FOMC Minutes

TWENTY-FOURTH ANNUAL REPORT

OF THE

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

COVERING

OPERATIONS

FOR THE YEAR 1937

UNITED STATES OF AMERICA

WASHINGTON: 1938

ANNUAL REPORT OF BOARD OF GOVERNORS

FEDERAL RESERVE SYSTEM

place maturing securities and to make shifts between maturities within

certain reasonable limitations. It was felt, however, that inasmuch as

the action authorizing the executive committee to increase the amount

of securities held in the account contemplated an immediate increase in

the account with a view to preserving an orderly market and facilitating

the adjustment of member banks to increased reserve requirements, it

would be advisable not to authorize the reduction of the amount of secu

rities held with maturities within two years to less than $1,000,000,000

(the amount of such securities held in the account at the time was in ex

cess of $1,100,000,000).

MEETING ON JUNE 9, 1937

MEETING ON MAY 5, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the ex

ecutive committee to direct the replacement of maturing

securities in the System open market account 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 $1,000,000,000 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.

This action continued authority previously granted to the executive

committee to enable it to replace maturing securities and to make shifts

between maturities in the System account, including authority to in

crease or decrease the holdings of bonds with maturities in excess of five

years, within the specified limits, in order to meet changing market con

ditions and to improve the distribution of maturities in the account.

2. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee directed the execu

tive committee to make purchases and sales (including

authority to allow maturities to run off) of United States

Government securities for the System open market ac

count to such extent as may be necessary before the ad

journment of the next meeting of the Federal Open Market

Committee, for the purpose of preventing disorderly market

conditions, provided that the aggregate amount of securi

ties held in the account be not increased to an amount

exceeding $2,680,000,000 nor decreased to an amount less

than $2,180,000,000; the kinds and maturities of the securi

ties acquired or sold to be determined in the light of

current market developments.

This action was taken in order that the executive committee might

continue to have authority to act promptly when conditions warranted

the purchase or sale of Government securities for the System open market

account for the purpose of preventing disorderly market conditions.

217

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the execu

tive committee to direct the replacement of maturing securi

ties in the System open market account with other Gov

ernment securities and to make such shifts between maturi

ties 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 $1,000,000,000 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.

It was agreed that the reasons for the authority granted to the execu

tive committee at the meeting on May 5, 1937, to replace maturing

securities and to make shifts between maturities in the System account

still applied and that, therefore, such authority should be renewed.

2. Authority to Increase or Decrease System Account.

By unanimous vote, the Committee directed the execu

tive committee to make purchases or sales (including au

thority to allow maturities, to run off without replace

ment) 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 conditions, provided that the

aggregate amount of securities held in the account be not

increased or decreased from the amount now held in the

account by more than $250,000,000; the kinds and maturi

ties of securities acquired or sold to be determined in the

light of current market developments.

The reason for this action was the same as that which prompted simi

lar action by the Committee at its meeting on May 5, 1937.

MEETING ON SEPTEMBER 12, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Broderick, Mr. Szymczak, Mr: McKee, Mr. Ransom, Mr.

Davis, Mr. Sinclair, Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Increase or Decrease System Account and Recommendation

that Treasury Be Requested to Desterilize $300,000,000 of Gold.

The following resolutions were adopted by unanimous

vote:

"RESOLVED, that, until the adjournment of the next meeting of the

Committee, the executive committee is authorized to direct the pur

chase in the open market from time to time of sufficient amounts of

Treasury bills or other short-term Treasury obligations to provide

funds to meet seasonal withdrawals of currency from the banks and

218

ANNUAL

REPORT OF BOARD OF GOVERNORS

other seasonal requirements, for the purpose of maintaining at

member banks an aggregate volume of excess reserves adequate for

the continuation of the System's policy of furthering economic re

covery through monetary ease; and the executive committee is au

thorized from time to time to direct a reduction of the holdings

of such obligations when the seasonal influences are reversed or if

other influences make their retention unnecessary for the purposes

of this resolution. It is understood that the executive committee,

in the exercise of this authority, will not increase or decrease by more

than $300,000,000 the amount of securities now in the System open

market account without another meeting of the Federal Open

Market Committee."

"RESOLVED, that, with a view to cooperation in effectuating the pol

icy declared in the above resolution the Committee recommend to

the Board of Governors of the Federal Reserve System that it re

quest the Secretary of the Treasury favorably to consider the de

sterilization of approximately $300,000,000 of gold out of the Treas

ury inactive account, the time and method of such desterilization to

be determined by the Secretary of the Treasury in consultation and

cooperation with the executive committee of the Federal Open

Market Committee."

The foregoing resolutions were adopted for the reasons set forth in

the following statement which was approved unanimously by the Com

mittee:

"The Federal Open Market Committee met in Washington on

September 11 and 12 and reviewed the business and credit situa

tion. In view of the expected seasonal demands on the banks for

currency and credit during the coming weeks the Committee author

ized its Executive Committee to purchase in the open market from

time to time sufficient amounts of short-term U. S. Government

obligations to provide funds to meet seasonal withdrawals of cur

rency from the banks and other seasonal requirements. Reduction

of the additional holdings in the open market portfolio is contem

plated when the seasonal influences are reversed or other circum

stances make their retention unnecessary.

"The purpose of this action is to maintain at member banks an

aggregate volume of excess reserves adequate for the continuation

of the System's policy of monetary ease for the furtherance of

economic recovery.

"As a further means of making this policy effective, the Open

Market Committee recommended that the Board of Governors of

the Federal Reserve System request the Secretary of the Treasury

to release approximately $300,000,000 of gold from the Treasury's

inactive account. The Board of Governors acted upon this recom

mendation and the Secretary of the Treasury agreed to release at

once the desired amount of gold. This will place an equivalent

amount of funds at the disposal of the banks and correspondingly

increase their available reserves.

"This action is in conformity with the usual policy of the System

to facilitate the financing of orderly marketing of crops and of au

tumn trade. Together with the recent reductions of discount rates

at the several Federal Reserve banks, it will enable the banks to

FEDERAL RESERVE SYSTEM

219

meet readily any increased seasonal demands for credit and cur

rency and contribute to the continuation of easy credit conditions."

2. Authority to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account.

By unanimous vote, the Committee instructed the execu

tive committee to direct the replacement of maturing se

curities in the System open market account with other Gov

ernment securities and to make such shifts between ma

turities 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 $1,000,000,000 and that the amount of bonds hav

ing maturities in excess of five years be not over $850,000,

000 nor less than $500,000,000.

The members of the Committee concurred in the opinion that the rea

sons for the authority granted to the executive committee at the meeting

of the Committee on May 5, 1937, to replace maturing securities and to

make shifts between securities in the System open market account were

still present and that, therefore, action renewing the authority was

necessary.

MEETING ON DECEMBER 1, 1937

Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair

man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Sinclair,

Mr. McKinney, Mr. Martin, Mr. Day.

1. Authority to Increase or Decrease System Account.

The following resolution was adopted by unanimous

vote:

"RESOLVED, that, until the adjournment of the next meeting of the

Committee, the executive committee is authorized to direct the pur

chase in the open market from time to time of sufficient amounts of

Treasury bills or other short-term Treasury obligations to provide

funds to meet seasonal withdrawals of currency from the banks and

other requirements of commerce, business and agriculture by keep

ing at member banks an aggregate volume of excess reserves ade

quate for the continuation of the System's policy of maintaining

credit conditions conducive to economic recovery; and the executive

committee is authorized from time to time to direct a reduction of

the holdings of such obligations to the extent that their retention is

found to be unnecessary for the purposes of this resolution. It is

understood that the executive committee, in the exercise of this au

thority, shall not increase or decrease by more than $300,000,000

the amount of securities now in the System open market account."

The Committee had given full consideration to general business and

credit conditions and it was the general feeling that the existing volume

of excess reserves was abundant for the continuance of easy credit con

ditions and for meeting the credit requirements of commerce, business

and agriculture, that in the light of existing business and credit condi

tions effective action to meet and overcome the present business recession

should be taken outside the field of the System's various monetary pow

ers, and that the System could best contribute to the furtherance of eco-