Treasury that the Open Market Com issue. It should be remembered 5 per cent mittee had a general policy of marking time during periods of Treasury there would be a Treasury financing financing, and in one sense. tax anticipation bills. of $2 billion of tomorrow with the sale intention to it to be the Treasury's he understood Furthermore, October 29. on or about the November refunding the terms of announce
In short, he did not feel that the Government financing position was in any way clear as yet. Chairman Martin went on to say that as of the date of the last meeting the Committee favored, generally speaking, very moderately less pressure and no additional restraint. The consensus this morning appeared to favor watchful waiting and marking time. Actually, what the Committee was talking about was a very small degree of pressure or lack of pressure on the part of the Desk measured in terms of the color, feel, and tone of the market. The Chairman then referred to a memorandum distributed to the Committee over his signature on October 9, 1959, which stated that in order to help tighten up the facts of votes on policy decisions in open market meetings, he proposed to take the following formal steps at each meeting after the go-around. First, the Chair, as at present, would guide the discussion to a statement of the consensus. Second, the Chair would call for a record vote on the policy indicated by the for a vote on the directive to Third, the Chair would call consensus. that Bank to execute Agent Bank formally instructing be issued to the accordance with the word Open Market Account in transactions for the suggested procedure substance of the While the ing of the directive. to be the significance what had been understood did not differ from to make it was intended over the years, vote on the directive of the as to whether any question whatever record and resolve a more complete as well as on the on the policy decisions actually voted the Committee directive.
In pursuance of the procedure suggested in the memorandum, Chairman Martin said that he proposed to call for a vote on the policy indicated by the consensus of watchful waiting and marking time, and that anyone who so desired could record a vote in disagreement. The Chairman made it clear that this procedure was being undertaken this morning on an experimental basis and that he would consider it desirable to review the procedure at a later date. Mr. Mills said that his position would be different from the consensus, although to a minimum degree, for he felt there should be some relaxation of pressure. The current troubles, he said, derived from past actions and could not be corrected easily or quickly. Instead, there must be a gradual shift, commencing at the present time. In response to a further inquiry as to the difference between his posi policy indicated by the consensus, as stated by the Chairman, tion and the it, his position would be somewhat Mr. Mills said that, as he understood be referred to as the right, of the to the left, or perhaps it should consensus. suggested going back to determine At this point the Chairman previously, the consensus As he had stated it clearly the consensus. the period of the next and marking time over favored watchful waiting of objection that that in the absence He then stated three weeks. or majority position. regarded as the consensus would be of the con with the statement of disagreement No expressions sensus were heard.
Chairman Martin then suggested that the Committee proceed to a vote on the policy indicated by the consensus, and he inquired of Mr. Mills whether the latter desired to vote in the negative. Mr. Mills responded that his vote would be in the negative, if there was to be a vote, with his vote explained by the comments that he had just made. Chairman Martin then raised the question whether, in the Committee's opinion, it would be desirable procedure to take a formal vote on the policy indicated by the consensus, adding that there had not been a great deal of time to study the memorandum of October 9, that he had thought of the procedure as one to be followed on an experimental basis, and that if there was any feeling that this was the wrong way to proceed, time should be taken to think the matter through. Mr. Deming said that, as he understood the position of Mr. would call for more of a change in policy than would his Mills, it Deming) would like to see a very mild backing own position. He (Mr. However, in the next two from the present degree of restraint. away be done anyway, so watchful period, nothing could or three-week very fine shade of essence, his was a not bother him. In waiting did Mr. Robertson and not quite would not be as strong as difference. He somewhere in Mills, but rather or right" as Mr. much "to the left as he should go on he was not sure that In the circumstances, between.
record in disagreement with the policy indicated by the consensus. As he saw it, however, the difference was not sharp enough to do so. Mr. Allen observed that everyone had agreed that the Chairman's expression of the consensus was correct. He suggested that perhaps it would be sufficient to stop there, because the shades of opinion ex pressed by members of the Committee would be shown in the minutes of the meeting. On this point, Mr. Riefler commented that the law calls for a statement of votes in the policy record. It had heretofore been assumed that a vote on the directive was a vote on policy, and that anyone feel ing strongly enough would vote in the negative. However, this had been challenged, it having been suggested that there was not any real vote on the policy indicated by the consensus. The procedure proposed in the October 9 memorandum would provide an opportunity for any Committee member who wanted to record a negative vote so to express himself, while anyone willing to go along with the consensus would vote in the affirmative. commented that in the past the policy had varied Mr. Robertson limits of the directive, which is stated in broad terms, and within the a vote on the consensus seemed that there be consequently the suggestion way there could be compliance with to him a good rule to follow. In this in the policy record calling for an indication the statutory directive not mean that a stood. This did Committee members of where individual a member to record a negative in views would require slight deviation
vote, for no two people were likely to agree completely. But a negative vote could be recorded whenever a member's views differed importantly enough for the member to record himself in opposition to the policy as stated in the consensus Mr. Balderston said that he thought Mr. Robertson had touched upon a vital point. He noted that the views of the individual Com mittee members tended for the most part to come into the room with them, except to the extent that they reflected views expressed by persons who had spoken earlier during the meeting. For example, at today's meeting the views of Messrs. Treiber and Bopp were presented at the outset of the discussion and had already been prepared, whereas the views expressed by the Chairman came at the end of the meeting after he had heard the other members of the Committee. Mr. Balderston felt that the consensus should express the policy said he had always as a whole, but that there were occasions wishes of the Committee when a member might wish, even after hearing the other members, to favoring a change in direction of policy contrary express himself as had wondered whether the Chair Over the years, he to the consensus. The practical difficulty was to put the policy to a vote. ought not as to call for affirmative issue in such a way of stating the that of views rather to be a spectrum for there tended negative votes, and that his views were if a member felt sharp issues. However, than record that he could with the consensus, at variance fundamentally fact.
Mr. Szymczak commented that Mr. Mills' position had been different from that of the majority of the Committee for some time. At present Mr. Mills' views on policy for the forthcoming period were quite similar to his own, but Mr. Mills had arrived at that point from a different background. Mr. Mills responded that this was essentially correct. However, if there was to be a vote on the policy stated in the consensus, he felt that his vote would have to be contrary to the consensus in order to give a foundation to his earlier thinking. Mr. Irons commented at this point that, although not at present a member of the Open Market Committee, he favored the idea of a record vote on the policy indicated by the consensus and did not think that the problem should be too difficult. In his opinion the elected members, as a matter of record, it would be desirable for to both the policy stated in the to vote at each meeting with respect consensus and the directive. the Chairman, Mr. Mills again In response to an inquiry by was distinctive enough to cause stated that he thought his position stated in the consensus, with the him to vote against the policy would reflect his qualifications. that the minutes understanding member of the whether any other Chairman then inquired The by the consensus the policy indicated to vote against Committee desired to the New York the existing directive continuation of or against the Mr. Mills In this connection, was no such indication. Bank, and there
commented that, having voted against the policy indicated by the consensus, he would vote for the continuation of the existing directive. Thereupon, upon motion duly made and seconded, the policy indicated by the consensus, as stated earlier by the Chairman, was approved, Mr. Mills voting "no" for the reasons he had stated. Upon motion duly made and seconded, the Committee then voted unanimously 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 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 accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; direct from the Treasury for the (2) To purchase account of the Federal Reserve Bank of New York (with where it seems desirable, to issue discretion, in cases to one or more Federal Reserve Banks) such participations amounts of special short-term certificates of indebtedness time to time for the temporary may be necessary from as that the total of the Treasury; provided accomodation amount of such certificates held at any one time by the shall not exceed in the aggregate Federal Reserve Banks $500 million.
In reply to an inquiry by the Chairman, Mr. Larkin stated that he had no question to raise on the basis of the discussion at this meeting or the actions taken by the Committee. In view, however, of the difficult circumstances at the present time and the various shadings of opinion expressed around the table today, he concurred in Mr. Robertson's observation that there might be reason for another meeting of the Open Market Committee before the date of the next scheduled meeting. In the event of the development of unusual circum stances resulting from the steel strike, for example, the Management of the Account might want to come back to the Committee for new instruc tions. Chairman Martin then referred to the maximum rates of interest payable on time and savings deposits under the Board's Regulation Q, on Deposits. He said that the matter had been Payment of Interest that it would be helpful if the the Board for some time and before Banks for its guidance the reactions of the Reserve Board might have consideration of the problem. in further made in response to a summary of the comments There follows Martin's request. Chairman still deemed it important New York Bank Mr. Treiber--The rates on time de increase in the maximum that there be an of time deposits from the standpoint posits, particularly foreign central including especially foreign banks, owned by as a money market the time deposit which look upon banks, funds. If one use of an alternative providing instrument a money market instrument, the time deposit as looked at probably fluctuate deposits could payable on such the rates merit in a higher appear to be and there would considerably,
ceiling for time deposits than savings deposits. He would be mildly against an increase in the maximum rate of interest payable on savings deposits. Mr. Erickson--The problem of foreign-owned time deposits is not of significance to banks in the First District, and he had heard nothing in recent months from the commercial banks of the District about a possible increase in the maximum rates on time and savings deposits. If, however, the maxima were to be adjusted, he felt that the adjustment should apply for savings accounts as well as time deposits. As to the necessity for an increase, he would like to be sold on the idea a little more than he was at the present time. In this connection, relatively few banks in the First District were now paying the maximum rate of 3 per cent on savings deposits. Mr. Irons--A month of two ago he had some inquiries about an increase in the maximum rate. At that time it was his opinion that it would be preferable not to increase the maxi mum rates on time deposits or savings deposits, since that might cause some difficulty and problems for the System. He would not favor raising maximum rates on time certificates and leaving the rate unchanged on savings deposits, for he felt that this also would cause problems. In substance, his thought would be to mark time and make no change at the moment. now a hot subject on the West Coast. Mr. Mangels--This was that area do not have too much in the way of The banks in but their structure is quite heavily foreign time deposits For example, Bank of America weighted with savings accounts. Savings Association has a larger dollar National Trust and deposits than it has of of time (including savings) amount had been made to the A number of comments demand deposits. of the maximum rates, and Bank concerning the question Reserve any increase by a margin that bankers would oppose it appeared in Southern California to one. The situation of at least three because savings and loan more acute than elsewhere was perhaps 4 per cent and were their rate to had increased associations commercial banks As a result the of 4-1/2 per cent. now talking There was of savings deposits. amount had lost a considerable a movement Bankers Association within the California now afoot ask for an increase should the Association determine whether to doubted whether but he savings deposits, rate on in the maximum time deposits, it reference to come to pass. With this would show a preference to would be unfortunate him that it seemed to would be that the reaction banks and of foreign for deposits
bad. Perhaps this problem could be resolved to some extent by extending the maturity schedule for time certificates and permitting a higher rate on longer maturities that would be applicable to all such certificates. While the public would be anxious to have an increase in the savings deposit rate, savings deposits were still increasing, which indicated that perhaps depositors were not too concerned about the rate differential. On the other hand, there were some heavy with drawals from savings accounts to purchase the 5 per cent notes recently offered by the Treasury. An increase of only 1/2 per cent would not be adequate to provide maximum competition with savings and loan associations. In his opinion, no change should be made at this time in the maximum rates on either savings deposits or time deposits. Mr. Deming--The bankers did not want the ceiling rate on savings deposits increased but they were getting more competi tion from savings and loan associations. The bankers tended to find themselves in an inconsistent position, with higher rates on loans and not on savings deposits. They would really like to have legislation enacted keeping savings and loan associations and savings banks from increasing their rates. He suspected there was no way of making a case that would be understandable around the country for paying more interest on foreign time deposits than on other time deposits, but he felt that there ought to be some latitude. Mr. Mangels' suggestion perhaps would not meet the problem of foreign-owned deposits, for what was wanted was the ability to pay higher rates on maturities within the existing schedule. Mr. Allen--In his judgment the maximum rates should not be changed in any respect. He was not sufficiently familiar with the arguments of the New York banks about foreign time deposits to be certain on that point. However, based on his experience some years ago, he was not persuaded of the validity of the case. should be increased on both Mr. Leedy--The maximum rates time and savings deposits. There had been a marked change in the level of interest rates generally since the present ceiling recognition should be given to that fact. The was fixed and would not like it. While some commercial banks, by and large, from savings and loan were suffering from competition of them would prefer to that most of the banks associations, he felt This did not for savings accounts. avoid interbank competition felt that banks and he be a valid argument, to him to appear advantage of an should have the the ceiling rate now paying
additional area of discretion with respect to their own rates. Basically, there was probably a difference between savings and time deposits, and in the light of the situa tion with respect to foreign accounts, he would consider it proper to make a distinction. In the Tenth District, a large number of banks were believed now to be paying the ceiling rate on savings deposits. Mr. Leach--Comments from bankers that had come to his attention were opposed to an increase in the maximum rate. Many banks in the District were not paying as high as 3 per cent. He would not be in favor of any increase in the maximum rate at this particular time. If an increase were granted only with respect to time deposits, there seemed likely to be an adverse public reaction. Mr. Fulton--To his knowledge only one bank in the Fourth District had expressed any desire for a change in the maximum rate. If the banks could obtain legislation to keep savings and loan associations from increasing their rates, they would be satisfied to stay where they were. Quite a number of District banks were now paying the maximum rate on savings deposits, and the consensus would be to stay at that rate. If there were any change in the maximum rates, the change the board rather than for specific types of should be across deposits. large majority of the banks in the Third Mr. Bopp--A District would be opposed to any increase in the ceiling. In Pennsylvania, the State Banking Department has authority payable on savings deposits to the maximum rate with regard higher rates than allowed by the and no member bank may pay increase to 3 per cent was made only State authorities. The not appear likely that the discussion, and it did after long rate further. Outside of State would increase the maximum and perhaps one or two other centers, very few Philadelphia now paying the maximum rate. banks were that the by stating the discussion Martin concluded Chairman to the Board. had been helpful respective Presidents comments of the 5, 1959, there dated October from Mr. Riefler With a memorandum Committee a the Open Market members of to the had been transmitted
memorandum prepared by a staff study group under date of Septem ber 28, 1959, setting forth an inventory of areas for possible administrative action growing out of the recent Treasury-Federal Reserve study of the Government securities market. The items listed did not represent study group recommendations. Instead, they repre sented a study group identification of matters that ought to receive policy level attention and decision. Chairman Martin commented that in company with Messrs. Hayes, Riefler, Larkin, and Young, he had discussed the areas for possible administrative action, as reflected by the memorandum, with Treasury representatives last week. He then turned to Mr. Young for comment on the respective items. Mr. Young first discussed the possibility of a joint letter from the Secretary of the Treasury and the Chairman of the Board of Governors to the President of the New York Stock Exchange formally transmitting the final study of "An Organized Exchange or a Dealer Market," together with the joint statement of the Secretary of the Treasury and the Chairman of the Board of Governors reporting the the Government securities market study to the Joint findings of letter would call particularly to the Economic Committee. The the comments in the joint statement attention of Exchange officials and would suggest that the Exchange on the auction market problem subject and of own studies of the pursue further its might wish to securities transactions that it might the facilities for Government provide. and economically appropriately
Mr. Young then explained the reasons why it seemed appro priate to send such a letter to the Stock Exchange and there ensued a discussion based on that explanation. Mr. Treiber said that he interpreted Mr. Young's remarks as meaning that the letter would include a statement that the Federal Reserve could not go along with the conditions which the Exchange had proposed for promoting an auction market; Mr. Young agreed. It was agreed unanimously by the Committee that there would be no objection to such a procedure. Mr. Young then turned to a series of suggestions, as set forth in the staff memorandum, with a view to obtaining more adequate informa tion about the Government securities market. The first suggestion contemplated early initiation by the Treasury of a revised ownership with the object of a more adequate coverage, a survey program of the present "other holder" category, and meaningful breakdown second suggestion contemplated the prompter availability of data. The of statistics collection initiation of a new program formulation and at the request of the Secretary securities dealers from all Government the Federal Open Market of Governors, and Treasury, the Board of the statistics col advised that the would be Committee. Respondents by such public a testing period, followed, after would be lection appropriate by the as might be deemed an aggregate basis release on Reserve System jointly. and the Federal Treasury other suggestions point two at this also mentioned Mr. Young a request to The first contemplated general lines. along the same
nonreporting dealers for historical volume, position, and credit figures for the entire postwar period, the reporting pattern to be consistent with that used by dealers already supplying such information to the New York Reserve Bank Trading Desk on a confi dential basis. The expense of compiling this historical information would be assumed by the System if nonreporting dealers objected to the burden imposed upon them on the grounds of cost. The second suggestion contemplated a request to all dealers by the Secretary of the Treasury, the Board of Governors, and the Federal Open Market Committee for dealer permission to make historical data in aggregate form covering the postwar period available for public information. These items were suggested by the recent interest of the Joint Economic Committee in obtaining such historical data, Mr. Young said, noting that appropriate historical series on the Government securities market should be made available for public information at the System's thus obviating the embarrassment of future requests of initiative, the kind made by the Joint Economic Committee. suggestions relating to historical data, With respect to the with the recent problem of pointed out that in connection Mr. Young Economic Committee one data for the use of the Joint obtaining such was not inclined to G. Lanston & Co., dealer, Aubrey nonreporting the back data the firm of putting of the cost to cooperate because and staff of the general inconvenience form and because in required
time that would be necessary because the records were now in storage. After reference to the apparent desirability of having historical data of this kind available for various purposes, including the use of students, Mr. Young pointed out that the Joint Economic Committee, through its staff, was pressing for an agreement that the System, in setting up the proposed program of statistics, would carry the information back through the postwar period so that market patterns before the Treasury-Federal Reserve accord could be studied along with those after the accord in terms dealer positions. The question, he said, was whether of volume and would like to instruct the staff to go the Open Market Committee records. There was also with this program for gathering forward saw any strong objection to question whether the Committee the G. Lanston & Co. of System of the cost to Aubrey absorption by the statistical series. inclusion in the back figures for obtaining to submit the this firm had declined the basis on which Because of if its cost was could hardly refuse he noted, it back figures, reimbursed. mentioned that it should be commented that Chairman Martin He for reimbursement. about the proposal was not happy the Treasury principle, but of view in with that point that he sympathized added situation. this particular in considerations were unusual that there
Mr. Treiber noted that Mr. Hayes indicated last Friday the view that he would not be inclined to pay such costs, and the Chairman verified this statement, adding that Mr. Hayes went along with the Treasury. Question was raised as to the estimated expense involved, to which Mr. Young replied that he did not know, that it might be quite a job to reconstruct the records, and that the cost possibly might be in the neighborhood of as much as $25,000. Mr. Young then confirmed Chairman Martin's understanding that no commitment had been made to the Lanston firm, although inquiry had been made as to whether the firm would be willing to take a look at the records in storage to ascertain the state of the records and the availability of tally sheets as well as tickets. Mr. Fulton commented that questions relating to System expendi tures had been raised from time to time and that any absorption of cost on behalf of the Lanston firm was likely to become known, to which Chairman Martin replied by saying that the request for the data under discussion had grown out of a special Congressional investigation of a situation in the Government securities market that all hoped would not occur again. Therefore, it seemed desirable that the matter be While nothing of great value might be brought to a conclusion. represented an intricate problem. gained, nevertheless the situation members must know as that the Open Market Committee Also, he felt
much as possible about the Government securities market in order adequately to discharge their responsibilities. With further reference to Mr. Fulton's comments, Mr. Balderston made the observation that the Government securities market is affected by the public interest and that the System, including particularly the Open Market Committee, has a special responsibility toward that market and the public interest in it. It could be argued that the System had been derelict over the years in not accumulating data of the kind now sought. If so, it could be argued that, not having required the Lanston firm to provide such figures heretofore, the System should not now force the firm to bear the cost of a rather extensive piece of research. that the System rarely asks parties to Mr. Leach commented go back and provide figures costing a substantial sum. Therefore, the request made of Lanston & Co. was not comparable to the ordinary System request. turned back to the September 28 memorandum, The discussion then that recommendations be Mr. Young referred to the suggestion and practices for Government security prepared for standard accounting designed to facilitate daily or that a manual be prepared, dealers, of needed current to dealer respondents, at minimum cost reporting, financial and earnings reporting of dealers' statistics and periodic was suggested, might This task, it on a standard basis. positions
be accomplished by representatives of the American Institute of Accountants, chosen for their expertness in security market accounting, and senior accountants from Federal bank examination staffs. The expense of the undertaking might be borne by the Federal Reserve and the manual made available to dealers as a Federal Reserve service in the public interest. It was assumed that preparation of the accounting standards or manual would be carried forward with the close cooperation of the dealers. After Mr. Young outlined the problem involved and the possible means of meeting it, Mr. Robertson said he would agree with the suggestion on the assumption that the dealers would not be excluded from the preparation of the standards or manual. Mr. King suggested that it would seem desirable, as a first step, to write to the dealers and advise them of the problem so as not to and support for the project. Chairman risk losing their cooperation agreed with the validity of this suggestion. Martin and Mr. Young Young then referred to the suggestion in the September Mr. Committee consider the question 28 memorandum that the Open Market for Government securities appropriate assignment of responsibility of and analysis, for example, to the Open market statistics collection of the New York to the Research Department Market Trading Desk, the Board of Governors. Division of or to the Research Reserve Bank, this might require in the memorandum that The thought was expressed
the creation of a small specialized staff free from other statistical and analytical assignments. Mr. Young noted that Mr. Lanston had cited as one reason why he was unwilling to supply information on his trading volume and position to the Desk the possibility that such information might be used by the Desk to trade against him. Mr. Young stated that he did not know whether other dealers had any feeling on this point, that the question was raised in the memorandum without recommendation, and that the matter was mentioned merely for the Committee's consideration. Mr. Deming inquired whether this contemplated the possibility that information collected by the System from the dealers might be kept from the Desk, and Mr. Riefler responded that there was an indica tion that the Lanston firm would furnish current data if they were collected by the Research Department and only aggregate figures were released outside that department. Mr. Treiber commented that it would seem logical that the statistics be collected by the New York Reserve Bank, which is in the market, and on a basis whereby any appropriate group in the System could analyze the statistics and draw conclusions therefrom. They had been helpful in the operation of the Trading Desk in the and it was hard for him to conceive of denying the statistics past, his opinion the Desk could be relied upon to to the Desk. In same sense of responsibility as any other unit within exhibit the the System.
Mr. Larkin said that the data had been helpful in the administration of the System Open Market Account and in the day-to-day operations of the Desk over the years. He had never heard of the conflict of interest alleged by Aubrey G. Lanston & Co. being alleged by other dealers. In a reply to a question as to whether aggregate figures would be helpful to the Desk, Mr. Larkin said that ordinarily, in meeting day to day operational problems, the Desk relied primarily on the aggregate figures, but that in connection with repurchase agreements, the Desk would like to know as much as it now knew about individual firms, particularly their exposure. Mr. Riefler stated that of course the Desk would need the statement of an individual dealer when it extended credit to him on a repurchase agreement, but it would not necessarily need information as to the individual issues held. Chairman Martin expressed the view that the real question involved was a matter of principle. The question was whether the granting largesse against general be in the position of Desk should market, that is, whether the Desk should be in a positions in the do something for one dealer by virtue of the position where it would the market. Mr. Larkin the dealer had in position that it knew on the basis of best transactions were that since the Desk's stated be a charge of conflict to see how there could price, it was difficult
of interest. Chairman Martin went on to say that the Desk must be in as defensible a position as possible against charges by parties outside the System, and in that direction no stone should be left unturned. It was not fair to the Management of the Account to be in a position where charges could be made against it. Mr. Robertson suggested the possibility of putting the statistical collection responsibility on a System basis in order to determine what disadvantage would flow from such an arrangement. Chairman Martin commented favorably regarding this suggestion. He then suggested that the Committee not take a final position at this time but that the staff be authorized to experiment with plans along the lines suggested and bring the matter back to the Open Market Com mittee for further discussion at a later date. discussed a related matter mentioned in the Mr. Young then 28 memorandum which concerned provision for spot investor September from regular statistical informa surveys to supplement intelligence of staff assignment therefor. tion, along with the determination to explore unusual market situations, Such surveys could be employed changes in market behavior emergence of major to test the possible and to ascertain investor out signals of doubt, when other data cast Mr. Young said to forthcoming offerings. with regard preferences should be in the this assignment a question whether that there was be something on that this might or the Treasury, Federal Reserve
which the Committee would not want to express a view today, and that, if desired, the matter could be brought up later. In this connection, Chairman Martin commented that the whole program was something on which the Committee must be working con tinuously and that he solicited the Committee's continuing interest in the development of the program. The problem involved a difficult and time-consuming process and there were many questions in the area of developing adequate data. It was his suggestion that each Com mittee member send any thoughts to Mr. Young and keep in constant touch with the problem because it was one with which the Comittee would have to work for a long time to come. He did not think the Committee could take a vote on each issue but he believed it important for the System to move forward in this field, particularly since questions in this area would undoubtedly arise during the next session of Congress. said it was his understanding that the term Mr. Shepardson experimental basis" meant that Mr. Young and his associates "on an basis and that indications of would go forward on an experimental for collection of statistics assent with the program Committee proceed on that basis. for him to constituted authorization of disagreement with the understanding There was no indication added that the experimental and Mr. Young as stated by Mr. Shepardson, be in cooperation with the Desk. steps would
Mr. Larkin suggested that there would have to be some exploration of this program with the dealers to call to their attention any change in the manner of receiving and processing the figures in question, which currently are supplied to the Federal Reserve Bank of New York strictly on a voluntary and confidential basis. Mr. Young next turned to the section of the September memorandum relating to margin requirements on Government securities. The first suggestion was for the preparation and negotiation of a joint bank supervisory statement relating to minimum margins and other credit standards which banks ought to adhere to in extending credits to others than Government security dealers or banks on Government security collateral, including repurchase arrangements, reverse repurchases, and forward delivery contracts. Supervisory authorities joining in such a statement should include the Board of Governors, the Comptroller of the Currency, the Federal Deposit National Association of Supervisors Corporation, and the Insurance of State Banks. said, it would developed, Mr. Young a statement were If such to find some the staff memorandum, indicated in desirable, as seem for and treasurers, corporation presidents it to way of publicizing Com and Exchange by the Securities through distribution example, to also be desirable It would listed corporations. to all mission
send a letter to the New York Stock Exchange requesting review by the Exchange of its flat 5 per cent margin rule on Government securities, especially the consistency of this rule with margins that might be recommended in the joint supervisory statement, and the Treasury should explore the feasibility of administrative margins on subscriptions to refunding bond offerings as well as those presently applied on new cash offerings. Mr. Young suggested that some member of the Open Market Com mittee might be designated to explore in detail the possible scope of such a joint supervisory statement and the problems in getting it negotiated. Mr. Robertson said he was in sympathy with the idea, but that he would emphasize the use of the word "negotiate." The plan was not without its difficulties, and the supervisory authorities might be somewhat reluctant to announce standards they could not enforce. Mr. Young agreed that this would amount to moral suasion. Adherence could not be enforced but the statement might do some good. stated that he would prefer to leave this Chairman Martin asked whether the Committee would be agreeable item this morning and of the Committee for the purpose the Chair appointing some member to referred to by Mr. Young. procedure was heard. No objection to this the September 28 the suggestion in Mr. Young then mentioned and possible establishment by memorandum relating to consideration
the Open Market Committee of financial statement standards to be required of dealers obtaining repurchase accommodation from the New York Reserve Bank. Standards, the memorandum suggested, should provide for full disclosure of contingent liabilities on repurchase account. The memorandum pointed out that margin standards applicable to bank repurchase arrangements with others than dealers and banks would be covered by the joint supervisory statement referred to earlier. Chairman Martin suggested that the discussion terminate at in the memorandum for since this item and the suggestion this point, Government security dealers would exploration of an organization of the view that the discussion today require some time. He expressed the staff to move forward. sufficient ground for had covered suggestion that the agreement with the Chairman's There was held over for discussion memorandum be items in the staff remaining at another meeting. Open Market of the Federal the next meeting was agreed that It November 4, 1959. 10:00 a.m. on Wednesday, would be held at Committee Secretary
Also: Record of Policy Actions