March 28, 1961 FOMC Minutes

FOMC minutes

absorbing reserves at any particular time. Chairman Martin noted that the use of certain techniques in carrying out operations directed at an ob jective could have by-product effects at times. Mr. Rouse then said that in the period immediately ahead the Account would be putting reserves into the market, and that would be done in the manner he had described. Then there would be a period when there probably would be no occasion to inject reserves. However, for the sake of con tinuity, and having in mind continuing pressure on short-term rates, he contemplated that there would be offsetting operations; that is, selling short and buying long. To the extent that those offsetting operations might affect longer-term rates, there would be a desirable by-product. Mr. Hayes said that he would consider that the transactions Mr. Rouse was depicting would constitute an active role. Mr. Deming commented that the Committee had given an explicit instruction that it did not want the short-term rate to fall too far. In fact, the Committee had talked of a rather specific range. As to the longer-term area, however, in terms had treated this more or less as a by-product. If there could the Committee be some lowering of those rates, that would be desirable. There was no reason not to push down longer-term rates in the course of Account opera more specifically with a view to their tions, but operations were designed the short-term than the long-term area. effect on said he had not meant to imply that the three objectives Mr. Hayes to which he had referred earlier were necessarily of equal importance.

Of the three, he would agree with Mr. Deming that the objective of least importance was the lowering of the long-term rate. If a consensus of the Committee were taken, he felt that probably it would indicate a view that the most important objective was the maintenance of a moderate degree of ease. At some times, however, the short-term rate probably was regarded by at least some of the members of the Committee as having as much importance. Mr. Rouse stated his understanding that the primary objective of the Committee in authorizing operations in the longer-term area was to learn by experimentation over, he would say, a matter of months whether it was feasible for the System to operate in the whole range of the Govern ment securities market rather than in one limited segment of that market. Mr. Robertson replied that he felt all of the conversation today would indicate that the real reason for operating in the longer-term market was to affect interest rates--whether one spoke of pegging, holding, or reducing--rather than to provide the reserves necessary to meet the needs of the economy. In other words, he felt that the emphasis was on interest rates rather than reserves. Chairman Martin indicated that he would not agree with that state ment. He added that the complexity of the problem could be seen in the words that had been used. Words mean different things to different people, he noted, and he doubted that a useful purpose would be served by further discussion of this particular point at this time.

It was agreed that the next meeting of the Federal Open Market Comittee would be held on Tuesday, April 18, 1961. Chairman Martin noted that Mr. Young, who had been serving as a Reserve Steering Comittee for Study of amber of the Treasury-Federal Securities Market, had been appointed Director of the Board's the Government Division of International Finance, in addition to continuing as Adviser to circumstances, the Chairman suggested that Mr. Koch, the Board. In the of Research and Statistics, Board of Governors, be Adviser, Division to succeed Mr. Young as a member of the Steering Committee. named There was unanimous agreement with this suggestion. The meeting then adjourned. Secretry

BANK RESERVE POSITION AND GROWTH RATE OF ACTIVE MONEY SUPPLY Billons of dollars ACTIVE MONEY SUPPLY > i Active moNey supply--3 month moving annual rates of increase average of ne free reserves--monthly average