July 26, 1960 FOMC Minutes

FOMC minutes

central reserve and reserve city banks, and this was complicated by the fact that at the moment, at least, the greater pressure appeared to be in the reserve city and country bank sector. If it was simply a matter of trying to supply reserves to the economy, one would look there first. The problem, the Chairman said, was not easy to handle on a piece meal basis. A schedule of actions over a period of time would be desirable, and the Board had spent some time on this, but the problem was not easy. The Board had not come up with anything as yet that it would want to try to sell. A general impression outside the System seemed to be that this was something that could be turned on and off like a faucet, but it was not that simple a problem. The Board must continue to wrestle with it, and he did not know whether it would be possible to work out a package operation. Chairman Martin said he did not think he would want to change the that was something for the Committee directive at this meeting, although to continue trend in the As he saw it, the Committee ought to consider. direction in which it had been moving. Its posture ought to be clear, and present situation continued, the the first opportunity, assuming the at That would be several weeks away, System should lower the discount rate. and he did not think greater in the interim, visibility might become the of fact, he did not done now. As a matter should be anything precipitate standpoint. The earliest be feasible from a practical think action would the Treasury announced would be when be Thursday, which date would possible

its financing, and action would not be appropriate at that particular juncture. The payment date would be August 15, he noted, and there would be a meeting of the Open Market Committee the following day. These were dangerous things to talk about in a large group, but at the August 16 meeting there would be an opportunity to consider whether a move on the discount rate would seem desirable. In the meantime, the Chairman said, it was his view that the System should be supplying reserves at every opportunity. Certainly, the odds were in favor of trending toward ease. There was nothing to lose, and the trend could be reversed quickly. If there should be a big upswing in the fall, the problem could be met when it came. The Chairman said that he felt the Committee was remarkably unanimous in its thinking this morning. He then referred again to the matter of the directive and asked Mr. Balderston whether the latter had any further comments. Mr. Balderston said he now thought that perhaps the next meeting an appropriate time to change the directive. He did not believe would be that switching from net borrowed reserves of $200 million to free reserves represented a moderate increase. However, he was sensitive of $200 million to the fact that this was a week of Treasury financing. Chairman Martin commented that this was one of the things in his a reason for continuing the present directive. mind as he had now concluded that a Balderston then repeated that Mr. might be more appropriate. at the next meeting change in the directive

Accordingly, the Chairman stated that if there was no objection the directive would be renewed without change. He went on to say that it seemed difficult to provide much more guidance for the Desk on the volume of reserves than was available from the go-around at this meeting. He then inquired whether there were other comments regarding the discussion, and no disposition toward further discussion was indicated. Thereupon, upon motion duly made and seconded, the Committee 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 (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 securi ties, by direct exchange with the Treasury, as may be necessary in the light of current and prospective economic conditions and the general credit situation of the country, with a view (a) to relating the supply of funds in the market to the needs of commerce and business, (b) to fostering sustainable growth in employment by providing reserves needed economic activity and expansion, and (c) to the practical for moderate bank credit administration of the Account; provided that the aggregate held in the System Account (including amount of securities or sale of securities for the commitments for the purchase of this date, other than special short Account) at the close purchased from time to time term certificates of indebtedness Treasury, shall not be accommodation of the for the temporary or decreased by more than $1 billion. increased from the Treasury for the account (2) To purchase direct York (with discretion, in the Federal Reserve Bank of New of participations to one it seems desirable, to issue cases where such amounts of special short or more Federal Reserve Banks) as may be necessary from time term certificates of indebtedness for the temporary accommodation of the Treasury; to time held at amount of such certificates that the total provided Banks shall not exceed by the Federal Reserve any one time in the aggregate $500 million.

It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, August 16, 1960, and that the succeeding meeting would be scheduled for Tuesday, September 13, 1960. The meeting then adjourned. Assistant Secretary