October 25, 1960 FOMC Minutes

FOMC minutes

and time deposits. As he saw it, there was not a lack of credit but a lack of demand, and the availability of more credit would not help that situation at the moment. Mr. Mills said he believed instinctively that a forcing of reserves into the market under present conditions would amount to pushing on a string as far as providing any real stimulus to growth in the money supply was concerned. The real stimulus would come only on those occasions when the Treasury borrowed new cash through tax and loan accounts. When supported by reserves, the deposits created in that way would remain in the banks in the absence of pressure that would force the sale of securities by the banks. Chairman Martin then said that he thought the Committee was in substantial agreement on the policy to be followed. It was not in full agreement on the techniques to be used, but he believed the general course to be followed could be stated quite clearly in the record in a manner that would be acceptable to everyone. Mr. Rouse said he would interpret the discussion as meaning that should be free reserves at all times. there this was correct, and there was no indica The Chairman replied that tion of views to the contrary. said he also interpreted the discussion as meaning that Mr. Rouse the Committee would have no specific target was being suggested, although $300 to $500 million of free reserves. in mind somewhere from view of the volume of open market Mr. Rouse then suggested that in next four weeks, the Committee might operations that was indicated for the

want to consider changing the portion of the first paragraph of the directive which provides 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 the date of the Committee meeting in question, 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. Chairman Martin suggested that the figure be changed from $1 billion to $1.5 billion, and no objection was indicated. Mr. Rouse then referred to the discussion about dealing in securi bills, and to the references that had been made to securi ties other than longer than 15 months. In terms of a general ties having a maturity not he felt that two years was better than definition of short-term securities, satisfactory for credit 15-month limitation is generally 15 months. The only to repurchase agreements. but in the past has been applied purposes, out as two years would permit commented that to go as far Mr. Mills two-year maturity range. if they fell within a in Treasury bonds operations and he thought it had not operated in bonds, By and large, the Committee to bills and to confine operations the sense of the Committee had been and bonds, its operations were to go into notes If the Desk certificates. would rather not offer. impression that the Committee might convey an that a 15-month definition said it was his understanding Mr. Hayes within 15 months, including in any securities maturing would permit dealing

notes or bonds, following which Mr. Thomas pointed out that there was nothing in the area beyond one year not already selling at a rate below the prevailing yield curve. After some discussion based on that comment, Mr. Robertson indicated that experimentation in the area up to 15 months would be agreeable to him if such operations were deemed advisable by the Desk, but that he would not go further and in any event would hold down the volume of such operations. Mr. Robertson also said that 15 months had been ingrained in the Committee's thinking over the years, to which Mr. Rouse replied that he had always thought in terms of 18 months or two years. The matter of deciding on 15 months for loan purposes was something different. In his view it might prove desirable not to tie the Committee' s hands at some future date by adopting such a definition of "short-term" securities at the present time. Chairman Martin concluded the discussion with the comment that it was evident that some members of the Committee would feel he thought did not extend to maturities beyond 15 months. easier if operations upon motion duly made and Thereupon, seconded, it was 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 allowing maturities to maturing securities, and replacement of for the System Open Market Account run off without replacement) in the open market or, in the case of maturing securities, by be necessary in the the Treasury, as may direct exchange with

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 encouraging monetary expansion for the purpose of fostering sustainable growth in economic activity and employment, while taking into consideration current international developments, 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 $1.5 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 indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the total amount of such certificates held at any one time by the Federal Reserve Banks shall not exceed in the aggregate $500 million, to the memorandum from the Federal Reserve Chairman Martin referred recommending that the Bank's York dated September 8, 1960, Bank of New to furnish quarterly statistics Statistics Department be authorized Market securities dealers to the the trading volume of individual Government on like again to defer considera and said that he would Securities Department, that the Secretary of the In this connection, he noted tion of this item. on the matter. today, had some observations who was not present Committee, was indicated. Martin's suggestion to Chairman No objection Open Market Com of the Federal the next meeting It was agreed that at 10:00 a.m. November 22, 1960, Washington on Tuesday, would be held in mittee The meeting then adjourned. Assistant Secretary