January 23, 1962 FOMC Minutes

FOMC minutes

with a view to maintaining a supply of reserves adequate for further credit expansion, while minimizing downward pressures on short-term interest rates. In view of the imminence of Treasury financing, emphasis shall be placed on maintaining a steady money market. Votes for this action: Messrs. Martin, Hayes, Balderston, Irons, King, Mills, Mitchell, Robertson, Shepardson, Swan, Wayne, and Fulton. Votes against this action: None. No changes were suggested in the continuing authority directive to the Federal Reserve Bank of New York that had been adopted on December 19, 1961. It was understood that the next meeting of the Federal Open Market Committee would be held on Tuesday, February 13, 1962. All of those present except the members and alternate members the other Reserve Bank Presidents, and Mr. Young of the Committee, then withdrew from the meeting. At this session, discussion was concerned with the next steps for consideration of the proposal before the Committee for the System exchange operations and to Market Account to engage in foreign Open hold at different times varying amounts of convertible foreign reported on his consultations about the currencies. Chairman Martin the Chairmen of Senate and House Banking and Currency subject with Committees and commented briefly on the general problem of obtaining authority to conduct that would clarify the Committee's legislation foreign currency operations. that followed, differing viewpoints were In the discussion as to the potential contribution that System foreign expressed

currency operations might make in fulfilling its responsibilities for a sound dollar domestically and internationally, especially in view of persisting deficits in the U. S. balance of international payments. There was also reference in the discussion to the legal opinions rendered by the Committee's General Counsel and the General Counsel of Treasury (the latter having the concurrence of the Attorney General) to the effect that the System's existing statutory authority, although in some respects limiting, did provide a general sanction for Committee operations of the kind in question. In the light of the Chairman's report and the roundtable comment, a majority of the Committee were favorably disposed towards operations on an experimental basis. Several members mentioned that the Committee would presumably review critically any operations undertaken, and that the Committee might later decide to discontinue them if constructive benefits appeared not to have been achieved. In bringing the discussion to a head, it was moved by Mr. Balderston and seconded by Mr. Hayes that the Committee go on record at this session as favoring in principle the Committee's initiation on an experimental basis of a program of foreign currency operations; that Mr. Young, the Committee's Secretary, and Mr. Coombs, Vice President in charge of foreign operations of the New York

Federal Reserve Bank, be authorized to explore for the Committee with the Treasury needed guidelines for actual operations, drawing on experience that the Stabilization Fund had had in recent months, and to develop plans for effective working relationships in the foreign exchange field with the Stabilization Fund; and further that Chairman Martin be authorized to refer to this development in his statement and testimony before the Joint Economic Committee scheduled for January 30, 1962. Discussion having reached the point of question, Chairman Martin called for a vote and the motion was carried. Votes for the motion: Messrs. Martin, Hayes, Balderston, Irons, King, Mills, Shepardson, Swan, Wayne, and Fulton. Votes against the motion: Messrs. Robertson and Mitchell. Messrs. Bopp, Clay, Deming, Ellis, Johns, and Scanlon indicated that if they were presently members of the Committee, they would have voted for the motion. Mr. Bryan, also not a present member, said that he would have voted aye on the motion because he believed that operations in foreign currencies were in principle a proper function of a central bank; but he added that he was opposed to the Committee's initiating such operations until statistics for the latest available twelve-month period showed the United States to be operating with a balance-of-payments deficit. surplus, not a balance-of-payments In opposing the motion, Mr. Mitchell felt he was not prepared, at his disposal, to see the Committee on the basis of the information take this step at this time. He believed that an undertaking of this the System needed analysis by outside experts as well importance to

as public discussion before any Committee action and that the Committee would be better equipped to proceed with a program of foreign currency operations if its consideration of the matter had been preceded by legislative clarification of its statutory authority to acquire and hold foreign currency assets. Mr. Robertson voted against the motion for reasons set forth in more detail in the memorandum he presented to the Committee at its December 5 and included in the minutes of that meeting. meeting on The meeting then adjourned. Secretary