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 Wash

ington on Saturday, May 15, 1943,

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

at 3:45 p.m.

Eccles, Chairman

Sproul, Vice Chairman

Szymczak

McKee

Ransom

Draper

Evans

Paddock

Fleming

McLarin

Day

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Goldenweiser, Economist

Messrs. John H. Williams, MacKenzie, and

Bryan, Associate Economists

Mr. Wyatt, General Counsel

Mr. Dreibelbis, Assistant General Counsel

Mr. Rouse, Manager of the System Open

Market Account

Messrs. Piser and Kennedy, Chief and Assist

ant Chief, respectively, of the Government

Securities Section, Division of Research

ana Statistics, Board of Governors

Messrs. Leach, Young, and Peyton, alternate

members of the Federal Open Market Committee

Messrs. Alfred H. Williams, Leedy, and Gilbert,

Presidents of the Federal Reserve Banks of

Philadelphia, Kansas City, and Dallas, re

spectively

Mr. Hitt, First Vice President of the Federal

Reserve Bank of St. Louis

Messrs. Sienkiewicz and Edmiston, Vice Presidents

of the Federal Reserve Banks of Philadelphia

and St. Louis, respectively

Upon motion duly made and seconded, and

by unanimous vote, the minutes of the meeting

of the Federal Open Market Committee held on

March 2, 1943, were approved.

-2

5/15/43

Upon motion duly made and seconded, and

by unanimous vote, the actions of the execu

tive committee of the Federal Open Market

Committee as set forth in the minutes of the

meeting of the executive committee held on

March 2, 1943, were approved, ratified, and

confirmed.

Copies of a report prepared at the Federal Reserve Bank of New

York covering open market operations conducted for the System account

during the period from March 3 to May 12, 1943, both dates inclusive,

were distributed by Mr. Rouse during the meeting, and he reported orally

tne transactions which had been effected for the System account on May

13, 14, and 15.

A copy of Mr. Rouse's written report has been placed in

the files of the Federal Open Market Committee,

and the transactions re

ported by him orally are shown in the daily reports by the Federal Reserve

Bank to the members of the executive committee and will be covered in de

tail in the report covering the weekly period ending May 19, 1943, which

will be sent to all members of the Committee.

Upon motion duly made and seconded, and

by unanimous vote, the transactions in the

System account during the period from March

2 to May 15, 1943, both dates inclusive, were

approved, ratified, and confirmed.

In connection with his report, Mr. Rouse referred to the action

taken at the meeting of the Federal Open Market Committee on June 21, 1939,

with respect to the distribution of the weekly report of open market op

erations prepared at the Federal Reserve Bank of New York,

and stated that

question had arisen whether the report should be sent to all of the Asso

ciate Economists of the Committee.

-3

5/15/43

Mr. Leedy suggested that it

would be helpful if

the report could

be sent to the officer in charge of the research department at each Fed

eral Reserve Bank regardless of whether the President of the Bank was

serving as a member of the Federal Open Market Committee.

consensus of the members of the Committee,

It

was the

however, that, inasmuch as

tne Presidents of the Federal Reserve Banks who were not members of the

Open Market Committee received copies of the weekly report, it

a better procedure if

they would make their copies of the report avail

able in each case to the officer in

charge of the Bank's division of

research and statistics.

Upon motion duly made and seconded, the

distribution of the weekly report to the fol

lowing was approved unanimously:

1.

2.

3.

4.

5.

6.

7.

would be

The members of the Board of Governors;

The Presidents of the 12 Federal Reserve

Banks;

The Secretary, the Economist, and the

Associate Economists of the Federal Open

Market Committee;

The Secretary of the Treasury;

The Under Secretary of the Treasury;

The Chief of the Division of Bank Opera

tions of the Board of Governors; and

Mr. Rounds, alternate member of the Fed

eral Open Market Committee; the Assist

ant Vice President of the Federal Reserve

Bank of New York working under the Manager

of the System Account; the Manager of the

Securities Department of the New York

Bank; the Manager of the Research Depart

ment of the New York Bank; and the con

fidential files of the New York Bank as

agent for tne Federal Open Market Com

mittee.

At this point Mr. Young withdrew from the meeting.

-4

5/15/43

Mr. Rouse also stated that it

counting and operating standpoint if

would be very helpful from an ac

the Federal Reserve Banks could be

instructed to hold in their own accounts all bills purchased under the

direction issued by the Federal Open Market Committee at the meeting on

March 2, 1943, rather than only bills which were purchased subject to a

right in the seller to repurchase before maturity of the bills.

Mr. McKee indicated that he would be opposed to such an extension

of the separate investment accounts of the individual Federal Reserve

Banks, but suggested that this problem could be met effectively by making

all bills purchased by the Federal Reserve Banks subject to the right of

repurchase in the seller whether he requested it

or not.

This suggestion was discussed and, upon

motion duly made and seconded, it was agreed

unanimously that without changing the direc

tion issued at the meeting of the Federal Open

Market Committee on March 2, 1943, with respect

to the purchase by the Federal Reserve Banks of

Treasury bills, it would be understood that the

Reserve Banks would treat all purchases pursu

ant to this direction as being subject to the

condition that, upon request of the seller be

fore the maturity of the bills, the Reserve

Bank would sell to him Treasury bills of like

amount and maturity at the discount rate of

3/8 per cent per annum and that no public an

nouncement of this understanding would be made

but that the seller would be informed when the

purchase was made by the Reserve Bank.

Mr. Rouse then referred to the increased use by some of the Federal

Reserve Banks of their participations in the System open market account as

collateral for Federal Reserve notes and stated that,

in order to devise a

procedure which would avoid the burdensome accounting that was required

under the present arrangement,

it

was suggested that the matter be considered

5/15/43

-5

by a special committee composed of representatives of the staff of the

Board of Governors and the Federal Open Market Committee, with the under

standing that the recommendation of the special committee would be acted

upon by the executive committee with a full report to the Federal Open

Market Committee of the procedure adopted.

He added that, in view of the

strong likelihood that there would be a greater use in the near future of

Government securities in the System account as collateral for Federal Re

serve notes and because of the present manpower shortage, it

helpful if

would be

a decision on this matter could be reached as promptly as

possible.

Upon motion duly made and seconded, and

by unanimous vote, it was agreed that Mr.

Szymczak, as a representative of the Board of

Governors, should discuss the matter with mem

bers of the staff of the Board and of the Fed

eral Open Market Committee, and that a recom

mendation as to the procedure to be followed

should be submitted to the Board of Governors,

the Presidents, and the Federal Open Market

Committee.

Mr. Goldenweiser,

as chairman of the committee appointed in

ac

cordance with the action taken at the meeting of the Federal Open Market

Committee on January 26,

1943, to make a study of the significant aspects

of the relationship of the Government security dealers to the Government

security market,

stated that a revised report prepared under date of

Aoril 6. 1943, was available for distribution to the members of the Fed

eral Open Market Committee and for consideration at the pleasure of the

Committee.

There was unanimous agreement that copies

of the revised report should be sent to the

members of the Federal Open Market Committee,

5/15/43

the remaining Presidents of the Federal Reserve

Banks, ana the members of the staff of the Fed

eral Open Market Committee, and that the report

should be placed on the agenda for the next

meeting of the full Committee.

At this point Messrs.

Peyton, Leedy, and Gilbert withdrew from

the meeting.

Chairman Eccles stated that the existing situation suggested the

desirability of another meeting of the Federal Open Market Committee dur

ing the latter part of June, and that the authority to be granted to the

executive committee to direct the execution of transactions for the Sys

tem open market account should be determined in the light of that sit

uation.

Thereupon, upon motion duly made and

seconded, the following direction was ap

proved by unanimous vote:

That the executive committee be directed, until otherwise

directed by the Federal Open Market Committee, to arrange for

such transactions for the System open market account, either

in the open market or directly with the Treasury (including

purchases, sales, exchanges, replacement of maturing securi

ties, and letting maturities run off without replacement), as

may be necessary in the practical administration of the ac

count, or for tne purpose of maintaining about the present

general level of prices and yields of Government securities,

or for the purpose of maintaining an adequate supply of funds

in the market; provided that the aggregate amount of securi

ties held in the account at the close of this date (other than

special short-term certificates of indebtedness purchased from

timeto time for the temporary accommodation of the Treasury

and Treasury bills purchased pursuant to the directions of the

Federal Open Market Committee issued under dates of September

28, 1942, and March 2, 1943) shall not be increased or de

creased by more than $1,000,000,000.

That the executive committee be further directed, until

otherwise directed by the Federal Open Market Committee, to

5/15/43

arrange for the purchase for the System open market account

direct from the Treasury of such amounts of special short

term certificates of indebtedness as may be necessary from

time to time for the temporary accommodation of the Treas

ury; provided that the amount of such certificates held in

the account at any one time shall not exceed $1,500,000,000.

Thereupon the meeting adjourned.

Secretary.

Approved.

Chairman.