FOMC Minutes

Twenty-Sixth

ANNUAL REPORT

of the

BOARD OF GOVERNORS of the

FEDERAL RESERVE SYSTEM

COVERING OPERATIONS

THE YEAR

1939

FOR

66

ANNUAL

REPORT OF BOARD OF GOVERNORS

RECORD OF POLICY ACTIONS-FEDERAL OPEN MARKET COMMITTEE

MEETING ON MARCH 7, 1939

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

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

Mr. Fleming, Mr. Leach, Mr. Martin, Mr. Hamilton.

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

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

the System Open Market Account.

Upon motion duly made and seconded, the following

resolutions, which were in the same form as the resolu

tions adopted at the meeting on December 30, 1938, were

adopted, Messrs. Harrison, Szymczak, McKee, Davis,

Fleming, Leach, Martin and Hamilton voting "aye," and

Messrs. Eccles, Ransom, and Draper voting "no":

"That the executive committee be directed until otherwise di

rected by the Federal Open Market Committee, (1) to arrange for

the replacement of maturing Treasury bills in the System open

market account with other Treasury bills or Treasury notes, or,

from time to time, to allow such bills to mature without replace

ment or pending subsequent replacement (a) when market condi

tions are such as to make it impossible to procure other bills or

notes without paying a premium over a no-yield basis, or (b) when

such notes are not obtainable without undue disturbance to the

market; (2) to arrange for the replacement of maturing Treasury

notes and bonds in the System open market account with other

Government securities; and (3) to arrange for such shifts in

maturities in the System open market account as may be necessary

in the proper administration of the account; provided, (a) that the

amount of securities in the account maturing within two years be

maintained at not less than $1,000,000,000; (b) 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;

and (c) that, if Treasury bills in the account are allowed to mature

without replacement, the total amount of securities in the account

be not decreased by more than $200,000,000.

"That, in addition to such authority as may be contained in

other resolutions of the Federal Open Market Committee and until

otherwise directed by the Committee, the executive committee be

authorized, upon written, telephonic 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 System open

market account to such extent as the executive committee shall

find to be necessary for the purpose of exercising an influence

67

68

ANNUAL REPORT OF BOARD OF GOVERNORS

toward maintaining orderly market conditions, provided (1) that

the total amount of securities in the account be not increased by

more than $200,000,000 nor decreased by more than $200,000,000

including such decreases as may result from allowing Treasury

bills in the account to mature without replacement, 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."

These resolutions were adopted for the purpose of continuing the

existing policy of the Federal Open Market Committee and for sub

stantially the same reasons as prompted similar action at the meeting

of the Committee on December 30, 1938. These reasons are set forth

in the policy record on pages 80 to 84, inclusive, of the annual report

of the Board of Governors for the year 1938.

MEETING ON MARCH 20, 1939

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

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

Mr. Fleming, Mr. Leach, Mr. Martin, Mr. Hamilton.

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

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

System Open Market Account.

Upon motion duly made and seconded, the following

resolutions, which were in the same form as the resolutions

adopted at the meeting on March 7, 1939, were adopted,

Messrs. Harrison, Szymczak, McKee, Davis, Fleming,

Leach, Martin and Hamilton voting "aye" and Messrs.

Eccles, Ransom and Draper voting "no":

"That the executive committee be directed until otherwise directed

by the Federal Open Market Committee, (1) to arrange for the

replacement of maturing Treasury bills in the System open market

account with other Treasury bills or Treasury notes, or, from time

to time, to allow such bills to mature without replacement or pend

ing subsequent replacement (a) when market conditions are such

as to make it impossible to procure other bills or notes without

paying a premium over a no-yield basis, or (b) when such notes

are not obtainable without undue disturbance to the market; (2) to

arrange for the replacement of maturing Treasury notes and bonds

in the System open market account with other Government securi

ties; and (3) to arrange for such shifts in maturities in the System

open market account as may be necessary in the proper admini

stration of the account; provided, (a) that the amount of securities

in the account maturing within two years be maintained at not

less than $1,000,000,000; (b) 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; and (c) that,

if Treasury bills in the account are allowed to mature without

replacement, the total amount of securities in the account be not

decreased by more than $200,000,000.

"That, in addition to such authority as may be contained in

other resolutions of the Federal Open Market Committee and until

FEDERAL RESERVE SYSTEM

69

otherwise directed by the Committee, the executive committee be

authorized, upon written, telephonic 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 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 securities in the account be not increased by more than

$200,000,000 nor decreased by more than $200,000,000 including

such decreases as may result from allowing Treasury bills in the

account to mature without replacement, and (2) that the amount

of bonds in the account having maturities over five years be main

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

This action continued the existing policy of the Committee and was

taken for substantially the same reasons as prompted similar action by

the Committee at its meetings on March 7, 1939, and December 30, 1938.

MEETING ON APRIL 19, 1939

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

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

Mr. Leach, Mr. Martin, Mr. Hamilton.

1. Authority to Increase System Open Market Account in the Event of Serious

Disturbance in the Government Securities Market Resulting from Armed

Conflict Abroad.

At this meeting Chairman Eccles reported that on April 13, 1939, the

executive committee of the Federal Open Market Committee agreed

unanimously that the executive committee should ask the Federal Open

Market Committee for authority, in the event of serious disturbance in

the Government securities market resulting from armed conflict abroad,

to direct the purchase of securities for the System portfolio in an amount

not to exceed $500,000,000 with the understanding that in making such

purchases it might become necessary to exceed the $900,000,000 limita

tion on bonds having maturities over five years contained in the second

resolution adopted at the meeting of the Federal Open Market Commit

tee on March 20, 1939, and that on April 14, 1939, all of the members of

the Federal Open Market Committee who were not members of the exec

utive committee approved the granting of authority to the executive

committee as set forth above.

Upon motion duly made and seconded, and by unanimous

vote, the action of the members of the Federal Open Market

Committee in granting this additional authority to the exec

utive committee was approved, ratified and confirmed.

This action was taken because of the expectation that an outbreak of

armed conflict in Europe would result in serious disturbance to the securi

ties markets in this country and there was complete agreement that,

should such disturbance occur, the System should be prepared to exercise

its influence toward preventing disorderly conditions in the market for

Government securities.