November 24, 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, November 24, 1959, at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Hayes, Vice Chairman Mr. Allen Mr. Deming Mr. Erickson Mr. Johns Mr. King Mr. Mills Mr. Robertson Mr. Shepardson Mr. Szymczak Messrs. Bopp, Bryan, 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, Economist Messrs. Jones, Mitchell, Parsons, Roosa, Willis, and Young, Associate Economists Mr. Rouse, Manager, System Open Market Account Mr. Molony, Assistant to the Board of Governors Mr. Koch, Associate Adviser, Division of Re search and Statistics, Board of Governors Mr. Keir, Chief, Government Finance Section, Division of Research and Statistics, Board of Governors Mr. Knipe, Consultant to the Chairman, Board of Governors Daane, and Tow, Vice Presi Messrs. Hostetler, dents of the Federal Reserve Bank of Cleveland, Richmond, and Kansas City, respectively Assistant Vice President, Federal Mr. Einzig, Reserve Bank of San Francisco
Mr. Coldwell, Director of Research, Federal Reserve Bank of Dallas Mr. Anderson, Economic Adviser, Federal Reserve Bank of Philadelphia Mr. Holmes, Manager, Securities Department, Federal Reserve Bank of New York Mr. Brandt, Economist, Federal Reserve Bank of Atlanta Upon motion duly made and seconded, and by unanimous vote, the minutes of the meeting of the Federal Open Market Com mittee held on November 4, 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 November 4 through November 18, 1959, and a supplementary report cover ing the period November 19 through November 23, 1959. Copies of both reports have been placed in the files of the Committee. Supplementing the written reports, Mr. Rouse made the follow ing comments on open market operations: Open market operations supplied only a small amount of reserves net to the market on a delivery basis during the period since the last meeting of the Committee. This small figure (about $13 million) would be quite misleading, how ever, as an indicator of Account activity over the past three weeks. During this period, for example, the Account bought $169 million Treasury bills and sold $28.1 million, new repurchase agreements were made and while $234,350,000 or were withdrawn. The $375,700,000 agreements matured heavy volume of repurchase agreements is of course a reflection of the need for reserves early in the period, a reversed by midmonth market factors. development that was The repurchase agreement was well suited for meeting such and it also fitted in with the temporary reserve needs, Now that we are in a Treasury's refinancing operation. pressure on reserves, Account period of growing seasonal more heavily on outright purchases operations will rely of bills.
The Government securities market showed somewhat mixed tendencies since the last meeting of the Committee. Develop ments in the steel situation--and the various interpretations placed on them--have made the market particularly sensitive to short-run supply and demand considerations. The Supreme Court decision on November 7 upholding the legality of the Taft-Hartley injunction resulted in a substantial price decline throughout the Government securities list on November 9 as the market was impressed by the possibility that resump tion of steel production would result in the liquidation of Government securities by corporations and in intensified credit demands on banks which have been under continuous pressure for some time. The psychology was later reversed by the possibility that the steel unions might resume the strike after the 80-day cooling off period has ended. The sensitivity of the market to short-run developments was amply demonstrated on November 16 when a new high issuing rate of 4.332 per cent for 91-day Treasury bills was established in the auction--although bill rates subsequently declined 1/4 per cent. It all added up to a feeling of considerable market uncertainty about the trend of interest rates. In general, the market responded satisfactorily to the Treasury's refunding operation completed early this month at least, to the cash financing and refunding and, initially of savings bonds announced last Thursday. The exchange early this month of $3 billion of maturing notes and certificates and of the 4 per cent notes of 1962 into the 4-7/8 per cent four-year notes represented a successful outcome of the Treasury's effort to extend debt maturity within the range market also took in stride the Treasury the law allows. The billion cash in an auction this afternoon plans to raise $2 as to rates range from 4.75 to of 320-day bills. Guesses in the secondary market the auction, with trading 4.85 in 4.90-4.95. The market has still expected to start at around fully the implications of the exchange not had time to assess offered holders of maturing F into the marketable 4-3/4's no pronounced initial impact on and G bonds, but there was the market for outstanding notes in this maturity range. bonds received a market for corporate and municipal The successful marketing of the American decided lift from the and Telegraph debentures last week. Even though Telephone at 5.22 per cent, was reoffering yield to investors, the there was a good institutional than some had expected, lower investment demand has volume of small response and an unusual the corporate and of the issue on reported. The impact been to that of the bears a striking resemblance municipal market last month. market early securities on the Government 5's
In response to a question by Mr. Allen, Mr. Rouse said it was likely that the Treasury would offer securities at auction late in December, for payment early in January. There was the problem of meting the maturity of $2 billion of bills on January 15, there would be a need for additional cash in the second half of January, and certificates maturing February 15 would have to be refunded. Thereupon, upon motion duly made and seconded, and by unanimous vote, the open market transactions during the period November 4 through Novem ber 23, 1959, were approved, ratified, and confirmed. In supplementation of the staff memorandum distributed under date of November 20, 1959, Mr. Young presented the following state ment with respect to economic developments: With activity in the steel industry resumed after a four-month interruption, output is rebounding and employ ment strengthening. What this may mean in terms of further expansion from prestrike levels remains to be seen. Over-all, the cyclical stage would appear one of reduced pace of further expansion, so that, after the steel strike setback is completed by recovery from next year, a slower rate of increase in aggregate early be encountered. Also, it seems possible output may well stability of money supply and money velocity that the portends that monetary policy has over recent months of real bite as regards inflationary attained a position pressures and psychology. period ahead, more competitive If, in the high-level prospect deriving from markets prevail than in 1956-57--a capacity, our accumulated our strengthened industrial durable goods, and our stock of housing and consumer other farm products--the of livestock and large supplies situation of relative may confront a domestic System and output, though externally equilibrium of prices persist. In these in payments may basic disequilibrium
conditions, the economy's needs and demands for cash balances may expand with further growth in domestic output and money income. The dilemma will be that if the additional cash balances are not provided by the banking system, overly tight money may work to frustrate equilibrium, accentuate competitive price pressures, and hasten the arrival of cyclical climax and decline. If additional cash balances are provided too liberally, on the other hand, they may frustrate competitive price tendencies and intensify international disequilibrium. The difficult problem of a desirable pace for further bank credit and monetary expansion is admittedly a future problem. But the future in which it will become an actual problem is not too far distant. Accordingly, it is important that the Committee begin now to plan such incremental change in the bank reserve base as may be appropriate for a period of advanced and delicately balanced cyclical expansion, accompanied in the typical pattern with various rolling adjustments. With regard to the most recently reported statistical information, the following are the main highlights: (1) Following reactivation of struck mills, steel production had climbed by last week to 80 per cent of capacity and this week may reach a 90 per cent rate. Rise in steel output together with output in steel-related despite continued low production in steel industries, consuming lines, is expected to raise the total index for two points in November. The December production by about index could carry it back to the June high. rise in the goods, which reached a new (2) Output of nondurable in October, with the in September, declined somewhat high accounted for by a moderate decrease in the pro decline duction of textiles and rubber products. durables, apparently output of household (3) October remained below the highs reached because of steel shortage, of such goods continued at last summer, but retail sales advanced rates through October. is currently estimated output for November (4) Auto model change-over level of 240,000 at about the August in the month were down Dealer deliveries early units. high rate of early October, 10 per cent below the about dropped a further dealer stocks with output curtailed, but car sales in Meanwhile, used units to 529,000. 50,000 a rate about 10 per cent higher early November maintained were somewhat softer ago and used car prices than a year 11 per cent above at levels about in the late summer than last year.
(5) Manufacturers' orders for, and sales of, durable goods changed little in October according to preliminary estimates. The September-October level for sales was about 11 per cent under June and for new orders almost 8 per cent less. Altogether, showings in new order trends are con sistent with those of the McGraw-Hill survey of business capital expenditure plans. These indicate a smaller further rise in the fourth quarter than earlier projected and also a smaller rise for 1960 than many forecasters were estimating. (6) For the fourth successive month, the value of new construction has declined, though the October decline was probably associated with structural steel shortages. The October rate was a tenth below the June peak, and the October declines were in both public and private construction. The October level of construction volume, however, was the highest on record and slightly above a year ago. (7) Also declining for several consecutive months, in fact five months, were private nonfarm housing starts. October starts, at 1,180,000 units, were 18 per cent below the spring high, 9 per cent under the starts volume of a year ago, and the smallest number in 15 months. Home mortgage credit conditions, earlier reported as tight, have become still tighter. (8) The usual seasonal decline in unemployment from mid-September to mid-October was more than offset by steel strike layoffs. Since mid-October, unemployment claims have increased quite sharply, so that mid-November unemployment is likely to show a significant rise from mid-October. Auto layoffs and seasonal influences will be main factors in the increase. It is a matter of some interest that the State and local government sector is the only sector in which significant employment gains have been evident in recent months. (9) Personal income in October is estimated at $382 billion, up over $2 billion from August. The rise recovered about one-half of the June-August decline. Wages and salary income changed little from August, so that the increase was concentrated in business and proprietors' income, in interest payments, and in transfer payments. trade in October was up 3 per cent from (10) Retail record volume. The increase was September to the July concentrated at automotive outlets; sales at other stores showed little change. Sales at department stores early this ahead of the October volume. month were running slightly (11) Preliminary data from the latest Quarterly Survey taken in October and conducted of Consumer Buying Intentions,
for the Board on an experimental basis by the Bureau of the Census, show an apparently strong demand for durable goods. The proportion of consumers planning to buy autos or household durables was the highest of the four experi mental surveys so far conducted. (12) Average wholesale prices have continued to show little change. On balance, the average of industrial materials prices probably continues to have an upward tilt. Among basic materials, prices of steel scrap, copper, natural rubber, and some textiles have risen further. On the other hand, prices of hides and leather have declined sharply; lumber and plywood are down, partly seasonally; and the price of copper scrap has fallen some. Wholesale prices of livestock and meat have recently declined about 7 per cent and are about 15 per cent under a year ago. Meat marketings over the past six weeks have been running about one-tenth above a year ago. Europe, activity continues to surge (13) In Western upward. Advance has been especially marked in durable goods output and in construction, but all phases of activity are showing gains. In Canada, economic upswing has apparently been regaining momentum. Mr. Thomas made the following statement with regard to the credit situation: Pressures of credit demands have continued to show little or no further tightening, continuing the lull that developed in October. During the past week or two there has been some firming of bill rates, which may be a reflection of seasonal forces or anticipatory of an expected forthcoming increase in credit demands. With operations in steel so quickly restored to a high level, some upturn in private credit demands may be imminent. This upturn might coincide with usual post-Christmas declines in seasonal borrowing, and thus account for a smaller than usual contraction in the early months of the year. Yields on Treasury bonds have generally been firm at levels below the September peaks. Notwithstanding further increases in the available supply of notes in the 4- to 5-year maturity area, yields on such issues have continued relatively steady, supported by market demands. Yields on State and local government securities
have declined somewhat further. Market reception for the moderate volume of new issues being offered has been favor addition dealers have added to their own able, and in investment portfolios. New issues of corporate securities have also been in moderate volume, even after including the $250 million A.T. & T. issue. Yields on outstanding high-grade corporate bonds have been steady, not showing the declines evident in other sectors of the bond market since September. Comon stock prices have fluctuated within a restricted range since the sharp drop in September--somewhat above the low point reached in that month. Volume of trading has increased. Stock market credit continued to decline in October. Following the increase in bank holdings of Government securities at the time of the Treasury cash financing in the middle week of October, holdings of such securities by banks in leading cities have again been sharply reduced. Holdings of bills have declined sharply and holdings of notes and bonds maturing in one to five years have also declined, notwithstanding new issues of securities within this maturity range. Increases were shown in holdings of issues other than bills maturing within one year. City bank holdings of other securities have also declined. Reductions in investments considerably more than offset less than seasonal-increase in loans, a moderate-probably As a consequence, total loans and investments of city banks have declined by nearly $800 million in the past four weeks. Commercial and industrial loans increased by about $300 million, approximately the same as in the corresponding four weeks last year, but not half as much as in the same weeks of 1955 and 1956. Loans to sales finance companies have continued to show little change, but other nonbank finanial institutions, probably mortgage lenders, increased their borrowings at banks somewhat in the past four weeks. Loans on real estate and consumer loans increased only moderately in the same period. At country banks, total loans and investments continued to increase seasonally during October, in contrast to a decline at city banks. As compared with a year ago, country banks have shown an expansion of 5 per cent, compared with little over 2 per cent at reserve city banks and a decline for New York City banks, Nevertheless, the increases at country banks for October and also for the four months ending in October were smaller than those for the corres ponding periods of other recent years, indicating, perhaps, a less than seasonal increase.
Demand deposits adjusted in October, as in the two previous months, showed less than the usual seasonal in crease and have not risen on balance since March. Turnover of deposits has also been level since April, showing the influence of the moderate decline in over-all economic activity related to the steel strike. U. S. Government deposits, which increased sharply in the middle of October at the time of the Treasury financing, declined for that month as a whole. Time deposits also declined, both at commercial banks and at mutual savings banks, no doubt reflecting withdrawals to purchase Treasury securities. Savings and loan associa tions showed a smaller increase in outstanding shares than in October 1958, reflecting a substantial increase in withdrawals. In the first three weeks of November, demand deposits adjusted declined further, but some decline usually occurs in that period. U. S. Government deposits also declined. Time deposits showed a decrease, as is usual at this season, reflecting shifts of funds from Christmas savings accounts. In view of the smaller than seasonal deposit expansion, bank reserve needs have hardly equalled the usual seasonal amounts in recent weeks. The principal drain on reserves has grown out of the customary autumn currency demand. Diverse gold movements have largely offset each other, with little net change. System operations have supplied reserves on balance, and member bank borrowings have averaged less than $900 million, with net borrowed reserves generally below $500 million. The period of heaviest pre-Christmas reserve drains is now beginning, and approximately $700 million of reserves will need to be supplied in the next three weeks. Probably the most important decision to be made by the Committee in the next month will be whether to adjust opera tions so as to facilitate a renewed growth in bank credit and the money supply--on a seasonally adjusted basis. It lack of growth in recent months has may be reasoned that the the influence of the steel strike in holding down reflected credit and money, rather than the restraint of demands for on bank credit extensions. A member bank borrowing in the period ahead with resumption of credit demands necessitate increased member reserve needs will additional unless reserves are supplied by System bank borrowing, might be directed toward operations. System policy the demands for reserves by supplying them anticipating however, might be operations. Banks, through open market
willing to borrow to meet these needs and System operations might be withheld until the demands appear in pressures on the bill market that seem to be exerting undue restraint. Maintenance of around half a billion dollars of net borrowed reserves might well prove to be the proper amount that would not unduly restrict the desired expansion but would still not promote unsound credit commitments for which demands are likely to arise in coming months. If increased reserve demands that develop are met by System operations so as to maintain such a level of borrowings, then some growth would be permitted. Taking a broad view of System policy relative to the prospective economic situation, rebuilding of steel inven tories, together with credit-financed consumer purchases of automobiles and other durable goods and the prospective growth in business capital expenditures, could inject into the economy a number of unsustainable elements of expansion and pressures for price increases in the months ahead. together with strong demands, will Continued wage increases, prices for finished products. In be a stimulus to higher view of the declining tendency in agricultural prices, the basic raw materials that could potential supplies of other rises in these areas, and the international dampen price continued increases in prices of competitive situation, to serious difficulties in the finished products can lead not be facilitated by future. Such tendencies should too-ready availability of credit. avoidance of a build-up of Sustainable growth and the a serious downturn can that will later bring about forces by the continuation of some probably best be assured the months ahead. Yet on credit expansion during restraint may well be permitted. some expansion of his views with the following statement Mr. Hayes presented outlook and credit policy: respect to the business since the last meeting have Economic developments unexpectedly rapid marked by an been generally favorable, evidence of and by continuing in steel production rebound situation, as sug strength in the business underlying retail sales, and over-all data on production, gested by hand, a balanced On the other investment plans. business will not be available of finished steel flow of all kinds effects of the and some secondary several weeks, for major uncertainty longer. Meanwhile, may last even strike
continues as to when and how the steel and other major labor disputes will ultimately be settled. Fears of a renewed walkout may induce some caution in business and consumer spending, and there is no way yet to gauge the effect of the final settlement on wages and prices generally. Since newly produced steel during the remainder of the year will probably be barely sufficient to cover current and minimum inventory demands of final users, there seems to be no immediate likelihood of a heavy build-up of steel inventories to be superimposed on the seasonal expansion of other inventories. If the steel conflict is settled before expiration of the 80-day injunction period, we may see a sharp upsurge in general economic activity early next year--but there is no clear evidence now that the rise will be excessively vigorous. Results of the October McGraw-Hill survey of business capital spending intentions point to strength in this sector of the economy, although much of the expected increase in actual outlays in 1960 will be due to the postponement to 1960 of expenditures originally planned for 1959. Of course it is quite possible that spending targets will be sub stantially raised once the steel issue is definitely settled. A recent spot survey conducted in our District confirmed the general impression that growing tightness in the mortgage market is exerting an appreciable effect on the volume of residential construction, particularly in the area of large housing developments. Yet, despite some decline, the level of residential construction is still high. data as have become available since the last Such price meeting have been generally reassuring, with no indication that strike-engendered shortages have led to extensive price however, may well exert Booming business abroad, increases. upward pressure on some commodity prices. gradual lull in the growth of bank October witnessed a noticeable of all commercial loans and investments credit, with combined October in at least a smallest gain for any banks showing the in business loans, whereas The slackening was mainly decade. a pronounced upward real estate loans maintained consumer and data are rather inconclusive, November bank credit trend. Early of more substantial to point to a resumption although they seem a gain of only money supply showed growth. The over-all loan months through cent for the twelve to 1-1/2 per 1 per cent have been as a whole the banks last few weeks In the October. money centers. in the especially severe pressure, under October, loan-deposit growth in loan the slackening Despite of New Yorkin and outside levels both record reached ratios of bank liquidity, other measures together with and this,
showed so little leeway as to raise serious questions, at least in New York, concerning the capacity of commercial banks to provide credit (within the framework set by present rates of growth in the money supply) for a major further expansion of business, should that be on the way, I found the comments of Mr. Young and Mr. Thomas interest ing, as they pointed out the difficult dilemmas for monetary policy that we will be encountering soon. The Treasury's financing problems will be by no means over with the completion of today's cash offering. An additional cash offering and a rollover of twelve-month bills are scheduled for the first half of January, followed by a very large refunding in February. In the next few weeks financial markets will be subject to the usual special pressures of the season, including corporate tax and dividend requirements, besides fairly heavy offerings of new corporate and municipal issues. Beyond this there are some fears in the market of diminishing corporate interest in Government securities as business spending gathers momentum. Facing this period of Treasury and seasonal pressures, I think the recent degree of credit restraint is appropriate be neither intensified nor relaxed. The banks' and should reserve position is well under control, so that we are in to move decisively in either direction at some a position if that should appear desirable. It seems to later date in the feel of the market is our best me that stability would imply, in the absence of criterion. This probably that the general level of decisive new developments, change appreciably. It would interest rates would not should have even more than seem to me that the Manager this year-end period of usual degree of leeway in the I see no present need rapid changes and cross-currents. or in discount rates. for a change in the directive cotton crop had come this year's large Johns stated that Mr. crops in recent years. rapidly than the earlier and more to market Government cotton year in the of changes this as the result Also, than 80 per cent produced on more program, the cotton price support outright by Commodity was being purchased of the planted acreage produced by "A" cotton This was the so-called Credit Corporation.
growers who had elected to plant only their allotted acres. Under the present procedure Commodity Credit Corporation was drawing checks on the Treasury and became the outright owner of this sub stantial portion of the crop. As a result the banks had come into funds as their production loans were paid off; in contrast to other years, they did not acquire earning assets in the form of Commodity Credit Corporation certificates of interest. Funds had flowed in large volume to the city correspondent banks, although it seemed not unreasonable to expect that in time the country banks might get around to investing some of the money. For the time being, however, the country banks were quite liquid and the situation at the Memphis banks, at least until recently, was quite different from what one might expect at this season of the year. The cotton owned by Commodity Credit Corporation was being continuously offered for resale at a price less than the support price for "A" cotton, i.e., of parity. While the price was subject to upward 80 per cent knew where the cotton was and at adjustment each month, everyone it could be obtained for months in the future. Thus, what price for cotton merchants to lay in inventories, there was no incentive incentive for cotton mills to lay in and perhaps only a minimum Memphis banks at this time of year inventories. The appearance of and considerable pressure, leading generally is one of great demand volumes of cotton banks large to lay off to correspondent them amounts of window for considerable go to the discount paper and to
funds. This year, until recently, those banks had not been behaving in the customary manner, but there had now been some turnabout in the situation as far as cotton loan demand was concerned. Whereas in the early stages of the harvest, mills and processors were not buying the current crop, they were now buying and in some volume. Whether this was hand-to-mouth buying or buying for inventory purposes was not clear, but in any event the pressure of cotton loan demand on the Memphis banks had turned upward and at least two of them were beginning to look as they used to look at this time of year. The situation as it developed this year represented a new experience for the Reserve Bank and, at least thus far, had rendered considerably the job of administration of the discount window. easier Johns recalled that for a long time Turning to policy, Mr. of setting a reserve target as a means he had taken a rather dim view policy. While he had en the Desk and expressing of instructing point, it occurred to him to avoid laboring the deavored recently a reserve target could at this juncture to maintain that an attempt not really want. Although the Committee did bring about results that he thought it not was far from clear, the short-run future even of steel production, that the resumption to anticipate unreasonable lead to a considerable therewith, might developments associated and circumstances, he credit. In the demand for bank increase in the supplying reserves. cautious about ought to be that the Committee felt reserves or of net borrowed $500 million reserve target--either If a
any other target-was adopted and such a demand came to pass, this might permit a greater expansion of deposits and of the money supply than he would deem appropriate at this time. On the other hand, if loan demand failed to develop, he would not be concerned about some marked easing in reserve positions. This, he thought, probably would indicate a cyclical change that would suggest a revision of the policy of restraint that the Committee had been following, or some modifica tion thereof. Hence, he would be inclined to suggest that for the few weeks ahead, while the drain on reserves accompanying an outflow of currency was present, the Committee might gear its sights to supplying the reserves needed to offset that drain. While he had some question as to whether the System should supply reserves to offset any drain accompanying an outflow of gold, if such an outflow should come to pass, he felt the System should offset seasonal with perhaps some additional reasonable allowance losses of reserves, for growth in the money supply. Because it was his guess that the show a tendency toward expansion, con weeks ahead were going to ceivably at an unsustainable rate, he also felt that the System the reserves to be obtained at the discount should allow a part of through outright injections in the rather than to supply them window be too concerned about He would not of open market operations. form the level of negative free reserves or about any fluctuations in He felt that the resulting therefrom. in the money market changes being he would lean but for the time must be quite flexible, System
in the direction of being careful to maintain no less than the current degree of restraint. If things should develop on the expansionary side, perhaps there should be some slight intensifica tion of restraint. He would not favor a change in the discount rate or the policy directive at this time. Mr. Bryan, who had returned recently from an advisory mission to Peru, said that during the period since he last attended a meeting of the Committee the figures and charts for the Sixth District showed exactly what one would expect. The economic situation had deteriorated rather markedly. Nearly every series was down on a month-to-month basis and down substantially from the 1959 peak. With regard to policy, Mr. Bryan said it seemed to him that the Committee found itself in a peculiarly difficult situation. The of whether the steel strike was outlook seemed quite hazy regardless settled or whether it resumed. In considering policy at the moment, look at the trend of total reserves rather than he had tended to or even the money supply. From the charts negative free reserves seen that total reserves had declined irregularly since it could be the long-run trend line. were now right on spring and that they early of some growth factor in those reserves, Unless there was a resumption development that would the trend line, a fall slowly below they would far. His inclina to proceed very if it were allowed be regrettable care not to overdo with extreme would be to proceed tion, therefore, at this time. the degree of tightness
Mr. Bopp made substantially the following comments with respect to Third District developments and with regard to monetary policy: The rebound in steel production has been much faster than anticipated. Steel mill operations in the Philadelphia region jumped from 12 per cent of capacity when the strike ended to 92 per cent in the latest week--considerably above the 79 per cent rate nationally. The large Fairless plant, which suffered little damage to its furnaces, is reported to be operating at 95 per cent of capacity. About three fourths of the workers idled by the strike in Pennsylvania have been called back to work. All but about 4,000 of the 166,000 steel workers had been called back to work by November 20, and nearly one-third of the non-steel workers idled by the strike have returned to work, most of the returnees being in mining and railroads. It is encouraging that in the week ending November 20 secondary unemployment increased in only three industries--ordnance, paper, and textiles--and the increases in these industries were insignificant. The steel shortage in this area has been most severe in sheets, structural shapes, and more recently in bars. Steel fabricators have made a variety of adjustments to keep operating despite the shortage of steel-shifting to aluminum, readjusting production lines, and turning to foreign sources of supply. It is reported that some companies are making arrangements to import regularly a of their steel requirements in view of certain proportion the recurring strikes in the steel industry. One of our directors, who is president of an oil company, reported that the industry expects the union to open negotiations for a new wage agreement early next year, companies expect to resist strongly a wage and that the increase that would result in higher labor costs. Surplus would make it very difficult to stocks and competition costs along in the form of high pass increased labor product prices. was a slight decrease in District manufacturing There employment from September to October, according to decreases in strike-affected preliminary data. Employment offset by increases in were almost entirely industries was about 1/2 per industries. October employment other claims in ago. New unemployment cent above a year
Pennsylvania were off slightly in the latest week, but changes in the past three weeks have been minor. Changes in department store sales in the past two weeks have been somewhat erratic because sales promotions did not fall in the same week as last year. Sales for the past four weeks were 1 per cent above and for the year to date 4 per cent above a year ago. October sales of automobiles in Philadelphia County were about one-fourth more than September and nearly one-half more than October of last year. Freight car loadings rose sharply with the resumption of steel production. There was little change in total credit of District reporting banks in the three weeks ending November 18. A moderate increase in loans was nearly offset by a reduction in holdings of securities. Business loans, which have declined in most of the weeks since mid-September, were unchanged. The basic reserve position of the large Philadelphia banks was considerably easier during the past three statement weeks. In the next-to-latest week, the banks had a small average basic excess--the Philadelphia since mid-January. Their daily average borrowing first considerably lower, ranging from from the Reserve Bank was District banks were net sellers $8 million to $12 million. three weeks, but the daily of Federal funds in the past the latest week. Total borrow average was quite small in by District member banks dropped ing from the Reserve Bank million in the latest week--2.1 to a daily average of $18 per cent of the System total. the same degree of we should maintain about I believe not only because of the for the next three weeks, restraint but also because it seems appro current Treasury financing situation. In my to the business and financial priate strive to maintain of the Account should opinion the Manager reflected by the tone of pressure, as about the same degree as market rates are at of the market. As long and feel favor meeting seasonal levels, I would approximately current operations. I do through open market reserve needs mainly rate or in the directive. change in the discount not favor a to be situation continued that the steel Fulton reported Mr. The steel Fourth District. in the principal interest subject of the referring the offer which contemplated had made another companies later and and report for review to a committee problems work-rule
also improved the economic package. However, the unions rejected this offer and thus far had made no move to compromise the original demand, which was a package of 45 cents per hour spread over a three-year period. The attitude of the steel workers was reported to be cooperative. While the union had instructed them not to work overtime or to accept benefits offered by the steel companies, the workers were said to be working overtime and accepting the benefits offered. One steel mill claimed that the workers would vote to accept the package offered by the industry, and the companies were attempting to explain that the work-rule requirements proposed by the companies would not result in laying off any of the senior workers or in disturbing the relationships of the workers with the mills. The companies looked for no settlement before the end of the period within be taken. However, pressure would now be on the which a vote must and the companies, and it was generally expected union leadership arranged. In aluminum, the industry that some settlement would be which had already signed an appeared vulnerable because Kaiser, about 27 per cent of the steel workers, controls agreement with The copper industry had just capacity of the aluminum industry. the at first to be a very agreement containing what appeared signed an that the however, it appeared On further analysis, large package. workers and were up with the steel were just catching copper workers preferential benefits. not obtaining
Mr. Fulton said that the start-up of Fourth District steel production had been faster than expected and that production was expected to be up to about 90 per cent of capacity this week. There had been no further large shutdowns because of steel shortages, but it would take some time to obtain certain types of steel. Chrysler was laying off additional people, General Motors was flat, and Ford was putting back some workers in parts manufacturing. It was reported that General Motors would not be able to make deliveries of new cars to dealers until late December. The steel mills were being selective and were shipping first to those customers who were in bad shape; it appeared that no steel was likely to be shipped for inventory rebuild ing until the first quarter of 1960. Outbound freight shipments last week were the highest during the past four-month period and inbound shipments were the second highest during those four months. Electric power output had moved up sharply. Mr. Fulton reported that unemployment in the district still secondary unemployment. The presented a problem, with considerable Youngstown and Pittsburgh areas was particularly situation in the sales continued good, with the bad. However, department store year. Member bank loans 6 per cent ahead of last cumulative figure and the banks had come the past two weeks increased slightly during borrowings had heavily. While somewhat more discount window to the System total, in the past 5 or 6 per cent of the been running around around 10 per cent. week they ran
As to policy, Mr. Fulton said that in the present circum stances he would maintain approximately the same degree of pressure as had been maintained during the past few weeks, giving the Manager of the Account adequate latitude. He would not favor changing the discount rate or the directive at this time. Mr. King also expressed the view that there should be no change in the directive or the discount rate. He felt that this was a time when the Desk must have more leeway than usual in responding to the feel of the market and in supplying seasonal demands. Of prime importance, as he saw it, was the supplying of enough reserves to permit the proper amount of growth and development to continue, even though this might run the risk of some possible price increases. In this connection, he suggested that it was primarily the responsi industry to fight off wage and price increases. He was bility of report that one of his directors, who encouraged to hear Mr. Bopp's company, was prepared to resist wage increases is president of an oil System should attempt to in higher costs. If the that would result levels alone, he felt that it would be base its policy on price that he would favor wrong direction. He repeated proceeding in the usual during what he sensed leeway to the Desk than giving greater difficult and uncertain period. would be a if management was said it was encouraging Mr. Shepardson On the other hand, each resistance to wage demands. providing more
settlement that had been made seemed to contain some wage increases. Looking ahead, he felt that the most likely prospect was an upturn in activity as steel got rolling. It seemed to him that although industry had a responsibility to face up to, that did not relieve the System of responsibility for exercising such influence as it could in trying to maintain stability of prices and a psychological atmosphere that would tend toward better adjustment of the foreign trade situa tion. Therefore, while he would not favor increasing the degree of restraint currently being maintained, it seemed to him that the System must be continually alert to the major threat, although recognizing the possibility of a turn in the other direction. As he said at the November 4 Committee meeting, his observations had led him to conclude that it is always easier to relax than to take a tighter hold. At present he would not favor any easing. He would provide the necessary reserves for seasonal needs, but he would try to continue the existing degree of restraint, at least until the situation became more clear than it was at the moment. Mr. Robertson said he felt sure that Mr. Shepardson was right. Although there was the possibility of a downturn, he did not believe be the direction. The probability was that in the that that would going to be price changes that not too distant future there were that monetary policy could not do any would make one squirm and say thing about them. Consequently, although some segments of the economy, position than other were in a less favorable such as agriculture,
parts of the economy and were under pressure at the moment, he would consider it unwise not to maintain the degree of restraint that had been built up. In one respect he would go a little beyond Mr. Shepardson. He was in accord with the view that for the next three weeks some of the demand for reserves ought to be provided through the discount window rather than through open market operations. The discount facility was designed as an automatic safety valve and the present appears to be the kind of situation where the discount window could be utilized effectively. In summary, Mr. Robertson said that he would try to maintain the same degree of restraint as maintained up to this point, and that the trends carefully. He would not favor a change in he would watch the discount rate or the directive at this time. that the Board's research staff had just Mr. Mills commented and financial developments in two memoranda, one on economic issued and the other on banking and monetary the United States and abroad of those documents in in October. Careful analysis developments of the economic situation with Mr. Young's evaluation conjunction the Committee even more strongly and prospects led him to caution of tightness in maintaining a degree earlier months about than in development and adverse to economic that would be the money market that the banking particularly significant stability. It seemed expansion of credit, the normal seasonal system had not experienced in the earlier could be found a good reason and in his opinion
impact of a System policy of credit restraint and the shrinkage that had taken place in the money supply. The shrinkage, if he understood Mr. Bryan's reasoning correctly, would suggest that the System should be forewarned about permitting a further development in that direction. Mr. Mills said that the Committee had before it a useful demonstration of the effects of System policy and a reminder of what it had been told by studies in economic journals and observa tions of the System's own research experts. From the statement week ended September 23 through the statement week ended November 18, the level of negative free reserves had dropped measurably below $500 million. At the same time, the rate for Federal funds had held at 4 per cent and there had been a distinct tightness in the money market. Along with the drop in the level of negative free reserves was the companion development of a tendency for the level of dis counts at the Federal Reserve Banks to drop. That tended to bring into outline the fact that it is customary for member banks, as come into their possession, to take the first additional reserves discounts. As they reduce their dis step toward reducing their from the market. The result had counts, reserves are withdrawn of a lower level of net tightness in the face been a continuing It seemed to him that it would be entirely borrowed reserves. and bring down the on this development appropriate to capitalize
level of net borrowed reserves to a somewhat lower level, with the anticipation that in doing so there would not have been a relaxation of credit restraint to any degree that could be alarming to the most serious advocates of extreme pressure and credit restrictiveness. At the same time, the result would be to bring the System to a neutral position where the availability of credit would be poised. The supply of negative free reserves would be at a point where the System could move promptly either in the direction of greater ease or, improbably, in the direction of further tightness without having sacrificed any strength of position. Mr. Mills expressed the view that to move in the way he had in that the availability of credit placed at suggested was essential banking system had now been brought the disposal of the commercial restricted in making their the commercial banks were to a point where and stability. He said that creditwise to growth normal contribution as he had Committee's consideration, offer again for the he wished to the wording of the directive meeting, a change in at the November 4 sustainable economic read "to fostering clause (b) would so that guarding against while opportunities employment and expanding growth credit expansion." inflationary as follows: were substantially by Mr. Leach comments made The District in major Fifth activity in levels of High strength in evidence of New are continuing. dustries fairly persuasive. but is incomplete industries specific
The District furniture industry is in its strongest position in recent years, with activity running from 15 to 20 per cent higher than a year ago and production sold through February and in some instances well into March. In textiles, cotton cloth output is booked almost solidly through the second quarter of 1960, while synthetics are booking into the second quarter. Production should reach even higher levels in the near future as bottlenecks are eliminated. Sales and profits in cigarette manufacturing, our most stable industry, continue high. Coal production was up slightly last month and gives indication of a strong pickup with the resumption of steel production. Farmers in the District, on the other hand, are con tinuing to experience declines in income. Cash receipts from marketings during the first nine months of 1959 were 5 per cent below the same period of 1958, a somewhat greater decline than for the country as a whole. Furthermore, frequent rains in the Carolinas and Virginia during the fall delayed harvesting and reduced production of nearly all crops. Since resolving doubts on the side of ease, which was introduced into the consensus at the September 22 meeting, represented the System's only policy adaptation to the lull in economic activity related to the steel strike, I think those words have a little more meaning for the record than might normally apply. With the strike over, at least temporarily, and economic activity increasing, this would appear to be a logical time to delete these words from the consensus, where they have been, I take it, since the September 22 meeting. Aside from the other uncertainties discussed, the current Treasury financing obviously calls for continuing substantially the same degree of pressure until the next meeting of the Committee, with no change in the discount rate and no change in the directive. It would seem to me that the next meeting would be the time changing the directive, if there is a desire to consider to change it, because there will be a lull between Treasury financings. In the meantime, I would favor maintaining degree of pressure, but I would like substantially the same resolving of doubts on the side of ease from to remove the the consensus. that the steel strike had left no signs of Mr. Leedy reported District economy. Severe weather deterioration in the Tenth marked
since the November 4 meeting had hampered some of the late harvesting of crops, particularly in sugar beet areas. However, winter wheat was in good condition. Insured unemployment continued to be below the national level in each of the States of the district. There had been a slackening in commercial and industrial loans since midyear, although there was a substantial increase in nonguaranteed agricultural loans to an all-time high. Mr. Leedy then commented on a situation in Oklahoma relating to the tax assessment date at the end of November. He explained that the large oil and other companies withdraw sizable balances from Tulsa and Oklahoma City banks, and that those banks have worked out over the years arrangements with their correspondents in other areas to build up balances with them to offset the loss of funds. In anticipation the Oklahoma banks build up large balances in advance with of that, average, it would appear that they the banks accommodating them. On 25 per cent of the volume of with correspondent banks about maintain Reserve Bank. At the present balances with the Federal their reserve roughly 30 per cent in they were maintaining balances time, however, Bank. The whole thing, of their balances with the Reserve excess of the month but it tended after the end of would be washed out course, banking statistics as far as district a distorted picture to give were concerned. it seemed to him that the to policy, Mr. Leedy said Turning respond to needs but should anticipate seasonal should not System
them as they might arise. In his view, the System should neither reduce nor increase the pressure on reserves; instead, he would maintain the pressure at about the same level as maintained in recent weeks. He subscribed to the view that the Account Manage ment should be given considerable leeway and that among the things it should take into account were both the level of net borrowed reserves and short-term interest rates. He would make no change in the directive or in the discount rate. Mr. Allen made the following statement with respect to Seventh District developments and with regard to monetary and credit policy: Since the last meeting our Bank has participated in four of what can be termed business outlook conferences, two in Washington and two in the Seventh District. The opinions expressed were almost unanimous in pointing to a vigorous upturn during the first half of 1960. Few believed that a turn in the trend of business could come until the latter part of the year and some contended that the entire year would see rising activity. Steel production has increased more rapidly than anticipated. The estimates which I quoted here, that output would reach 32 per cent of capacity the first week and 7 per cent the second week, appeared optimistic to some, but actually the rate reached 46 per cent the first per cent the second week. Our sources week and probably 79 of information expect the industry to produce and ship 20 steel during the 80-day injunction million tons of finished consumers to use up a like amount, period, but they expect Assuming that the strike no net addition to inventory. with ingot production in 1960 of 130 is not resumed, they expect 117 million tons in record 1955. million tons compared with will be sufficient to achieve They say that ore supplies steel are expected Shipments of finished that projection. to 85 million in 1955. to total 94 million tons compared a 9 million addition to inventory That estimate projects in the second one million addition half and a in the first of 84 million tons would mean consumption half, which during the year.
The most important impact of the steel strike, current or prospective, has been on the auto industry. But here too production apparently will pick up more rapidly than was expected. Our Detroit friends say that by the third week in December the steel and parts pipelines will be full and the assembly plans really rolling. They project November pro duction of 250,000 cars, December 450,000, and 600,000 700,000 each for January, February, and March. Achievement of that projection will mean overtime operations starting in mid-December. A large national retailer of general merchandise tells us that sales were excellent through mid-November, despite the fact that some stores in steel-producing centers were off 50 per cent from last year. This firm now expects sales in the first half of 1960 to exceed the record sales of the first half of 1959 by 8 to 9 per cent. They expect prices of the merchandise they sell to move up about one per cent. Commercial and industrial loans of our weekly reporting member banks have declined for five consecutive weeks, un doubtedly an effect of the steel strike and contrary to the rise in business loans shown by all reporting banks in the country. Thus, although other earning assets of Seventh District reporting banks moved upward somewhat--mortgage loans, consumer loans, Government security holdings, and loans on securities--reserve pressures on most of our central reserve and reserve city banks have moderated in recent weeks. In addition to the slack in business loans, these banks have gained some demand deposits. Time deposits have shown little change, in contrast to the decline at all weekly reporting banks. The basic deficit position of Chicago central reserve city banks is heavily concentrated at one bank. Two large Chicago banks have sold Federal funds in unusually large the past two weeks. Outside Chicago we have amounts during few reserve city borrowers, but both the amount relatively borrowing and the number of country borrowers of country bank sharply in early November. Adverse weather has delayed rose some crops and the amount of credit tied harvest and sale of continues to increase, especially in up in feeder cattle Iowa. given thought to weeks, as I have During the past three occasion felt that perhaps we should our policy, I have on the level of business And if I thought that ease up a bit. particular moment would which we have at this activity I would favor less without change, then continue for a time set forth in light of the prospects But in the restraint.
the Board staff's review, supported by what others here and I myself have reported, I am unable to recommend a move toward ease. Rather, I favor continuance as nearly as possible of the degree of retraint which has existed during the past three weeks, and I see no need to suggest to the Desk that errors, if any, be resolved on one side or the other. I would ask that they try to keep things as they are. I would not change the discount rate or the directive. Mr. Deming said that for the past several months various economic indicators had been signalling a lag in the rate of growth in the Ninth District compared with that of the United States as a whole. This divergence in trend appeared to have broadened somewhat further in recent weeks as the cumulative effects of the summer drought and strikes became more pronounced. For example, the rate of increase from year-earlier trends in bank debits and department store sales had slowed down to a greater extent than for the nation. District bank deposits, which earlier in the year were exhibiting faster growth than in the United States as a whole, now were lagging the nation. Nevertheless, bank debits, retail sales, and bank deposits, and, for that matter, almost all other economic indicators continued to show modest advances from a year earlier. The most was cash farm income which, in the third quarter, notable exception quarter of 1958 compared with a off 17 per cent from the third was as a whole. Farm income is, of only 7 per cent for the nation drop important factor in the Ninth District. of course, an country bank figures in said that changes in Mr. Deming For the first with the usual pattern. contrasted sharply October
time since monthly reports were initiated twelve years ago, country bank loans did not rise, and the deposit rise was the second smallest over this period of time. On the other hand, city banks exhibiting contraseasonal changes showed them in the opposite direction from country banks. Ordinarily their loans would be falling but they showed practically no change. Mr. Deming then turned to an analysis of the iron ore situa tion. He said that in the postwar period, excluding recession years, ore shipments had ranged from 75 to 95 million tons. Last year shipments were 51 million tons, and this year they totaled 34.5 million tons up to the time of the steel strike. How much it would be possible to get out during the period before the lakes closed was of conjecture, but the record for November was 9 mil still a matter For December, the record was 1.5 million tons in lion tons in 1952. to be as much as could tons would look Therefore, 11 million under the most favorable for November and December be expected and the outside limit to shipments this year would appear conditions, the weather and slowness in be about 7 million tons. Considering to be closer to 4 million tons. As to loading ships, the outlook might season was 4.3 million tons, the record for an entire rail shipments, more than this amount. cars to haul much there were not enough and somewhere around possibility that out with the seemed to come One the poststrike period. might be shipped during 8 to 10 million tons
Added to the 34.5 million tons shipped up to the time of the strike, this would mean a total of 42 to 45 million tons as against a low of 75 million tons for normal years. Taking into account foreign imports and the use of steel scrap, this might not add up to an ore shortage. On the other hand, the steel producers could run into some difficulty before the mines opened up in the spring. Mr. Deming expressed the view that Mr. Mills' suggested amend ment of the policy directive perhaps came closer to stating what the Committee was doing at the present time than did the existing direc tive. However, he was not prepared to support the proposed change at this point because he was not prepared at this moment to mark a change in policy. While he would not want to eliminate the idea of having doubts resolved on the side of ease, he would like to be prepared to move in either direction as developments occurred. The betting seemed to be about even as to the direction in which the Committee would want to move after the low visibility cleared up. Like Mr. Bryan, he was concerned about the lack of money supply growth; this and various other factors made him unwilling to increase the degree of restraint. In summary, while he would give the Account Manager a great deal of leeway, he would not increase the level of restraint and he would continue to resolve doubts on the side of ease. Mr. Mangels reported that Twelfth District economic activity continued at a good level. October employment figures showed a slight
decline in employment and a slight increase in unemployment, due primarily to the continued layoff of aircraft workers. In the State of Washington alone the number of persons employed at aircraft firms was 14,000 below the level at the first of January. However, there were encouraging factors. The Boeing plant had been awarded the prime contract for a manned satellite unit and also was offering jet airfreighters for delivery in 1961 which would carry 100 tons of cargo at 3 cents per ton mile and would carry a 50-ton cargo nonstop across the United States in 5 hours. Boeing hoped to obtain a backlog of orders for the airfreighter. As to the steel situation, it appeared that for the week ending last Saturday production was at capacity although Kaiser, the company with a two-week 80 per cent of Lumber output in October and early start, was still at 71 per cent. at about the September level. However, plywood November continued prices at $64 were as low as the lowest level reached in 1958, a break-even point for the mills. was getting close to the figure that farm cash receipts were period through September, For the nine-month and cattle on feed comparable 1958 period, .5 per cent of the within cent higher than a year October were about 30 per as of the first of the Commodity Credit crop of wheat and has been a large ago. There bushels under its about 75 million at Portland reported Corporation because of 1957 and 1958, the amount in almost double ownership, it had been problem of contamination, Due to the reduced outlets. cranberries in pounds of some 3 million to destroy necessary
Washington and Oregon. The Alaska salmon pack in 1959 totaled million cases, the lowest since 1900. Construction contracts con tinued to decline in September, primarily because of a 16 per cent drop in residential construction. While this was attributed mostly to the tightness of the mortgage market, there also seemed to be a weakening of demand, particularly for the multi-unit type of con struction. Department store sales continued somewhat higher than a year ago, with the gain better in the Twelfth District than for the nation as a whole. Turning to the banking picture, Mr. Mangels said that bank loans were up $175 million in the three-week period ended November 11. There was some increase in demand deposits but time deposits were down $115 million, due primarily to the distribution of Christmas District banks were net buyers of Federal funds savings club checks. last week, and this week purchases were expected to be twice the at the Reserve Bank was quite nominal. amount of sales. Borrowing expected many holders of Series F and G bonds to exchange Bankers was expressed that an per cent notes; some concern into the 4-3/4 would have a bad effect amount of notes outstanding increase in the and perhaps cause some weakness. on the market the policy views that he agreed with Mr. Mangels said period, he felt During the forthcoming by Mr. Hayes. expressed
that the Manager should be given considerable leeway. He would not favor any particular change in policy, but he would be liberal in supplying funds for seasonal needs. In the past three weeks net borrowed reserves had averaged some $20 - $25 million less than in the preceding three-week period, but he sensed that the degree of tightness in the market had intensified. On only two days did the Open Market Account buy outright, although the volume of repurchase agreements was substantial. The effect of System operations would be greater if the System was buying outright, Mr. Mangels believed, than if it made repurchase agreements. He would not change the discount rate, and for the moment he felt that the directive should continue in its present form. Mr. Irons said that the situation in the Eleventh District had not shown much change in the past three or four weeks, in fact for a longer period than that. Apparently the steel strike had little, if any, real effect in the district. There had been some seasonal improvement; for example, in employment, unemployment, department store trade, and crude oil production and refining. There would be a 10-day allowable in December, the first break from nine days for several months. He got the impression from contacts with people in the oil industry that the attitude was somewhat changed. They reconciled to, if not satisfied with, allowables in appeared to be the range of nine to eleven days, whereas two or three years ago
oil men figured that par for the course was somewhere between and 17 days. Construction contracts were drifting downward, while agricultural conditions were favorable. The cotton crop was large and wheat was in good condition, although the district had been experiencing the unseasonable weather mentioned by Mr. Leedy. On the banking side, Mr. Irons said there had been a slight improvement in bank loans over the past three weeks, possible reflect ing some seasonal lending. In general, however, loans had not changed the past few months. Bank investments were down. It too much over get a picture for the district as a whole concerning the was hard to and the situation almost had to be liquidity position of the banks, The real liquidity squeeze was at the Dallas presented by cities. While those banks had not position was quite tight. banks; their window, they were using heavily at the discount been borrowing funds in substantial amounts. Federal the picture for the district a whole, Mr. Irons said, As activity. Although at high levels of economic was one of steadiness come out of the steel as to what might there was some uncertainty as to the business in general confidence in the long run, strike budget should go through, If a tight defense outlook prevailed. impact on the to the in relation be some difficulties there might depend on does not the district but fortunately aircraft industry, that industry.
Mr. Irons said he subscribed to Mr. Hayes' views with regard to policy. He would give considerable leeway to the Manager of the Account and would try to maintain the same degree of pressure on reserves that had been maintained over the past three weeks, meeting part of the seasonal requirements by means of open market operations. The effect would be some increase in discounting as the banks moved in to the seasonal period. He would make no change at this time in the discount rate or in the directive. Mr. Erickson said that the New England manufacturing index for September remained at the same level as in August, one per cent below the June high. Engineering News Record reported that engineering type contracts were up 2 per cent in October from the same month last year. In the four weeks ended November 14, department store sales were 4 per cent over a year ago, thus continuing to be less impressive than the national figures which showed an increase of 6 per cent. The October survey of mutual savings banks showed that deposits were down from September, which represented the first month-to-month decrease since October 1957. Deposits were 5.3 per cent ahead of October last year, whereas the year-to-year comparison had previously been showing increases close to 6 per cent. No doubt the "magic 5's' factor contributing to the situation in October. There were a large of the discount window and district banks had been only moderate use were substantial sellers of Federal funds.
Mr. Erickson said he would favor no change in the discount rate or in the directive at this time. For reasons enumerated pre viously at this meeting, he would favor giving the Manager of the Account broad latitude in order to maintain the same degree of restraint as during the past three weeks. Mr. Szymczak said he agreed with those who had expressed concurrence in the views stated by Mr. Hayes. He felt that at some point the System might have to supply more reserves than it had been supplying, but at present he did not know where that point would be. As suggested by Messrs. Bryan, Mills, and Deming, the System might have to add to the reserves of the banking system and it should get in position to do so if necessary. In view of the Treasury financing, he would avoid changing anything at the present might come when the System would have to do time, but the time he noted that the early part of a something. In this connection, generally tends to be rather dull as far as economic new year activity is concerned. some of the apprehension that Chairman Martin said he shared and the relationship of about the money supply had been expressed was the time to correct did not believe this to growth, but he credit should be alive. to which the System was, however, something it. It the consensus of this then said that clearly The Chairman with maximum flexibility the status quo, favored maintaining meeting the status to maintain of the Account of the Manager in the hands
quo. He doubted whether the Committee could do anything much different than that. As he understood it, Chairman Martin said, the majority of the Committee favored no change in the discount rate or in the policy directive at this time. Mr. Mills, he noted, had suggested a change in the directive and presumably would want to have this suggestion recorded in the minutes along with his vote on the directive. Mr. Mills replied in the affirmative. The Chairman then inquired whether there were any other comments and, none being heard, he said that the directive would be approved in its present form with the record showing Mr. Mills' dissent, Thereupon, upon motion duly made and seconded, the Committee voted, with Mr. Mills voting "no", to direct the Federal Reserve Bank of New York until otherwise directed by the Committee: (1) To make such purchases, sales, or exchanges (including 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 employ opportunities, and (c) to the practical administration ment
of the Account; provided that the aggregate amount of securities held in the System Account (including com mitments for the purchase or sale of securities for the Account) at the close of this date, other than special short-term certificates of indebtedness pur chased from time to time for the temporary accommodation of the Treasury, shall not be increased or decreased by more than $1 billion; (2) To purchase direct from the Treasury for the account of the Federal Reserve Bank of New York (with discretion, in cases where it seems desirable, to issue participations to one or more Federal Reserve Banks) such amounts of special short-term certificates of indebted ness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed in the aggregate $500 million. Martin then referred to the next item on the agenda Chairman contemplated further discussion of procedure for this meeting, which with the collection of statistics from Government in connection this item be tabled. If dealers. He suggested that securities Mr. Young would be willing to to the Committee, he said, agreeable something that could be and try to work out undertake to go forward next meeting of the at the in the form of a recommendation presented Committee. to this suggestion. was indicated No objection Federal Open Market meeting of the that the next It was agreed at 10 a.m. 15, 1959, Tuesday, December be held on Committee would to Mr. after listening to him, it occurred Hayes said Mr. of open market up a problem comments pointed that the latter's Johns, in effect, Johns had suggested, it, Mr. As he understood techniques.
that policy be allowed to develop within the three-week period, depending on how credit demand might develop. He (Mr. Hayes) had sympathy with this aim, but the problem was one of how to accomplish it within a three-week period. It seemed to imply a greater ability than the Desk now possessed to measure what was happening to the credit supply and in credit demands within such a short period. The Account Manager had to rely largely on such things as the feel of the market, interest rates, and discount window activity as rough indicators of what was happening to credit demand in any three-week period. The question raised by Mr. Johns presented a challenge but at this juncture he found it somewhat frustrating. The meeting then adjourned. Secretary's Note: Immediately following this meet ing, Chairman Martin called a meeting of the members of the Board and the Presidents who had attended the Open Market meeting at which Messrs. Riefler, Sherman, and Rouse also were present. He referred to consideration that the Board had been giving to the possibility of implementing the legislation passed during 1959 relating to member bank reserve requirements, by means of per mitting the counting of a portion of vault cash as part of required reserves. Chairman Martin emphasized that the Board had not acted on this question and that he did not know whether the Board would decide that such action should be taken in the near future. He inquired, however, as to any comments the Presidents might have, whether any of them envisaged a disturb specifically, ing impact in the money market that would accentuate the open market operations if some such move difficulty of year end. A number of the were made prior to the that they would favor some move Presidents indicated small part of vault cash to be toward permitting a
counted as required reserves, while one or two others commented that, on balance, they would concur in such a move, but without enthusiasm. Chairman Martin re iterated that no decision had been made in this con nection and that he did not know what, if any, action the Board would take. Secretary
Also: Record of Policy Actions