FOMC Minutes

A meeting of the Federal Open Market Committee was held in the

offices of the Board of Governors of the Federal Reserve System in Wash

ington on Wednesday, June 9, 1937, at 10:45 a, m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Harrison, Vice Chairman

Broderick

Szymczak

McKee

Ransom

Davis

Sinclair

McKinney

Martin

Day

Messrs. Schaller and Peyton, Presidents of

the Federal Reserve Banks of Chicago and

Minneapolis, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Morrill, Secretary

Wyatt, General Counsel

Goldenweiser, Economist

Williams, Associate Economist

Burgess, Manager of the System Open

Market Account

Mr. Carpenter, Assistant Secretary of the

Board of Governors of the Federal Reserve

System

Mr. Thurston, Special Assistant to the

Chairman of the Board of Governors of

the Federal Reserve System

Mr. Ransom stated that the committee which was appointed at the

meeting of the Federal Open Market Committee on May 4, 1937, to consider

the form of the minutes of the meetings of the Committee and its

execu

tive committee had reviewed the minutes of that meeting as well as min

utes of the subsequent meetings of the executive committee and was of

the opinion that these minutes were in

satisfactory form and that if

the

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6/9/37

same form is

followed in

the preparation of minutes of future meetings

the special committee would have no suggestions to offer.

Upon motion duly made and seconded, and by

unanimous vote, the minutes of the meetings of

the Federal Open Market Committee on April 3-4,

and May 4-5, 1937, were approved.

Upon motion duly made and seconded, and by

unanimous vote, the actions of the executive com

mittee as set forth in the minutes of the meetings

of the executive committee on April 4-6, 19-20, 26,

May 3-5, and June 2, 1937, were approved, ratified

and confirmed.

Mr. Burgess submitted and reviewed briefly a report prepared

by the Federal Reserve Bank of New York covering transactions in the

System open market account since the meeting of the Federal Open Market

Committee on May 4, 1937.

He also reported the transactions which had

been effected, up to and including June 8, 1937,

since the written re

port had been prepared.

Upon motion duly made and seconded, and by

unanimous vote, the transactions referred to in

the reports were approved, ratified and confirmed.

It

was agreed that there should be incorporated in the minutes

of this meeting reports made by Messrs. Goldenweiser and Williams at

the meeting of the members of the Board of Governors with Presidents

of Federal reserve banks on June 8, 1937.

At that meeting Mr.

Goldenweiser distributed copies of a memorandum prepared by the Divi

sion of Research and Statistics of the Board of Governors under date

of June 4, 1937,

on the subject of business and credit conditions and

commented briefly on the important points covered by the memorandum,

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a copy of which has been placed in

the files of the Federal Open Mar

ket Committee.

Summaries of the comments of Messrs. Goldenweiser and

Williams are set forth below.

With reference to the distribution of maturities of the securi

ties in the System open market account Mr. Goldenweiser suggested that,

with approximately $700,000,000 of long-term bonds, $1,100,000,000 of

maturities within two years, and the balance of the maturities between

two and five years, the portfolio was in a fairly satisfactory condition.

He felt that, in view of prospective developments in the reserve posi

tion of member banks during the remainder of the year, the short-term

securities now in the account would be adequate to make effective a

policy of reducing reserves by allowing maturities to run off if

a policy should

become desirable.

such

On the subject of the continued in

flow of gold into the United States, he expressed the opinion that,

because of the large volume of gold imports, the Treasury would even

tually abandon its

present policy of sterilizing such imports and the

Federal Reserve System would be under the necessity of taking action

to counteract their effects upon the money market.

that reason it

He said that for

was important that the Federal Reserve System be in a

position to absorb gold imports in

some manner and assist in

discourag

ing further additions to the gold supply and that additional powers

were necessary for that purpose.

He suggested that study should be

given to a plan for putting an upper limit on the amount of reserve

balances that could be counted as reserves.

He added that it

was be

coming more and more apparent that unless the banking system in the

6/9/37

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United States is unified and the Federal Reserve System is

additional authority it

granted

will not be able to discharge properly the re

sponsibilities now resting upon it.

Following Mr. Goldenweiser's statement, Mr. Williams stated

that he was impressed by the rapidity with which things had changed.

Two or three months ago, he said, the System was disturbed by the speed

with which the recovery movement was progressing and prices were ad

vancing, whereas the indications of undue expansion, including the ac

cumulation of inventories in anticipation of higher prices, had now

largely disappeared.

He felt that the large increase in the price of

building materials which had taken place might have an adverse effect

upon the volume of construction, and that the continuation of serious

labor troubles would undoubtedly have a similar effect upon the progress

of business recovery.

He expressed the opinion that the much talked

of recession in business had not materialized to any substantial ex

tent and that, while some economists had concluded that there would be

a recession of business in the third quarter of the year, there was

little evidence at the present time of such a recession, and that it

was the general expectation that in any event recovery would be resumed

by fall.

He added that the slowing down of the rate of business activi

ty was salutary in

effect and had decreased substantially the possibil

ity of any major disorders in

the progress of business recovery, and

that, in his opinion the continued inflow of gold and the possible ef

fects of that movement upon credit conditions constituted the most im

portant problem before the Federal Reserve System at the present time.

6/9/37

-5.

It

was the unanimous agreement of the members present that the

reasons for the authority granted to the executive committee by the

full Committee at its

meeting on May 5, 1937, to replace maturing se

curities and to make shifts between maturities of securities in

tem open market account still

the Sys

applied and that such authority should be

renewed.

Upon motion duly made and seconded, and by

unanimous vote, the Committee instructed the ex

ecutive committee to direct the replacement of

maturing securities in the System open market ac

count with other Government securities and to make

such shifts between maturities in the account as

may be necessary in the proper administration of

the account, provided that the amount of securities

maturing within two years be maintained at not less

than $1,000,000,00 and that the amount of bonds

having maturities in excess of five years be not

over $850,000,000 nor less than $500,000,000.

Reference was made to questions which had been raised with re

spect to the forms of resolutions adopted by the Committee and it

was

suggested that a special committee be appointed to consider the forms of

resolutions and submit a recommendation at the next meeting.

Mr. Harrison moved that the Chairman appoint

a committee of three for the purpose stated.

This motion, having been duly seconded, was

put by the chair and carried unanimously.

Thereupon it

was agreed that authority to the executive commit

tee to increase or decrease the total amount of securities in

the System

account should be renewed for the same reasons as had prompted similar

action at the meeting of the full Committee on May 5, 1937.

Upon motion duly made and seconded, and by

unanimous vote, the Committee directed the executive

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committee to make purchases and sales (including

authority to allow maturities to run off without

replacement) of United States Government securities

for the System open market account, to such extent

as may be necessary before the adjournment of the

next meeting of the Federal Open Market Committee,

for the purpose of preventing disorderly market con

ditions, provided tnat the aggregate amount of se

curities held in the account shall not be increased

or decreased from the amount now held in the account

by more than $250,000,000; the kinds and maturities

of the securities acquired or sold to be determined

in the light of current market developments.

Mr. Harrison stated that at the meeting of the Presidents'Con

ference on June 7, 1937, following consideration of the report submit

ted by Messrs.

Smead and Burgess with respect to the formula used for

the quarterly readjustment of the participations of the Federal reserve

banks in the Government securities held in the System open market ac

count,

the Conference had recommended that, provided there is

no substan

tial amount of depreciation in the account as of July 1, 1937, the par

ticipations of the Federal reserve banks in the account be readjusted

as of that date on the same basis as that used in the readjustment on

April 1, 1937.

The Conference also recommended, Mr. Harrison stated,

that Messrs. Smead and Burgess continue their studies to determine wheth

er a more satisfactory formula for such adjustments could be devised.

Mr. Burgess stated that at the present time there is

a small amount of

appreciation in the account.

Upon motion duly made and seconded, and by

unanimous vote, the executive committee was au

thorized to make a quarterly readjustment of the

participations of the Federal reserve banks in the

System account, as of July 1, 1937, in accordance

with the same plan and procedure as that followed

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in

connection with the adjustment made as of April

1, 1937, which contemplates that before it is ac

tually made the proposed readjustment will be sub

mitted to the Federal reserve banks for any comments

that they may desire to make.

The meeting recessed at 1:05 p.m. and reconvened at 2:45 p.m.

with the same attendance as at the morning session except that Messrs.

Schaller and Peyton were not present.

Chairman Eccles suggested that consideration be given at this

meeting to the proposal that the Federal Open Market Committee adopt a

plan for purchases by Federal reserve banks of Treasury bills offered

to them by member banks.

The proposal had been discussed informally

by the members of the Board of Governors and had been considered by

the Presidents'Conference and the Board at a meeting yesterday.

man Eccles outlined the reasons why in his opinion it

Chair

would be desir

able to adopt such a plan and during a discussion of these reasons

various members of the Committee raised questions which had occurred

to them with respect to the objective, effects, and operation of the

plan.

Mr. Harrison suggested that it

would be desirable if the pro

posal could be studied by the members from the standpoint of its

effect

upon the entire credit situation and credit policy as well as upon the

bill market and that for that purpose a memorandum outlining the details

of the plan be prepared for the consideration of the Committee.

He also

inquired whether the matter had been discussed with the Treasury Depart

ment and Chairman Eccles stated that it

had not been except that he had

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mentioned it

briefly to Mr. Wayne C. Taylor, Assistant Secretary of

the Treasury, whom he had told that he (Chairman Eccles) proposed to

submit it

to the Federal Open Market Committee for consideration.

Mr. Ransom suggested that the executive committee be requested

to study the entire matter and submit a report thereon for the con

sideration of the full Committee.

There followed a brief discussion

of a question raised by Mr. McKee whether the executive committee

should not confine its

activities to the performance of administrative

functions only and not be expected to consider questions of policy,

Mr. Ransom moved that it be the sense of the

Federal Open Market Committee that the executive

committee should consider matters of policy from

time to time, whenever it is requested or desires

to do so, and submit recommendations to the full

Committee with respect thereto.

This motion having been duly seconded was put

by the chair and carried unanimously.

Upon motion duly made and seconded, and by

unanimous vote, the executive committee was requested

to study the proposal presented by Chairman Eccles

and to prepare and send to the members of the full

Committee, prior to a meeting of the Federal Open

Market Committee to be held on August 5, 1937, a

memorandum outlining the plan in detail, including

its objectives, mechanics and possible effects,

together with any views or suggestions that the ex

ecutive committee might desire to present for the

consideration of the full Committee.

Thereupon the meeting adjourned.

Approved: