FOMC Minutes

TWENTY-FIFTH ANNUAL REPORT

OF THE

BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

COVERING OPERATIONS

FOR THE YEAR 1938

UNITED STATES OF AMERICA

WASHINGTON: 1939

FEDERAL RESERVE SYSTEM

RECORD OF POLICY ACTIONS-FEDERAL OPEN MARKET

COMMITTEE

MEETING ON MARCH 1, 1938

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

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

Mr. Newton, Mr. Schaller, Mr. Peyton.

Authority (1) to Replace Maturing Securities and to Make Shifts of Securities

in the System Open Market Account and (2) to Increase or Decrease Sys

tem Open Market Account.

By unanimous vote, the Committee instructed the execu

tive committee, until otherwise instructed by the Federal

Open Market Committee, to direct the replacement of ma

turing securities in the system open market account with

other Government securities and to make such shifts be

tween 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 main

tained 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.

The Committee also voted unanimously to authorize the

executive committee upon written, telephonic, or telegraphic

approval of a majority of the members of the Federal Open

Market Committee, and until otherwise directed by the

Committee, to direct the purchase in the open market from

time to time of sufficient amounts of Government securities

to meet the requirements of commerce, business, and agri

culture by keeping at member banks an aggregate volume

of excess reserves adequate for the continuance of the Sys

tem's policy of maintaining credit conditions conducive to

economic recovery; and to authorize the executive commit

tee, upon written, telephonic, or telegraphic approval of a

majority of the members of the Committee, and until other

wise directed by the Committee, to direct a reduction of the

holdings of such securities, to the extent that their reten

tion was found to be unnecessary for the purpose of this

action. It was understood, however, that the executive

committee was not authorized to increase or decrease by

more than $300,000,000 the amount of securities held in

the system open market account.

In the opinion of the Committee the existing amount of excess reserves

of member banks was not too large in view of the low volume of busi

ness activity, declining prices, and business uncertainty and, therefore,

no useful purpose would be achieved at this time by reducing the amount

of the securities held by the System. It was agreed, however, that pro

vision should be made for prompt action in purchasing securities, when

approved by a majority of the Committee for the purpose of keeping at

member banks an aggregate volume of excess reserves adequate for the

continuance of the system's policy of maintaining credit conditions con

ducive to economic recovery, and that similar provision should be made

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for the sale of securities to the extent that their retention would be un

necessary for this purpose. It was agreed also that the existing authority

of the executive committee to replace maturing securities and to make

shifts of securities in the account should be continued in order to enable

the executive committee to meet changing market conditions and to im

prove the distribution of maturities in the account.

MEETING ON APRIL 22, 1938

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

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

Mr. Sinclair, Mr. Newton, Mr. Schaller, Mr. Peyton.

Authority to Replace Maturing Securities and to Make Shifts of Securities in

the System Open Market Account.

The following resolution was presented by Mr. Harrison,

who moved its adoption:

"In view of the fact that the present and prospective amounts of

excess reserves of member banks are tending to make it more diffi

cult for the System, by means of shifts in the maturities in the open

market account, to exercise its influence towards orderliness in the

Government securities market

VOTED that, until otherwise authorized or directed by the

Committee, and in addition to the authority to make shifts

in the maturities in the system open market account, the

executive committee be authorized to permit fluctuations

in the total amount of the account in order more effectively,

with the means available and in the light of current condi

tions, to exert its influence towards orderly conditions in the

Government bond market, provided, however, that the ac

count shall not be increased or decreased by more than

$200,000,000 from the present level of the account."

The presentation of the foregoing resolution followed a detailed dis

cussion of developments in connection with the recently announced

Government program for the encouragement of business recovery, includ

ing the release of gold held in the inactive gold account of the Treasury,

the reduction made by the Board of Governors of the Federal Reserve

System as of April 16, 1938, in reserve requirements of member banks,

and a reduction in the amounts of current weekly offerings by the Treas

ury of Treasury bills for sale in the market. Mr. Harrison presented

his resolution on the ground that in all the circumstances the executive

committee should have authority to permit some flexibility in the system

open market account by allowing some reduction in the amount of the

account if that should seem desirable as a factor in restraining a dis

orderly rise in the market just as in the past, by purchases of securities,

it had exerted its influence toward maintaining an orderly market on a

decline. In his opinion, some reasonable reduction in the account at

such a time should not be interpreted as a reversal of the policy of the

Government with respect to excess reserves and probably would serve

to make the market less vulnerable in the future.

As a substitute for Mr. Harrison's resolution, a mo

tion was made and carried unanimously that the execu

tive committee be instructed to direct the replacement of