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, March 1, 1944, at 10:10 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Sproul, Vice Chairman

Szymezak

McKee

Ransom

Draper

Evans

Leach

Young

Davis

Peyton

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary,

Mr. Goldenweiser, Economist

Messrs. MacKenzie, Bryan, and Wheeler,

Associate Economists

Mr. Wyatt, General Counsel

Mr. Rouse, Manager of the System Open

Market Account

Messrs. Piser and Kennedy, Chief and

Assistant Chief, respectively, of

the Government Securities Section,

Division of Research and Statistics

of the Board of Governors

Messrs. Alfred H. Williams, Fleming, Leedy,

and Gilbert, alternate members of the

Federal Open Market Committee

Messrs. Paddock and McLarin, Presidents of

the Federal Reserve Banks of Boston and

Atlanta, respectively

Mr. Clerk, First Vice President of the

Federal Reserve Bank of San Francisco

Messrs. Sienkiewicz, Langum, Edmiston,

Upgren, and Hardy, Vice Presidents

of the Federal Reserve Banks of

Philadelphia, Chicago, St. Louis,

Minneapolis, and Kansas City, re

spectively

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Mr. Kincaid, Consulting Economist at the

Federal Reserve Bank of Richmond

Mr. Dolley, Economic Adviser at the Fed

eral Reserve Bank of Dallas

Mr.

Morrill stated that advices of the election for a period

of one year commencing March 1, 1944, of members and alternate members

of the Federal Open Market Committee representing the Federal Reserve

Banks had been received, that each newly elected member and alternate

member had executed the required oath of office, and that it

was the

opinion of the Committee's Counsel on the basis of the advices received

that the following members and alternate members were legally qualified

to serve:

Allan Sproul, President of the Federal Reserve Bank

of New York, with L. R. Rounds, First Vice President of

the Federal Reserve Bank of New York, as alternate member;

Hugh Leach, President of the Federal Reserve Bank

of Richmond, with Alfred H. Williams, President of the

Federal Reserve Bank of Philadelphia, as alternate mem

ber;

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

of Chicago, with M. J. Fleming, President of the Federal

Reserve Bank of Cleveland, as alternate member;

Chester C. Davis, President of the Federal Reserve

Bank of St. Louis, with R. R. Gilbert, President of the

Federal Reserve Bank of Dallas, as alternate member; and

John N. Peyton, President of the Federal Reserve

Bank of Minneapolis, with H. G. Leedy, President of the

Federal Reserve Bank of Kansas City, as alternate member.

Upon motions duly made and seconded,

and by unanimous votes, the following of

ficers of the Federal Open Market Commit

tee were elected to serve until the elec

tion of their successors at the first

meeting of the Committee after March 1,

1945:

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Marriner S. Eccles, Chairman

Allan Sproul, Vice Chairman

S. R. Carpenter, Assistant Secretary

E. A. Goldenweiser, Economist

Messrs. John H. Williams, Kincaid,

Langum, Edmiston, and Upgren,

Associate Economists

Walter Wyatt, General Counsel

J. P. Dreibelbis, Assistant General

Counsel

Upon motion duly made and seconded,

and by unanimous vote, the Federal Reserve

Bank of New York was selected to execute

transactions for the System open market

account until the adjournment of the first

meeting of the Committee after March 1,

1945.

Mr. Sproul stated that the board of directors of the Federal

Reserve Bank of New York had selected Mr. Rouse as Manager of the Sys

tem open market account,

subject to the selection of the Federal Reserve

Bank of New York by the Federal Open Market Committee as the Bank to

execute transactions for the System open market account and to his ap

proval 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 open

market account was approved.

Upon motions duly made and seconded,

and by unanimous votes, 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 com

mittee until the selection of their suc

cessors at the first meeting of the Federal

Open Market Committee after March 1, 1945:

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Members

John K. McKee

Ernest G. Draper

Allan Sproul

Hugh Leach

Alternate Members

M. S. Szymczak

R. M. Evans

Ronald Ransom

(To serve in the order

named as alternates for

Messrs. Eccles, McKee,

and Draper, except that

in the absence of Chair

man Eccles Mr. Ransom

will serve as the first

alternate)

C. S. Young

Chester C. Davis

(To serve in the order

named as alternates for

Messrs. Sproul and Leach)

All of the members of the Committee were in agreement that

there was no reason at this time for a change in

the direction issued

to the Federal Reserve Banks on June 28, 1943, with respect to the

purchase of Treasury bills but that it

would be desirable for the Com

mittee to renew the direction.

Thereupon, upon motion duly made and

seconded, the following direction was ap

proved by unanimous vote, with the under

standing that resales of Treasury bills

held by the Reserve Banks under option

would be for immediate delivery when so

requested by the option holder:

Until otherwise directed by the Federal Open Market

Committee, the 12 Federal Reserve Banks are directed to

purchase all Treasury bills that may be offered to such

Banks on a discount basis at the rate of 3/8 per cent

per annum, any such purchases to be upon the condition

that the Federal Reserve Bank, upon the request of the

seller before the maturity of the bills, will sell to

him Treasury bills of like amount and maturity at the

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same rate of discount. All bills purchased under this

direction are to be held by the purchasing Federal Re

serve Bank in its own account and prompt reports of all

such purchases are to be made to the Manager of the Sys

tem open market account.

In taking this action, the Committee

reaffirmed the position previously taken

in discussions with representatives of the

Treasury that the short-term rate on Gov

ernment securities should be increased by

the adoption of one of the alternative

courses proposed by the System representa

tives in such discussions, and the execu

tive committee was authorized whenever an

opportunity afforded in future discussions

with the Treasury to urge appropriate steps

to increase the short-term rate to a point

more in line with the existing rates on

longer-term issues of Government securi

ties.

Consideration was then given to the form of the direction to

be issued to the executive committee with respect to transactions in

the System account pending another meeting of the full Committee.

was agreed that it

It

would be desirable to continue to exempt from the

limitations of the direction bills purchased from dealers and that, in

asmuch as the maturities of such bills were now approximately equal to

the weekly purchases of bills for the account, the direction should also

exempt from its

limitations the redemption of maturing bills.

Thereupon, upon motion duly made and

seconded, and by unanimous vote, the fol

lowing direction was approved with the un

derstanding that the limitations contained

in the direction would include commitments

for purchases or sales of securities for

the System account:

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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 securities, and letting maturi

ties run off without replacement), as may be necessary

in the practical administration of the account, or for

the 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 securities held in the account at the close

of this date (other than (1) bills purchased outright

in the market on a discount basis at the rate of 3/8

per cent per annum and bills redeemed at maturity and

(2) special short-term certificates of indebtedness pur

chased from time to time for the temporary accommodation

of the Treasury) shall not be increased or decreased by

more than $1,500,000,000.

That the executive committee be further directed,

until otherwise directed by the Federal Open Market Com

mittee, to 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 ac

commodation of the Treasury; provided that the amount

of such certificates held in the account at any one

time shall not exceed $1,500,000,000.

Mr.

Sproul stated that question had been raised by the Federal

Reserve Bank of San Francisco whether, in the event the Federal Open

Market Committee should establish a higher posted rate on Treasury

bills, the existing rate of 3/8 per cent per annum would continue to

apply on bills outstanding at the time of the change in

the maturity of such bills.

It

rate until

was his suggestion that, inasmuch as

it was understood in discussions with representatives of the Treasury

that in case the posted rate were raised the present rate would con

tinue to apply to existing bills until they were redeemed, the Committee

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take that position as a matter of record so that whenever inquiries

were made at the Federal Reserve Banks the officers of the Banks

would be at liberty to answer the inquiries accordingly.

Upon motion duly made and seconded,

Mr. Sproul's suggestion was approved by

unanimous vote with the understanding

that, since the action was merely a

statement for the record of an existing

policy, no publicity would be given to

it.

The statement relating to the relationships of the executive

committee with the Treasury, which was read at the meeting of the

Federal Open Market Committee yesterday, was read again as follows:

"It has been customary for a number of years for

members of the executive committee, at the request of

the Secretary or the Under Secretary of the Treasury,

to confer informally with the Secretary and with mem

bers of the Treasury's staff on matters relating to

Treasury financing policies and procedures. In these

conferences the members of the executive committee from

time to time have presented views and recommendations

on behalf of the full Committee and at other times have

presented their own views, either collectively or as in

dividuals, but with the understanding in all cases that

they were not meeting with the Treasury formally in their

capacity of an executive committee. At times, however,

the Secretary of the Treasury has referred to these con

ferences as conferences with the Federal Open Market

Committee or with the executive committee, rather than

as conferences with members of the executive committee

in their individual capacities.

"The Federal Open Market Committee believes that

is

desirable that a more definite understanding be

it

reached as to the procedure to be followed in the future

in such conferences. It would be preferable if the views

and recommendations of the Open Market Committee and its

executive committee, the Board of Governors, and the Fed

eral Reserve Banks on important matters of financing policy

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"were presented only in conferences with the Secretary

and the Under Secretary of the Treasury by the Chairman

and Vice Chairman of the executive committee. Such rec

ommendations should be made in writing whenever practicable.

It would also be preferable if such conferences could take

place after consultations between staff members and by the

Treasury with bankers and others.

"Therefore, the Federal Open Market Committee author

izes the executive committee to follow this procedure in

the future in so far as it is practicable for it to do so."

Chairman Eccles stated that he would like to suggest that

Mr. Morrill be requested to expand the statement into a form that

could be presented to the Treasury as a statement of the instructions

of the full Committee to be followed by the executive committee in

its

relations with the Treasury and that, after the statement was approved

by the executive committee, he (Chairman Eccles) and Mr. Sproul be au

thorized to send or deliver it

to Secretary Morgenthau.

Mr. Leach asked whether the adoption of the statement would

preclude conversations with, and recommendations to, the Secretary or

Under Secretary of the Treasury by the individual Presidents.

Eccles replied that it

Chairman

would not be expected that the Presidents or

the members of the Board of Governors would express opinions or make

recommendations on matters of financing policy on which the Open Market

Committee or its

executive committee would be expected to make recom

mendations, but that the Presidents would be expected to continue to

furnish the Treasury with information, whenever requested, as to the

attitude of bankers and others in the respective Federal Reserve dis

tricts with respect to any matters having to do with Treasury financing.

-9Messrs. Peyton and Davis expressed the opinion that it would

be embarrassing if

the Presidents were put in a position in which they

would not be at liberty to answer inquiries received from the Secretary

of the Treasury, but in the ensuing discussion there was general con

currence in the comment that, if

the statement proposed by Chairman

Eccles were adopted and the procedure outlined therein were under

stood and carried out by the Treasury, the Presidents and members of

the Board of Governors would not be likely to receive inquiries from

the Treasury on matters of policy on which the Federal Open Market

Committee or the executive committee would be expected to speak for

the System, and that, therefore, occasions in which the Presidents

would not be free to answer inquiries received from the Treasury

should not arise.

It was agreed that there could be no objection to

the Presidents ascertaining at the Treasury's request, the views of

bankers and others in their respective districts on any questions re

lating to the financing program of the Treasury.

Mr. Davis stated that it

would be most helpful to the Presi

dents who were not members of the executive committee if the committee

would see to it

that the Presidents were kept informed of discussions

with the Treasury and of the conclusions reached by the executive com

mittee with respect to Treasury financing and related matters.

At the conclusion of the discussion,

upon motion duly made and seconded and by

unanimous vote, the statement set forth

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above was approved in principle and the

executive committee was requested to pro

ceed in accordance with Chairman Eccles'

suggestion.

Mr. Sproul stated that during its

1944, the Presidents'

meeting on February 26-28,

Conference discussed the use by the Treasury of

the present formula for subscriptions by commercial banks holding sav

ings deposits and that it

was agreed that the formula used during the

Fourth War Loan Drive was generally satisfactory and should be con

tinued in subsequent drives, but that, in addition to savings deposits,

the formula should include the amount of outstanding certificates of

deposit issued to individuals inasmuch as in

some districts smaller

banks carried savings of their customers in the form of these cer

tificates.

Mr. Sproul also said that it

was understood by the Pres

idents that this matter would be presented for consideration at this

meeting and that he was referring to it

at this time for that purpose.

Following a discussion of some of the

practical problems that might be faced in

carrying the Presidents' suggestion into

operation, unanimous approval was given to

a motion, duly made and seconded, that the

Committee express general approval of the

recommendation of the Presidents and re

quest the executive committee of the Open

Market Committee to undertake to work out

and present to the Treasury a procedure by

which the recommendation could be made ef

fective before the next war loan drive.

Mr.

Sproul said that it

was noted by the Presidents at their

conference that the situation with respect to evasive practices in

volving loans to facilitate speculative purchases of Government

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securities and indirect purchases of such securities by banks had

improved considerably during the Fourth War Loan Drive, but that cer

tain undesirable practices were still

apparent such as the purchase

of securities, particularly Treasury certificates, by banks through

special arrangements with bank officers and directors and the ac

quisition of securities through subsidiary corporations and the mak

ing of loans on securities beyond the six-month period suggested by

the supervisory authorities.

It was the view of the Presidents, he

said, that such practices were not desirable and that the procedure

needed further clarification by the Treasury so that the Presidents

might follow a uniform and consistent policy in dealing with member

banks during subsequent drives.

He also stated that for this reason

the subject was referred by the Presidents'

Conference to the Com

mittee on Fiscal Agency Operations for review with Under Secretary

of the Treasury Bell and report to the Conference.

Chairman Eccles stated that, in view of the fact that the Fed

eral Open Market Committee had some responsibility in connection with

Treasury financing through the banks and that the practice referred to

above resulted in padding subscriptions,

the Open Market Committee

might concur in the view expressed by the Presidents and request the

executive committee to inform the Treasury accordingly.

This suggestion was approved unani

mously and, upon motion duly made and

seconded and by unanimous vote, the ex

ecutive committee was requested to pro

ceed accordingly.

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In response to an inquiry from Mr. Gilbert, Chairman Eccles

stated that the above action would not affect in

any way the proposed

discussions of this matter with representatives of the Treasury by the

Presidents'

Conference Committee on Fiscal Agency Operations.

Mr. Sproul then read the following statement of the consider

ation given by the Presidents in their conference to the redemption of

war savings bonds by commercial banks and said that it

was being brought

to the attention of the Federal Open Market Committee for its

tion only as it

informa

did not call for action by that Committee:

"Consideration was given to the desirability of

putting into effect as soon as possible a plan provid

ing for redemption of war savings bonds by commercial

banks in anticipation of the time when increased redemp

tions will make such decentralized redemption necessary

for the public convenience, and to avoid undue expansion

and contraction of the redemption facilities of the Fed

eral Reserve Banks.

The question of compensation to banks

for this service was raised but it was thought best to

consider the matter of expense in the light of subsequent

developments.

"Without taking formal action, this subject was re

ferred to the Committee on Fiscal Agency Operations with

the understanding that the committee would discuss the

matter with the Treasury, suggesting that the plan be put

into operation as soon as practicable."

Subsequently and in accordance with

action taken at this meeting, the statement

of procedure for presenting Federal Reserve

recommendations to the Treasury in regard

to important matters of Government financing

was approved by the members of the executive

committee in the form of a letter to the

Secretary of the Treasury as follows:

"In order to improve the procedure for presenting Fed

eral Reserve recommendations to the Treasury in regard to

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"important matters of Government financing, the members

of the Federal Open Market Committee have agreed unani

mously that such recommendations should be presented to

you through the Chairman and Vice Chairman of the Com

mittee.

"It was felt that this procedure would be helpful

from the standpoint of the Secretary of the Treasury as

well as that of the Federal Reserve, and that the Sys

tem's responsibilities under the law in connection with

open-market policy could best be met if, before reaching

final decisions on financing matters, the Secretary of

the Treasury were to give the Federal Open Market Com

mittee, or its Executive Committee, an opportunity to

consider the recommendations obtained from staff and

outside sources before presentation of Federal Reserve

views.

It was agreed that, whenever practicable, Fed

eral Reserve recommendations should be submitted in or

following conferences between the Secretary and the Under

Secretary of the Treasury and the Chairman and Vice Chair

man of the Federal Open Market Committee, which should

be held after staff meetings and after meetings with

private bankers and others.

"The considerations underlying the recommendation

of this procedure may be summarized as follows:

"The Federal Open Market Committee is a statutory

body created by Congress and empowered to direct and

regulate the open market operations of the Federal Re

serve Banks. Under the law, the time, character and

volume of these open market operations must be governed

with a view to accommodating commerce and business and

with regard to their bearing upon the general credit

situation of the country. No Federal Reserve Bank may

carry on open market operations except in accordance

with the directions of the Committee.

"Under existing conditions, the objectives of open

market policy must be and are to provide the reserve

funds required for the orderly functioning of our money

and banking system and to maintain a general credit situa

tion which will facilitate Treasury borrowing necessary

to finance the war. The System has undertaken to main

tain conditions in the Government security market which

will be conducive to the continued success of Treasury

financing on the present general basis of yields. The

means of accomplishing these objectives are ordinarily

the purchase and sale of Government securities in the

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"open market.

"The Federal Open Market Committee, in discharging

its responsibilities, is, therefore, of necessity a par

ticipant with the Treasury in the maintenance of the

market for Government securities and in the problems of

war financing.

Its responsibility is that of a public

body which has a greater concern than any group or per

sons outside of the Treasury in the timing of Treasury

offerings, the types of securities offered, and their

terms and conditions because of the importance of relat

ing current financing to credit and monetary policies.

"It has been customary for the Secretary and Under

Secretary of the Treasury to request the members of the

Executive Committee of the Federal Open Market Committee

to confer with them, or with members of the Treasury

staff, on matters of financing policy and procedure.

These have invariably been informal meetings with the

individual members of the Executive Committee rather

than formal meetings with the Executive Committee as

such.

In these conferences the members of the Executive

Committee at times have given their individual views and

recommendations, at times they have spoken for the Ex

ecutive Committee, and at other times for the Federal

Open Market Committee. In addition the Treasury at times

has requested the individual views of Federal Reserve

Bank presidents.

"In view of the System's statutory responsibility

and the importance of the matters involved, the Committee

felt that the discussions with the Treasury should be

on a more clearly defined basis, and that this would be

accomplished by having the Chairman and Vice Chairman

of the Federal Open Market Committee recognized as the

appropriate representatives through whom to present all

Federal Reserve recommendations, written or oral, to the

Treasury on important matters of financing policy. It

was felt also that better results would be obtained by

presenting such recommendations in conferences with the

Secretary and Under Secretary of the Treasury alone, after

whatever conferences are held by the Treasury with others

at the staff or technical level, and after whatever meet

ings are held by the Secretary and Under Secretary with

advisers or consultants, such as private bankers and Gov

ernment security dealers, who are without direct public

In making their recommendations, the

responsibility.

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"Federal Reserve representatives would thus be able to

take account of information obtained from these sources.

"The Federal Open Market Committee authorized its

Executive Committee, through its Chairman and Vice Chair

man, in so far as it is practicable, to follow the pro

cedure outlined above. If you so desire, Mr. Sproul and

I will be glad to discuss this procedure with you at your

convenience."

Thereupon the meeting adjourned.

.Secretary.

Approved:

Chairman.