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 Monday, March 17, 1941, at 10:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Szymczak

McKee

Ransom

Davis

Draper

Sproul

Fleming

Leach

Mr.

Mr.

Mr.

Mr.

Mr. Peyton

Mr. C. S. Young (alternate for Mr. Davis)

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Wyatt, General Counsel

Mr. Goldenweiser, Economist

Mr. Williams, Associate Economist

Mr. Dreibelbis, Assistant General Counsel

Mr. Rouse, Manager of the System Open

Market Account

Mr. Thurston, Special Assistant to the

Chairman of the Board of Governors

Mr. Piser, Senior Economist in the Divi

sion of Research and Statistics of

the Board of Governors

Messrs. Roy A. Young, Sinclair, and Gilbert,

Alternate Members of the Federal Open Mar

ket Committee

Mr. Day, President of the Federal Reserve Bank

of San Francisco, and Messrs. McLarin, Hitt,

and Leedy, First Vice Presidents of the

Federal Reserve Banks of Atlanta, St. Louis,

and Kansas City, respectively

Mr. Sienkiewicz,

Conference

Secretary of the Presidents'

It was agreed that before taking up other business it would

be desirable to hear the reports of Messrs. Goldenweiser and Williams

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as Economist and Associate Economist of the Committee.

After reviewing the existing business situation, Mr. Golden

weiser discussed the prospective upward trend of business activity

and the problems of credit control and suggested that consideration

should be given by the System to plans for selective credit controls,

particularly in

the field of installment credit.

He also referred to

an analysis prepared by the Board's staff of the reserve position of

member banks as of the week ending January 15, 1941, and said that

the analysis had led him to feel that any new powers to increase re

serve requirements for the purpose of absorbing excess reserves of

member banks should be under the so-called "ceiling plan" rather than

by specific percentage increases in reserve requirements which would

apply indiscriminately to all banks or to certain classes of banks.

He referred to the problem facing the Treasury in connection with fi

nancing the defense program and suggested that a System committee be

appointed to work out a plan for reducing the types of Government se

curities outstanding and simplifying financing procedure which could

be submitted to the Treasury with a plan for cooperation by the System

with the Treasury in

financing the defense program.

Mr. Williams expressed the opinion that the more pressing

problems at the moment were shortages in

certain materials which must

be met by action outside of the Federal Reserve System and the need

for a clarification of the fiscal program of the Treasury with an in

dication of the Treasury's financing needs over the next fifteen months,

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and that the policy of the System should be one of cooperating in

the solution of these problems and of letting it

be known that it

did not contemplate action in the monetary field at this time.

Copies of the statements made by Messrs. Goldenweiser and

Williams have been placed in the Committee's files.

There ensued a discussion of several of the questions raised

by Messrs. Goldenweiser and Williams and particularly of the problems

involved in financing the defense program and how the System could

cooperate in

the solution of these problems.

During this discussion

the suggestion was made that the executive committee of the Federal

Open Market Committee be asked to serve as the committee suggested by

Mr. Goldenweiser for the development of a plan of Government financ

ing for submission to the Treasury.

While the discussion was in progress Mr.

Dreibelbis left the

meeting.

At 12:50 p.m. the meeting recessed and reconvened at 2:30 p.m.

with Messrs. Eccles, Szymczak, McKee, Ransom, Davis, Draper, Sproul,

Fleming, Leach, Peyton, C. S. Young, Morrill, Carpenter, Goldenweiser,

Williams, Wyatt, Dreibelbis, Rouse, and Thurston in attendance.

Mr. Morrill reported that records of the election of members

and alternate members of the Federal Open Market Committee represent

ing the Federal Reserve Banks for the year beginning March 1, 1941,

had been received in

the office of the Secretary of the Committee,

that each newly elected member and alternate member had executed the

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required oath of office (with the exception of Mr. Davis, who had not

yet resigned as a member of the Board of Governors and assumed his

duties as President of the Federal Reserve Bank of St. Louis), and

that it

was the opinion of Counsel on the basis of the records of

election that had been received (1) that the following members and

alternate members were legally qualified to serve at the present time,

(2) that, upon assuming his duties as President of the Federal Re

serve Bank of St. Louis, Mr. Davis would be qualified to take the oath

of office and assume his duties as a representative member of the Com

mittee, and (3) that when the person to be appointed as President of

the Federal Reserve Bank of Kansas City assumed the duties of that of

fice he would be qualified to take the oath of office and assume his

duties as an alternate for Mr. Peyton:

Allan Sproul, President of the Federal Reserve Bank

of New York, with Roy A. Young, President of the Federal

Reserve Bank of Boston, as alternate member;

M. J. Fleming, President of the Federal Reserve Bank

of Cleveland, with John S. Sinclair, President of the Fed

eral Reserve Bank of Philadelphia, as alternate member;

Hugh Leach, President of the Federal Reserve Bank of

Richmond, with R. R. Gilbert, President of the Federal Re

serve Bank of Dallas, as alternate member;

C. S. Young, President of the Federal Reserve Bank of

Chicago, as alternate for Mr. Davis; and

John N. Peyton, President of the Federal Reserve Bank

of Minneapolis.

Upon motion duly made and seconded,

the following officers of the Federal Open

Market Committee were elected by unanimous

votes to serve until the election of their

successors at the first meeting of the

Committee after March 1, 1942:

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Marriner S. Eccles, Chairman

Allan Sproul, Vice Chairman

S. R. Carpenter, Assistant Secretary

E. A. Goldenweiser, Economist

John H. Williams, Associate Economist

Walter yatt, General Counsel

J. P. Dreibelbis, Assistant General Counsel

Upon motion duly made and seconded,

and by unanimous vote, the Committee selected

the Federal Reserve Bank of New York to ex

ecute transactions for the System open mar

ket account until the adjournment of the

first

meeting of the Committee after March

1, 1942.

Mr.

Sproul stated that the board of directors of the Federal

Reserve Bank of New York had selected R. G. Rouse as Manager of the

System open market account,

subject to the New York Bank being se

lected as the Bank to execute transactions for the System open market

account and to his approval by the Federal Open Market Committee.

Upon motion duly made and seconded,

and by unanimous vote, the selection of

Mr. Rouse as Manager of the System account

was approved.

Upon motion duly made and seconded,

and by unanimous vote, the following were

selected to serve with the Chairman of the

Federal Open Market Committee (who, under

the provisions of the bylaws, is also chair

man of the executive committee) as members and

alternate members of the executive committee

until the selection of their successors at the

first meeting of the Federal Open Market Com

mittee after March 1, 1942:

Members

Ronald Ransom

Alternate Members

Ernest G. Draper

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Members: (Continued)

John K. McKee

Allan Sproul

Hugh Leach

Alternate Members

M. S. Szymczak

(To serve in the order

named as alternates

for Messrs. Eccles,

Ransom, and McKee)

M. J. Fleming

John N. Peyton

(To serve in the order

named as alternates

for Messrs. Sproul and

Leach)

Upon motion duly made and seconded,

and by unanimous vote, the minutes of the

meeting of the Federal Open Market Commit

tee held on December 18, 1940, were ap

proved.

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 min

utes of the meeting of the executive com

mittee on December 18, 1940, were ap

proved, ratified, and confirmed.

During the meeting Mr. Rouse distributed copies of a report

of open market operations prepared at the Federal Reserve Bank of New

York covering the period from December 17, 1940, to March 15, 1941,

inclusive, and at this point he reviewed the principal features of

the report.

During Mr. Rouse's statement Mr.

Piser, Senior Economist in

the Division of Research and Statistics of the Board of Governors,

tered the room.

Upon motion duly made and seconded,

and by unanimous vote, the transactions

en

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in the System open market account for the

period from December 17, 1940, to March 15,

1941, inclusive, were approved, ratified,

and confirmed.

There ensued a discussion of the instructions to be issued

to the executive committee with respect to transactions in the System

open market account and there was agreement that there was no occa

sion at this time for a change in the form of resolution adopted at

the last meeting of the Federal Open Market Committee.

Mr. Sproul

raised the question whether, in view of the possible emergencies that

might develop before another meeting of the Committee is

limit of

200,000,000 contained in

the resolution on increases or de

creases in the amount of securities held in

creased.

It

was agreed, however,

held, the

that if

it

the account should be in

should appear likely that

occasion would arise for the purchase or sale of securities for the

System account beyond the limit fixed by the resolution, another meet

ing of the Federal Open Market Committee should be called.

Thereupon, upon motion duly made and

seconded, the following resolution, which

was in the same form as the resolution

adopted at the meeting of the Committee on

December 18, 1940, was adopted by unanimous

vote:

That the executive committee be directed until

otherwise directed by the Federal Open Market Com

mittee to arrange for such transactions for the Sys

tem 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 advisable

in the light of existing conditions; provided that

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the aggregate amount of securities held in the

account at the close of this date shall not be

increased or decreased by more than $200,000,000.

Mr. Morrill stated that under date of December 16, 1940, a

request was received from the Treasury Department for authority (1)

to publish in

the annual report of the Secretary of the Treasury

schedules of the holdings of the Federal Reserve Banks as of June 30,

1940, which would show separately the holdings of direct and guaran

teed obligations,

and (2)

to continue to publish in a table in the

Treasury monthly bulletin the amount of direct obligations held by

the Federal Reserve Banks as well as the holdings of guaranteed obli

gations, the latter being grouped with similar holdings of Government

trust funds and agencies.

The request of the Treasury, Mr. Morrill

said, was taken up with the Federal Reserve Bank of New York and un

der date of December 23, 1940,

a letter was received from Mr. Rouse

in which it

would appear desirable to authorize

was stated that it

the Treasury to publish the information in

the Secretary's annual re

port but that the question of the publication of separate figures on

direct and guaranteed obligations in

was of a somewhat different nature in

the Treasury's monthly bulletin

that it

recent information not otherwise available,

present time it

in which it

so quickly.

supplied the market with

and that, while at the

was not of importance, conditions could be visualized

might not be desirable to have the information available

Mr. Rouse's letter suggested that the Treasury be allowed

to use the figures in the monthly bulletin provided the amount of

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direct obligations be omitted from the bulletin table as a separate

item and lumped with those of "other holders" or those of Government

agencies and trust funds in the same manner as guaranteed obligations

were shown.

Inasmuch as the annual report of the Secretary of the

Treasury was ready to go to the press when the matter came up the

question was presented to Chairman Eccles, as Chairman of the Federal

Open Market Committee, who authorized the Secretary's office to advise

the Treasury that no objection would be made to the publication of the

information in the annual report of the Secretary of the Treasury.

Mr. Rouse stated that the question involved was one of prin

ciple whether the Committee wished to authorize the Treasury to pub

lish information with respect to the System account before it

was

published by the Federal Reserve System itself, that the matter was

of no particular importance at this time because of the small amount

of holdings of guaranteed obligations, but that if

at any time there

should be a considerable volume of transactions involving guaranteed

issues and information with respect to these transactions were cur

rently released it

might have an undesirable effect on the market and

the information might be taken advantage of by speculators.

In the discussion which ensued, Mr.

McKee moved that the action taken by Chair

man Eccles in this matter be ratified, that

the Committee recommend to the Board of

Governors that separate figures with respect

to direct and guaranteed holdings of the

Federal Reserve Banks be shown in the weekly

statements of condition of Federal Reserve

Banks published by the Board and in the

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-10Federal Reserve Bulletin, and that the

Treasury be advised that no objection would

be made to the publication in the Treasury

monthly bulletin of data with respect to

direct and guaranteed holdings of the Fed

eral Reserve Banks in the manner in which

they were shown in the table on page 17

of the January 1941 Treasury bulletin.

During the discussion of Mr. McKee's motion, Mr. Sproul sug

gested that the publication by the Federal Reserve System of separate

figures with respect to direct and guaranteed holdings of the Federal

Reserve Banks be in

the Federal Reserve Bulletin and not in the weekly

statement of condition of Federal Reserve Banks for the reason that

if publication in

if not impossible,

ures and it

the latter form were adopted it

would be difficult,

to discontinue the weekly publication of the fig

might be found,

should it

become necessary again to carry

out substantial operations in guaranteed obligations, that current

publication of such information would be undesirable.

At the conclusion of the discussion,

Mr. McKee's motion, which was duly seconded,

was adopted by unanimous vote.

At this point Messrs.

Roy A. Young, Sinclair, Gilbert, Day,

McLarin, Hitt, Leedy, and Sienkiewicz reentered the room and Mr.

Rouse reviewed for their information the conditions in the Government

security market during the recent period.

Chairman Eccles suggested for discussion the question of the

place of the Federal Reserve System as a central banking system in

the existing situation, particularly in view of the lack of adequate

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authority in

the System to control the credit situation.

He also

suggested that consideration should be given to the part that the

System should play in assisting the Treasury in regard to the financ

ing operations of the Government.

There followed a discussion of the questions raised by Chair

man Eccles and of changes that might be made in

issuing Government securities.

the procedure for

Chairman Eccles suggested that the

executive committee be requested to have some preliminary studies

prepared which could be presented to, and discussed with, the Presi

dents of all Federal Reserve Banks before taking the matter up with

the Treasury.

Mr. McKee suggested a review of the available information as

to the financing procedure followed during the last war.

At the conclusion of the discussion,

Mr. Sproul moved that the executive commit

tee have studies prepared along the lines

suggested during the discussion and that,

when a draft of program had been prepared,

the Presidents be called to Washington for

the purpose of discussing the program with

the understanding that, if a program could

be agreed upon, it would be presented to the

Treasury for consideration.

Mr. Sproul's motion, having been duly

seconded, was put by the Chair and carried

unanimously.

Mr. Fleming suggested that if possible, copies of the draft

of program prepared for discussion with the Presidents be sent to them

before a meeting is

study it.

called so that they will have an opportunity to

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In a further discussion, the suggestion was made by Mr. Davis

that the program prepared by the executive committee should be formu

lated in the light of the entire economic situation rather than on

the narrower basis of the problems immediately connected with Govern

ment financing.

Thereupon the meeting adjourned.

Secretary.

Approved:

Chairman.