January 24, 1961 FOMC Minutes

FOMC minutes

The Chairman repeated that in his view serious consideration should be given to the bill rate; the problem should be thought through. Question had been raised whether the Committee should go into longer-term securities or, if not, how the situation should be handled, but in any event one could not just simply say that the System would supply reserves. The problem was a little different than that. Under normal circumstances, Chairman Martin commented, he thought that the Committee's operating procedures had been clear. Generally speaking, he felt that they were the right operating procedures. However, he did not think that these were normal circumstances. One must be con cerned about the short-term rate, about reserves, and about the arbitrage that occurs in the market. The Chairman said that he hoped the Desk would use its best judgment appeared as though the bill rate was going at this time. Further, if it through 2 per cent, he thought that perhaps the Committee should have The situation was too serious just to sit by and telephone meetings. In one sense, he suggested, this was a let things develop in that way. It was not a disorderly market in the sense disorderly market situation. Committee's operating policies, but in which that term was used in the the elements of a disorderly market there were nevertheless some of and the world pull on funds. because of world interest rates situation the problem was serious and the While that pull might be temporary, not let the situation get away from it. System should

Chairman Martin suggested that the next meeting of the Federal Open Market Committee be held on Tuesday, February 7, and, there being no indication of dissent, it was understood that the next meeting would be held on that date. It was also understood that the date of the next succeeding meeting would depend on developments. The Chairman then said that it was the clear consensus that there should be no change in the directive and no change in the degree of ease in the market. He did not believe there was much that could be added to what would appear in the minutes to help guide the Manager of the Account; that is, there was not much he could add to the comments that each individual had made. Chairman Martin inquired whether there were additional comments, and Mr. Hayes said he assumed that the Chairman meant to include in the consensus the distinct concern about the level of the short-term rate that most of those at this meeting had expressed. Chairman Martin replied that that was what he had been trying his comments on the bill rate. He believed that most of to express in those around the table had expressed that concern. Mr. Bopp commented that, although he had not expressed himself earlier, he would go along with the expressions of concern on the point regarding the bill rate. that, in the absence of further Chairman Martin then indicated directive would be approved on that general basis, and no comments, the further comments were heard.

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 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 situation of the country, with a view (a) to general credit 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 for the purchase or sale of securities for the commitments Account) at the close of this date, other than special short term certificates of indebtedness purchased from time to time accommodation of the Treasury, shall not be for the temporary or decreased by more than $1 billion; increased the Treasury for the account To purchase direct from (2) of New York (with discretion, in of the Federal Reserve Bank it seems desirable, to issue participations to one cases where Banks) such amounts of special short or more Federal Reserve indebtedness as may be necessary from time term certificates of accommodation of the Treasury; provided to time for the temporary of such certificates held at any one time that the total amount shall not exceed in the aggregate by the Federal Reserve Banks $500 million. Mr. Hayes summarized the nature At the suggestion of the Chairman, to him and Mr. Coombs during their trip of views that had been expressed monthly meeting of the this month to attend a regular to Europe earlier which Mr. Deming commented International Settlements, following Bank for assignment in the Far East he had heard during his recent on observations

and in the course of his return trip through Europe. Mr. Hayes commented that it had been brought home to him repeatedly that trips abroad by System representatives, to the extent that they could reasonably be arranged, were most helpful from the standpoint of all concerned. The meeting then adjourned. Secretary