FOMC Minutes

Twenty-Sixth

ANNUAL REPORT

of the

BOARD OF GOVERNORS of the

FEDERAL RESERVE SYSTEM

COVERING OPERATIONS

THE YEAR

1939

FOR

ANNUAL REPORT OF BOARD OF GOVERNORS

2. Authority (1) to Replace Maturing Securities andto 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 were adopted, Messrs. Eccles, Harrison, McKee,

Ransom, Davis, Fleming, Leach, Martin and Hamilton

voting "aye" and Mr. 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 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 $1,000,000,000; and (c) that, if Treas

ury 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 other

wise 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 maintained at not

less than $500,000,000 nor more than $1,000,000,000."

These resolutions were adopted for the purpose of continuing similar

authority granted at the three previous meetings of the Committee and

for substantially the same reasons. The change from $900,000,000 to

$1,000,000,000 in the maximum amount of bonds having maturities in

excess of five years which might be held in the System account was in

recognition of the possibility that a substantial increase in the holdings

of bonds might result from disturbed market conditions.

FEDERAL RESERVE SYSTEM

71

3. Authority to Increase the Amount of Securities in the System Account in

the Event of Armed Conflict or Political Developments Threatening Armed

Conflict Abroad.

Upon motion duly made and seconded, and by unanimous

vote, the following resolution was adopted:

"That, in the event that armed conflict or political developments

threatening armed conflict abroad result in serious disturbance to the

Government securities market in this country, the executive com

mittee be authorized, in addition to the authority granted by the

resolutions set forth above and notwithstanding any limitations or

restrictions in those resolutions, to increase the securities in the

account by not to exceed $500,000,000, and upon written, telephonic

or telegraphic approval of a majority of the members of the Federal

Open Market Committee by not to exceed an additional $500,000,000,

if deemed necessary for the purpose of exercising an influence toward

the maintenance of orderly market conditions, and, if and when

market conditions warrant, to sell securities in the amount of any

securities so purchased. Any purchases made under the authority of

this resolution shall not be construed as limiting the powers granted

under resolutions previously adopted at this meeting."

The reasons for this action are stated above in connection with the

ratification of the previous action of the members of the Federal Open

Market Committee in authorizing the executive committee to increase the

System account in the event of the outbreak of hostilities abroad.

MEETING ON JUNE 21, 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 Securi

ties in the System Open Market Account, (2) to Purchase or Sell Securities

from the System Open Market Account, and (3) to Increase or Decrease

theAccount intheEvent ofArmed ConflictorPolitical DevelopmentsThreat

ening Armed Conflict Abroad.

Upon motion duly made and seconded, the following reso

lutions were adopted, Messrs. Eccles, Harrison, Szymczak,

McKee, Ransom, Davis, Fleming, Leach, Martin, and

Hamilton voting "aye" and Mr. Draper voting "no," he

being opposed to authorizing the executive committee to

allow bills to run off without replacement but otherwise

favoring the resolutions:

"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, whenever market conditions warrant, to allow part or all

of such bills to mature without replacement; (2) to arrange for

the replacement of maturing Treasury notes and bonds in the Sys

tem 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 practical administration

of the account; provided (a) that the amount of securities in the

72

ANNUAL REPORT OF BOARD OF GOVERNORS

account maturing within two years be maintained at not less than

$700,000,000; and (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 $1,000,000,000.

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

resolutions of the Federal Open Market Committee and until other

wise directed by the Committee, the executive committee be autho

rized, upon written, telephonic or telegraphic approval of a ma

jority 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 Govern

ment 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

excluding such decreases as may result from allowing Treasury bills

in the account to mature without replacement under the preceding

resolution, 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 $1,000,000,000.

"That, in the event that armed conflict or political developments

threatening armed conflict abroad result in serious disturbance to

the Government securities market in this country, the executive

committee be authorized, in addition to the authority granted by

the resolutions set forth above and notwithstanding any limita

tions or restrictions in those resolutions, to increase the securities

in the account by not to exceed $500,000,000, and upon written,

telephonic or telegraphic approval of a majority of the members of

the Federal Open Market Committee by not to exceed an addi

tional $500,000,000, if deemed necessary for the purpose of exer

cising an influence toward the maintenance of orderly market con

ditions, and, if and when market conditions warrant, to sell securi

ties in the amount of any securities so purchased. Any purchases

made under the authority of this resolution shall not be construed

as limiting the powers granted under resolutions previously adopted

at this meeting."

With the exception of a change with respect to allowing bills to run

off without replacement these resolutions were in the same form as the

resolutions adopted at the previous meeting of the Committee and were

adopted for substantially the same reasons. The change in the first

two resolutions with respect to allowing Treasury bills to run off with

out replacement was made for the reasons set forth in the following

statement for the press which was approved at this meeting for publi

cation when the first reduction was made in the amount of Treasury

bills held in the account pursuant to the first resolution:

"As a result of a reduction in holdings of Treasury bills, this

week's statement of condition of Federal Reserve banks shows a

decline of $1

in the System Open Market Account. This

1Subsequently, on June 29, 1939, the above statement was released to the press, showing a decline

of $13,378,000.

FEDERAL RESERVE SYSTEM

73

is in accordance with action taken by the Federal Open Market

Committee on June 21, 1939. For some time past, Treasury bills

have been purchased for the System's account at or near a no-yield

basis and the account at times has had difficulty in replacing its

maturing bills. It was decided that it would serve no useful purpose

to continue full replacement of maturing bills, the supply of which

is not always equal to the market demand. This action is in response

to technical conditions in the bill market and does not represent a

change in general credit policy."

On the question of the approval of the statement Messrs.

Eccles, Harrison, Szymczak, McKee, Ransom, Davis, Flem

ing, Leach, Martin and Hamilton voted "aye" and Mr.

Draper voted "no."

MEETING ON SEPTEMBER 18, 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 to Increase the Amount of Securities in the System Open Market

Account for the Purpose of Exercising an Influence Toward the Mainte

nance of Orderly Market Conditions.

On September 9, 1939, in accordance with the provisions of the third

resolution adopted at the meeting on June 21, 1939, and at the request of

the members of the executive committee, the members of the Federal

Open Market Committee approved an increase of $500,000,000 in the

authority of the executive committee to purchase securities for the Sys

tem open market account.

Upon motion duly made and seconded, and by unanimous

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

Committee in granting the additional authority referred to

above was approved, ratified and confirmed.

The outbreak of armed conflict in Europe had resulted in serious dis

turbances in our markets and at the close of business on September 8

the System had purchased $317,000,000 of the $500,000,000 of purchases

authorized at the meeting on June 21, 1939, for the purpose of exercising

an influence toward the maintenance of orderly conditions in the Gov

ernment securities market. The above action was taken to place the

executive committee in a position to continue to make purchases of

securities for the same purpose within the limit set.

2. Authority to Effect Transactions in the System Open Market Account.

Upon motion duly made and seconded, the following reso

lution was adopted by unanimous vote:

"That the executive committee be directed until otherwise directed

by the Federal Open Market Committee to arrange for such trans

actions for the System open market account (including purchases,

sales, exchanges, replacement of maturing securities, and letting

maturities run off without replacement) as in its judgment from

time to time may be necessary for the purpose of exercising an in

fluence toward maintaining orderly market conditions; provided

that the aggregate amount of securities held in the account at the

close of this date shall not be increased nor decreased by more than

$500,000,000."