December 5, 1961 FOMC Minutes

FOMC minutes

overlooked the importance of forward operations. Mr. Hayes said these do not put any dollars in foreign hands but on the contrary may take them out of the market. Turning to the organizational aspects of the matter, Mr. Hayes said he had no particular brief for a subcommittee as against a full Committee operation, except as a means of getting things done quickly. that the full Committee could understand the problems involved The more into them, the better he would like it. He would be and get thoroughly to agree that the guidelines in large measure could be adopted inclined by the full Committee; they would be mainly statements of long-range other hand, if a question should arise overnight as to policy. On the operations should be conducted, he doubted whether certain substantial be fair to ask the manager of this activity to take the that it would when a new type of operation responsibility on his own, particularly was feeling its way. Therefore, he felt was involved and the System the manager could turn for quick there ought to be someone to whom practical to get the full Committee together consultation. If it was he would be glad to favor such an organizational on a rush basis, but he doubted the practicality of it. Perhaps it would arrangement, some procedure whereby the Committee could delegate be advisable to have to the same people who would be on the proposed to the Chairman, or to enter into operations within stated subcommittee, authorization amounts

Mr. Hayes said he did not want to prolong the discussion by going into too many details. Personally, he felt that the proposal under discussion would represent a constructive move and that the System should proceed along the lines suggested in the staff documents. At the same time, he would welcome the addition of concurrent Congressional authorization. Mr. Balderston said he agreed that the proposal before the Committee provided a mechanism by which the Federal Reserve could help to meet a crisis. Although he hoped that the event would not occur, there was no way of telling whether or how soon such a crisis might develop. Since the proposed operation was so close to the function carried on by the Open Market Committee in domestic affairs, he felt it would probably be unwise not to undertake it. Looking ahead 25 or 50 years, it would probably seem like an abdication for a committee that was trying to control the volume of reserves needed by the domestic economy to have turned over to some other agency the function under discussion. Accordingly, he would propose that the Committee authorize its Chairman to work out with the Secretary of the Treasury the necessary arrangements, and to consult again with the Chairmen of the Banking and Currency Committees so that they would understand what was contemplated. This might lead to introducing legislation. Having visualized the possibility of a crisis, he was fearful that failure to

act might make the System culpable. The Committee had been advised that it had a legal basis for proceeding, even though one would like a more clear-cut authorization from the Congress. Therefore, he would suggest that the Committee authorize the Chairman to proceed with necessary discussions with the Secretary of the Treasury and with the proper parties in the Congress. Chairman Martin stated that it was clear that the Committee was not united on a good many points. However, he thought the discussion probably had e overed everything that could reasonably be covered today, Therefore, he would suggest that the discussion be concluded at this point and that the sense of the meeting be that he should endeavor to explore the matter further with the Treasury and then give the Committee additional comments, including comments with respect to legislation or the division of responsibility, at the meeting on December 19. After further discussion, it was the understanding that this was the sense of the meeting, Chairman Martin then referred to the subject of the Committee's operating policies and directive, and to the comments that had been received following the distribution of drafts with a memorandum from Secretary dated September 6, 1961. The Chairman suggested the Committee that these matters be included on the agenda for discussion at the

December 19 meeting, with the understanding that it might be necessary for the meeting to run on into the afternoon, and agreement was expressed with this suggestion. In this connection, Mr. Wayne suggested that in view of the prospective heavy agenda, and since only a two-week interval between meetings would be involved, summaries of District economic and financial developments might be somewhat curtailed at the next meeting, and the Chairman indicated that he concurred. As indicated by the foregoing discussion, it was understood that the next meeting of the Open Market Committee would be held on Tuesday, December 19, 1961. The meeting then adjourned. Secretary /