January 28, 1964 FOMC Minutes

FOMC minutes

In pursuing operations recently, Mr. Stone continued, the Desk had attempted to maintain the Federal funds rate at the discount rate much of the time. This had resulted in some member bank borrowing. Of course, the fact that the Federal funds rate was at the discount rate did not explain the stability of the bill rate; at times in the past when the Federal funds and discount rates were the same, the bill rate had fluctuated widely. The most important explanation of bill rate stability was one that Mr. Robertson mentioned--the fears of the market of actions by the authorities. But the other factors he (Mr. Stone) had cited also were important. To respond specifically to Mr. Mitchell's question, Mr. Stone continued, there were occasions in 1961 and 1962 during which the bill rate was moving lower and dealers were acquiring inventories at rising prices, when the Treasury had come into the market with a strip of bills. Prices of bills had fallen, resulting in losses to dealers on the port at higher prices. This was a punishing experience folios they hac acquired the dealers, and the market had begun to generate its own resistance for to bill rate declines. Some dealers made it a practice to reduce their whenever the rate tended down, thus limiting the decline. inventories whether his inference was correct that the Mr. Mitchell asked situation without the cooperation of the Committee could not change this replied affirmatively. He added that the Treasury Treasury, and Mr. Stone was, of course, aware of the problem.

Mr. Mills commented that he wished he had Mr. Stone's ability to describe an artificial market, and Chairman Martin observed that it appeared to him that the only way there could be a perfectly free mar ket would be through complete nonintervention by both the Treasury and the System. Mr. Stone said that in his opinion there was a broad, active, and viable market. The Desk recently had reviewed its experience in conducting operations, relating to the last four occasions on which it had sold Treasury bills and a similar number of occasions on which it had bought bills. The total volume of bids received from dealers ranged between $320 million and $530 million on the occasions when the Desk was selling, and the total volume of dealer offers ranged between $425 mil lion and $675 million when the Desk was buying. Any market in which dealers were willing to do business on this :,cale at existing quotations was, in his judgment, a broad, active, and viable market. It was his there had been no absolute impairment of the market, but conclusion that he agreed that the market would be better if rate fluctuations were some what greater. Chairman Martin noted that the Account Manager earlier had recom specified in the continuing authority mended renewal of the limitation on the change in the aggregate amount of U. S. directive of $1.5 billion held in the System Open Market Account during any Government securities the Committee, and asked whether there were period between meetings of any objections. No objections were raised.

Chairman Martin then said that he would like to make a few comments on the hearings that were now under way before the Subcommittee on Domestic Finance of the House Banking and Currency Committee. The Subcommittee had requested that the Open Market Committee furnish its minutes for the years 1960-1963, inclusive. He proposed that this request be put on the agenda for discussion at the next meeting, and he solicited full consideration of the issue by the members in prepara tion for that discussion. One possible procedure would be to supply these minutes to the Subcommittee on the same basis as the 1960 minutes had been supplied to the Joint Economic Committee; that is, in confidence and not for public release. An alternative would be to refuse to supply the minutes, on the several grounds that had been employed in his letter to to support the statement that public re the Joint Economic Committee the minutes would be unwise. If this latter course was chosen, lease of the minutes in order to obtain the Subcommittee would have to subpoena them. thought that in due course the Open Market Com The Chairman than it had in the past, would have to release more information mittee form. He noted that information in a different or, at least, to present the minutes had been expressed points of view about publishing differing been quite a bit of disagreement and that there had in past discussions meeting late last year. discussed at an Open Market when this subject was on the Committee was any great pressure did not think there The Chairman

with respect to this matter at present, but he expected that pressure would build up in the future. He urged everyone to think the matter through carefully and to be prepared to discuss it at the next meeting. He noted that the Committee might decide thene to postpone a final decision until the following meeting in early March. In a concluding comment, the Chairman said there was no question in his mind but that Mr. Patman was completely sincere in his views on the Federal Reserve System, and he thought everyone should-approach the issues raised on that basis. It was agreed that the next meeting of the Committee would be held on February 11, 1964. Ihereupon the meeting adjourned. Secretary