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

Washington on Wednesday, September 21, 1938,

PRESENT:

Mr.

Mr.

Mr.

Mr.

at 2:30 p.m.

Harrison, Vice Chairman

Szymczak

McKee

Ransom

Mr. Davis

Mr.

Mr.

Mr.

Mr.

Sinclair

Newton

Schaller

Peyton

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Morrill, Secretary

Carpenter, Assistant Secretary

Wyatt, General Counsel

Goldenweiser, Economist

Williams, Associate Economist

Dreibelbis, Assistant General Counsel

Thurston, Special Assistant to the

Chairman of the Board of Governors of

the Federal Reserve System

Messrs. Leach, Martin, Hamilton, McKinney

and Day, Presidents of the Federal Re

serve Banks of Richmond, St. Louis,

Kansas City, Dallas and San Francisco,

respectively

Upon motion duly made and seconded, and by

unanimous vote, the minutes of the meeting of the

Federal Open Market Committee held on August 2,

1938, were approved.

Upon motion duly made and seconded, and by

unanimous vote, the actions of the executive

committee of the Federal Open Market Committee

as set forth in the minutes of the meeting of

the executive committee on August 2, 1938, were

approved, ratified and confirmed.

Reference was made to the informal understanding of the members

of the Federal Open Market Committee reached since the last meeting of

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the Committee that, in the absence of Chairman Eccles, Mr. Ransom will

serve as an alternate member of the executive committee.

Upon motion duly made and seconded,

and by

unanimous vote, the service of Mr. Ransom as an

alternate member of the executive committee dur

ing the current absence of Chairman Eccles was

approved, ratified and confirmed and he was se

lected to serve as an alternate member of the com

mittee in future absences of the Chairman, it

being understood that this selection would not

affect the order of service of alternate members

of the executive committee in the absence of other

regular members of the committee or in the absence

of both Chairman Eccles and Mr. Ransom.

Mr. Harrison referred to the resignation of W. Randolph Burgess

as Vice President of the Federal Reserve Bank of New York and as Manager

of the System Open Market Account and stated that the board of directors

of the Federal Reserve Bank of New York had selected Allan Sproul, First

Vice President of the bank, to succeed Mr. Burgess as Manager of the

System Open Market Account subject to his selection being satisfactory

to the Federal Open Market Committee.

accordance with Section 5 of Article II

Mr. Harrison suggested that, in

of the by-laws of the Committee

which provides that the Manager of the System Open Market Account shall

be satisfactory to the Federal Open Market Committee and shall serve at

the pleasure of the Committee,

action be taken by the Federal Open Mar

ket Committee at this time on the selection of Mr. Sproul.

Upon motion duly made and seconded,

and by

unanimous vote, the selection of Mr. Sproul was

approved.

Mr. Harrison reviewed the operations in the system open market

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account since the last meeting of the Committee, as outlined in the weekly

reports sent by the Federal Reserve Bank of New York to the members of

the Committee.

He also reviewed the transactions which had been effected

in the account during the last few days because of the unsettled market

conditions resulting from developments in Europe and stated that since

commitments to date would reduce the amount of bonds in the account to

approximately $778,000,000 he felt it

tive committee, when renewing its

would be desirable for the execu

authority to the Federal Reserve Bank

of New York to execute transactions for the system account,

to lower

the amount below which the system holdings of bonds might not be reduced.

Upon motion duly made and seconded, and by

unanimous vote, the transactions in the system

open market account for the period from August

2, to September 19, 1938, inclusive, were ap

proved, ratified and confirmed.

During Mr. Harrison's report Mr. Piser, Senior Economist in the

Division of Research and Statistics of the Board of Governors,

joined

the meeting.

There ensued a discussion of future policy of the Federal Open

Market Committee in the light of continued improved domestic business

conditions,

and what appeared to be the diminished immediate possibili

ties of war in Europe consequent upon the recommendations by the English

and French governments to Czechoslovakia that it

agree to the annexa

tion by Germany of the Sudeten German territory in Czechoslovakia.

It

was suggested that while a relaxation of tension in the European situa

tion would make seriously disturbed market conditions less imminent,

9/21/38

there was still

considerable danger and uncertainty in the situation

which might result in the necessity for emergency action, and that, in

these circumstances, the authority granted to the executive committee

to increase or decrease the system account upon written, telephonic,

telegraphic approval of a majority of the members of the Committee

should be enlarged.

Mr. Harrison suggested that at the appropriate

time the Committee give further consideration to the conditions under

which it

would reduce the system account.

At the conclusion of the discussion,

upon motion duly made and seconded, the fol

lowing resolutions were adopted by unanimous

vote:

That the executive committee be directed, until other

wise directed by the Federal Open Market Committee, to

arrange for the replacement of maturing securities in the

system open market account with other Government securities

and for such shifts in maturities as may be necessary in

the proper administration of the account, provided (1)

that maturing Treasury bills shall be replaced only with

Treasury bills or notes to the extent that they can be

purchased without paying a premium over a no-yield basis;

(2) that, subject to the foregoing limitation, the amount

of securities in the account maturing within two years be

maintained at not less than $1,000,000,000; and (3) that

the amount of bonds in the account having maturities in

excess of five years be maintained at not less than

$500,000,000 nor more than $900,000,000.

That, in addition to such authority as may be con

tained in other resolutions of the Federal Open Market

Committee and until otherwise directed by the Committee,

the executive committee be authorized, upon written, tele

phonic or telegraphic approval of a majority of the members

of the Federal Open Market Committee, to arrange for the

purchase or sale (which would include authority to allow

maturities to run off without replacement) of Government

securities in the open market from time to time for the

or

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system open market account to such extent as the executive

committee shall find to be necessary for the purpose of

exercising an influence toward maintaining orderly market

conditions, provided (1) that the total amount of securi

ties in the account be not increased or decreased by more

than 200,000,000, and (2) that the amount of bonds in the

account having maturities over five years be maintained at

not less than $500,000,000 nor more than $900,000,000.

On behalf of the special committee (Messrs. Davis, Ransom and

Sinclair) appointed to consider Section 6 of Article I of the by-laws

of the Federal Open Market Committee and to submit a report and recom

mendation thereon, Mr. Davis stated that the committee wished to submit

the following recommendation:

"That the last sentence of Section 6 of Article I,

which reads as follows, be eliminated:

'Except as herein provided, no reports on the

meetings of the Committee shall be made to any

person or persons whatsoever.'

"The committee has concluded that the foregoing sentence,

apart from being somewhat redundant, is unnecessarily re

strictive and, when literally construed with the preceding

sentence of Section 6, prevents the members of the Committee

from reviewing with officials and directors of the Federal

Reserve Banks the background and reasons for past actions

or meetings and tends to restrict the members of the Com

mittee from obtaining from these sources valuable back

ground information on matters to be deliberated by the

The elimination of the sentence will not re

Committee.

move the confidential nature of the matters considered and

acted on by the Committee."

In

it

explanation of the recommendation Mr. Davis stated that, if

were approved, the members of the Committee would be authorized to

discuss with the officers and directors of the Federal reserve banks

wholly completed actions of the Federal Open Market Committee but not

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the actions which are currently effective or continuing matters of

policy.

He said that the special committee did not feel that a reso

lution could be written which would define satisfactorily the matters

that properly could be discussed, but that if

it

were clearly understood

that the members of the Committee were expected to regard as strictly

confidential actions and policies of the Committee which were still

currently effective or continuing matters of policy, the Committee

could rely on the judgment of its

members to determine what constituted

past and completed actions of the Committee which they would be at

liberty to discuss with officers and directors of Federal reserve

banks.

Upon motion duly made and seconded, and

by unanimous vote, the recommendation of the

committee was approved, and the by-laws were

amended accordingly.

Mr, Davis stated that at the meeting of the executive committee

of the Federal Open Market Committee on September 15, 1938, an informal

request was made that he and Mr. Sinclair prepare a draft of a letter

to Mr. Burgess with respect to his service as Manager of the System

Open Market Account and that the following letter was submitted for

the consideration of the Committee:

"The members of the Federal Open Market Committee

have learned with regret of your resignation as Vice

President of the Federal Reserve Bank of New York and as

Manager of the System Open Market Account.

"No one in the Federal Reserve System has had a

closer contact than you have had with the development of

the facilities of the System for meeting its responsibilities

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"in the important field of credit control or a more in

timate relation with the execution of the policies which

have been adopted in the discharge of these responsibili

ties. The mature judgment which you were thus able to

bring to the councils of the present Federal Open Market

Committee as the newest instrument provided by the Congress

to carry out the System's task in this field has made your

service as Manager of the System Open Market Account an

invaluable one.

"The close ties of friendship which were formed when

you were associated with the members of the Federal Open

Market Committee in meeting common problems is of great

worth to them and they all join in wishing you every pos

sible success in your new undertaking."

Upon motion duly made and seconded,

the letter was approved by unanimous vote.

Mr. Harrison stated that on two or three occasions recently

he and Mr. Ransom had had an opportunity to discuss with the Secretary

of the Treasury the policy of the Treasury Department with respect to

gold imports,

that a further discussion of the matter was had at the

Treasury Department this morning when reference was made to the fact

that the rapid increase to the present figure of $844,000,000 in the

amount of gold held in the general fund,

of which

$683,000,000was free

gold, had attracted considerable public attention and comment in the

press and otherwise as to what the policy of the Treasury with respect

to the gold was to be, particularly in view of present indications

that the account would be substantially increased in the near future

by further gold imports.

The Secretary advised, Mr. Harrison said,

that he planned to deposit with the Federal reserve banks from time

to time in

round amounts enough gold to offset gold imports, the round

amounts deposited to be slightly above actual imports with a result

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that there would be a small reduction in

the amount of gold held in

the account as long as the program was continued.

Following Mr. Harrison's statement the meeting adjourned.

Secretary.

Approved:

Vice Chairman.