November 22, 1960 FOMC Minutes

FOMC minutes

If increased spending occurred with a declining business picture, there could easily be a substantial deficit to deal with. The System should keep itself in position to be helpful in whatever way it might help. One word of caution on this, the Chairman said, was that more and more he got the impression that there was a conviction on the part of a good many people that all our problems--the budget, the cost-price relationship, debt management policy, and the like--could be solved if the System would just raise short-term interest rates and lower long-term interest rates. While this might be an overstatement, it represented the approach that some people were taking. In the Chairman's opinion, there was a very real question whether the System could operate in longer maturities for more than a very brief period of time without running into difficulties, The real point was that, when an attempt was made to determine the short rate against the long rate except for a very short period of time, in trouble. This was a problem that all members of the System would be should be studying carefully in the course of the next the Committee wish to fall back into a pattern of months. The System did not several rates or a partial pattern of rates, Martin said that so far as today's meeting was concerned, Chairman policy was proceeding in a generally it was perfectly clear that Committee a change in the discount was no suggestion for satisfactory way. There So far as instruc Committee's directive. a change in the rate nor for Chairman Martin said Management were concerned, tions to the Account the discussion that Rouse be guided by suggest that Mr. that he would point on not had made a good Mr. Mills and others had taken place.

trying to offset the reserves that would become available from vault cash, and in the Chairman's opinion there was certainly no need to try to be precise in any such offset when the Committee was thinking in terms of generally continuing a policy of ease in the money market, He then inquired whether there were any other comments with respect to instructions to the System Account and no comments were heard. Chairman Martin then inquired of Mr. Rouse whether he had any comments to make, and Mr. Rouse suggested that the limitation of $1.5 billion approved for the first paragraph of the directive at the meeting on October 25 be restored to $1 billion. Thereupon, upon motion duly made and 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 maturing securities, and allowing maturities to replacement of run off without replacement) for the System Open Market Account in the open market or, in the case of maturing securities, by with the Treasury, as may be necessary in the direct exchange prospective economic conditions and the light of current and situation of the country, with a view (a) to general credit market to the needs of supply of funds in the relating the to encouraging monetary expansion for commerce and business, (b) growth in economic activity the purpose of fostering sustainable consideration current inter while taking into and employment, practical administration of developments, and (c) to the national of securities held that the aggregate amount the Account; provided for the purchase or (including commitments in the System Account at the close of this date, sale of securities for the Account) of indebtedness short-term certificates other than special of the temporary accommodation to time for the from time purchased by more than $1 increased or decreased shall not be Treasury, billion; account of Treasury for the direct from the (2) To purchase discretion in cases of New York (with Reserve Bank the Federal

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. Chairman Martin referred to a memorandum from the Federal Reserve Bank of New York dated September 8, 1960, recommending that the Bank's Market Statistics Department be authorized to furnish to the Securities Department quarterly statistics on the volume of individual Government securities dealers, stating that he had discussed this subject with Mr. Hayes and that, with Mr. Hayes' agreement, he would suggest that the matter be tabled. There was no disagreement with this suggestion. Chairman Martin stated that unless there was objection the next meeting of the Committee would be held on Tuesday, December 13, 1960, and that the following meeting would be scheduled for Tuesday, January 10, 1961. No objection to the fixing of these dates was indicated. Mr. Treiber stated that he would like to join in the suggestion that Mr. Robertson had made regarding the desirability of raising the maximum permissible rate of interest payable on time and savings under the Board's Regulation Q, Payment of Interest on Deposits. deposits be happy if the Board could be Mr. Leedy said that he would now provided under the law for fixing relieved of the responsibility on time and savings deposits. He felt that maximum rates of interest rates on time deposits regulate the level of interest an attempt to

should not be lodged with the Board. However, it would be unrealistic to fix a rate far above a figure that any bank might pay and say that the Board was administering the existing legislation. Therefore, in Mr. Leedy's view the Board should be relieved of responsibility for fixing any such rate by legislative action. Chairman Martin said that this was an appropriate subject for discussion. He also commented with a smile that of course a good case could be made for permitting banks to pay interest on demand deposits. Mr. Mangels commented that, as a matter of interest, share accounts at savings and loan associations in the Twelfth District had far in 1960, whereas investments had risen sharply in both 1959 and thus This suggested that it might be only a increased by a lower percentage. loan associations in the area time until the savings and question of rates on share accounts that not be able to pay the increased would savings to their institutions. as a means of attracting they had been offering The meeting then adjourned. Secretary.