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 Thursday, March 1, 1945, at 10:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Eccles, Chairman
Sproul, Vice Chairman
Szymczak
McKee
Ransom
Draper
Evans
Alfred H. Williams
Gidney
Leedy
Gilbert
Mr. Morrill, Secretary
Mr. Carpenter, Assistant Secretary
Mr. Goldenweiser, Economist
Messrs. John H. Williams and Kincaid,
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
Mr. Thurston, Assistant to the Chairman
of the Board of Governors
Mr. Thomas, Director of the Division of
Research and Statistics of the Board
of Governors
Messrs. Flanders, Young, and McLarin, alter
nate members of the Federal Open Market
Committee
Messrs. Leach and Peyton, Presidents of the
Federal Reserve Banks of Richmond and
Minneapolis, respectively
Mr.
Clerk, First Vice President of the Fed
eral Reserve Bank of San Francisco
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Messrs. Sienkiewicz and Hardy, Vice
Presidents of the Federal Reserve
Banks of Philadelphia and Kansas
City, respectively
Mr. Dolley, Director of Research and
Statistics, Federal Reserve Bank of
Dallas
The Secretary reported that advices of the election for a
period of one year commencing March 1, 1945,
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 (with the exception of Mr. Day who did not attend
this meeting) 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;
Alfred H. Williams, President of the Federal Reserve
Bank of Philadelphia, with Ralph E. Flanders, Presi
dent of the Federal Reserve Bank of Boston, as al
ternate member;
Ray M. Gidney, President of the Federal Reserve Bank
of Cleveland, with C. S. Young, President of the Fed
eral Reserve Bank of Chicago, as alternate member;
R. R. Gilbert, President of the Federal Reserve Bank of
Dallas, with W. S. McLarin, Jr., President of the Fed
eral Reserve Bank of Atlanta, as alternate member;
and
H. G. Leedy, President of the Federal Reserve Bank of
Kansas City, with William A. Day, President of the
Federal Reserve Bank of San Francisco, as alternate
member.
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3/1/45
Upon motions duly made and seconded,
and by unanimous votes, the following of
ficers of the Federal Open Market Committee
were elected to serve until the election
of their successors at the first meeting
of the Committee after February 28, 1946:
Marriner S. Eccles, Chairman
Allan Sproul, Vice Chairman
S. R. Carpenter, Assistant Secretary
E. A. Goldenweiser, Economist
James C. Dolley, C. 0. Hardy, K. H.
Mackenzie, C. A. Sienkiewicz,
Woodlief Thomas, and John H.
Williams, Associate Economists
Walter Wyatt, General Counsel
Inasmuch as J. P. Dreibelbis, Assist
ant General Counsel for the Federal Open Mar
ket Committee, had indicated informally his
intention to resign in the near future as
General Attorney for the Board of Governors,
he was elected as Assistant General Counsel
for the Federal Open Market Committee to
serve until the effective date of his resig
nation as General Attorney for the Board,
and his successor as General Attorney for
the Board was elected to serve as Assistant
General Counsel of the Federal Open Market
Committee until the election of his successor
at the first
meeting of the Committee after
February 28, 1946.
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 February 28,
1946.
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
3/1/45
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 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 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 by-laws, is also
Chairman of the executive committee) as
members and alternate members of the ex
ecutive committee until the selection of
their successors at the first meeting of
the Federal Open Market Committee after
February 28, 1946:
Members
Alternate Members
M. S. Szymczak
R. M. Evans
Ronald Ransom
John K. McKee
Ernest G. Draper
(to serve in the or
der names as alternates
for Messrs. Eccles,
Szymczak, and Evans)
Allan Sproul
Ray M. Gidney and
R. R. Gilbert
(to serve in the or
der named as alter
nates for Messrs.
Sproul and Williams)
Alfred H. Williams
In accordance with the understanding reached at the meeting of
the Federal Open Market Committee yesterday,
copies of the meorandum
relating to Treasury financing which had been prepared by Messrs. Rouse,
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Piser, and Kennedy had been furnished to all of the members of the
Federal Open Market Committee and to the other Presidents of Federal
Reserve Banks who were in attendance at this meeting.
Certain changes
had been suggested in the memorandum and the recommendations contained
in the memorandum were read in
their revised form.
At the conclusion of a discussion,
the memorandum was approved as follows,
with the understanding that it would be
presented to the Secretary of the Treas
ury by Messrs. Eccles and Sproul when
they met with Secretary Morgenthau this
afternoon:
"MEMORANDUM TO THE SECRETARY OF THE TREASURY
FROM THE FEDERAL OPEN MARKET COMMITTEE
"In the light of the joint objectives of the Treas
ury and the Federal Reserve System with regard to war financ
ing, the following program is recommended:
1. That the Seventh War Loan Drive be divided into
two distinct parts, the first for individuals and the
second for other nonbank investors, and that the goal for
the second part be placed at 5 billion dollars. The sug
gested dates, May 14 - June 16 and June 18-30, are entirely
satisfactory.
2. That the Treasury announce at the present time
that the offerings in the individual drive, in addition
to savings bonds and savings notes, will consist of 7/8
per cent certificates, 1 1/2 per cent securities, and
2 1/4 and 2 1/2 per cent restricted bonds and that the
offerings in the second part of the drive will consist
of the same securities, except for the exclusion of Series
E savings bonds and the 1 1/2 per cent securities.
That no announcement be made at the present time
3.
of the maturities of any of the issues included in the
The announcement should, however, state that the
drive.
maturities on the 2 1/4 and 2 1/2 per cent bonds will
correspond approximately with the last previous issues
of such securities, with allowance for the lapse of time.
It is suggested that the Treasury consider lengthening
the period during which these securities are ineligible
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"for bank purchase.
The maturity of the 1 1/2 per cent
securities would be determined in relation to the level
of the market after the announcement and at the time of
the offering.
4. That the Treasury also announce at the present
time that, after the end of the corporate drive, it will
make a direct offering of 1.5 billion dollars of certifi
cates and 1.5 billion of 1 1/2 per cent securities to
commercial banks.
Subscriptions would be limited to a
proportion of capital and surplus or a proportion of de
posits, with the objective of limiting total subscriptions
to not far in excess of 3 billion dollars. All subscrip
tions for $50,000 or less for each issue would be accepted
in full. This would make it unnecessary to continue of
ferings to commercial banks on the basis of their time
deposits.
5.
That the Treasury limit the amount of war loan
deposits held by any one bank to 30 per cent of its de
posits, other than war loan deposits, and that the col
lateral pledged to secure such deposits be confined to
U. S. Government securities.
6. That the Treasury continue to increase the out
standing amount of Treasury bills by 100 million dollars
a week until the completion of the full cycle and that
the question of continuing this increase be reexamined
at that time.
"The separation of the drive into two distinct parts,
one for individuals, partnerships, and trust accounts, and
the other for other nonbank investors is in line with our
earlier recommendations and has our full endorsement. We
feel also that the increase in the quota for the individual
drive will place individuals and the selling organization
It is
under substantial, but not impossible, pressure.
recommended that the quota for other nonbank investors
be decreased to 5 billion dollars, which would make it un
necessary for these investors to sell any of their exist
The selling organization should be instructed
ing holdings.
to discourage the making of quotas by selling from exist
ing holdings. It would be expected that between 3.0 and
3.5 billion dollars of this total would be obtained from
insurance companies, mutual savings banks, and similar
institutions, this amount representing their accumulation
of funds. The remainder would come principally from cor
porations.
"A maximum rate of 1 1/2 rather than 1 3/4 per cent
on unrestricted securities would have a number of advantages.
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"The lower rate would reduce the interest cost of the
debt and retard the growth in bank earnings. It also
would reduce the temptation for commercial banks to ar
range for indirect purchases and would reduce the amount
of free-riding and speculation.
At the same time, it
would not be likely to reduce materially the demand from
individuals.
"An extension of the maturities of the 2 1/4 and 2 1/2
per cent bonds would not reduce the interest cost to the
Treasury, and it might create a bad market situation in the
event of large sales by nonbank investors.
It is expected
that the prices of the existing issues of 2 1/4 and 2 1/2
per cent bonds would decline on an announcement that new
issues bearing these coupon rates will be offered in the
drive.
"It is especially important to include 2 1/2 per
cent bonds in the drive.
Otherwise, the prices of the
existing 2 1/2 per cent bonds would increase further,
with the result that the long-term rate would decline.
The 2 1/2 per cent rate has been the most important rate
in the entire war financing program. Even at the 2 1/2
per cent rate, however, it has been difficult to encourage
purchases of Government securities. A reduction in that
rate would increase the difficulty by reducing the incentive
to save.
These securities are in an entirely different
category from unrestricted securities, because they can
be held only by individual savers and by institutions that
hold savings of the public and therefore cannot involve
an unnecessary expansion in bank credit. Finally, if the
long-term rate were reduced, it might be impossible later
to restore the 2 1/2 per cent rate if that course seemed
to be desirable, because it would involve permitting newly
issued 2 1/4 per cent bonds to decline below par.
"Direct bank financing should have no adverse public
reaction, because those who realize that indirect bank par
ticipation has been an important part of recent drives
would recognize the advantages of the change, whereas those
who do not know this fact would be unlikely to realize that
Commercial banks have found that
any change had been made.
many nonbank investors are willing to subscribe for securi
ties for the purpose of reselling the securities to com
or no premium. Banks that have
mercial banks at little
followed the Treasury's request, however, have been able
to purchase securities only by paying substantial premiums
In effect, therefore, the Treasury, by
to speculators.
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3/1/45
"not making direct offerings to commercial banks, makes
it advantageous for banks not to follow the Treasury'
own request. In addition to putting bank purchases on
a more straightforward basis, a direct offering to banks
would permit banks to purchase new securities at par
rather than to pay premiums to speculators or to make
special arrangements with nonbank investors. It also
would reduce free-riding and would reduce undesirable
shifting of securities in the market.
"The Committee also discussed a suggestion that the
Treasury require that some proportion of war loan deposits
be secured by Government securities maturing in not more
than either six months or one year, but came to no con
clusion on this matter. If, however, the Treasury de
cides to adopt this suggestion, the Committee recommends
that such depositaries be exempted from the requirement
to the extent of $500,000 or 25 per cent of their war
loan deposits, whichever is larger."
Attention was then turned to the actions to be taken by the
Federal Open Market Committee to carry out the policies of the Commit
tee which it
was felt
were desirable in view of the suggestions that
had been made with respect to future Treasury financing.
members were in
All of the
agreement that the direction issued to the Federal Re
serve Banks on March 1, 1944, with respect to the purchase of Treasury
bills should be renewed and that, in
order to conform the direction to
the present practice, the last sentence of the direction should be
changed to provide that the Federal Reserve Banks should make prompt
reports of all transactions in
Treasury bills to the Manager of the
System Open Market Account.
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
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3/1/45
held by the Federal 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 pur
chase 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 Fed
eral 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 same rate of discount.
All bills purchased under this direction are to be held
by the purchasing Federal Reserve Bank in its own account
and prompt reports of all transactions in Treasury bills
are to be made to the Manager of the System Open Market
Account.
Reference was made to the action taken by the Committee at its
meeting on December 11, 1944, in authorizing the executive committee,
in its
discretion,
further action, bills
to advise the Federal Reserve Banks that, pending
in the System account would not be allocated to
any Federal Reserve Bank in
accordance with the existing allocation pro
cedure in an amount which would reduce its
cent.
reserve ratio below 43 per
It was stated that no action had been taken by the executive com
mittee under this authorization.
Chairman Eccles referred to the bill now under consideration by
Congress which would reduce to 25 per cent the reserves required to be
maintained by the Federal Reserve Banks against deposits and Federal
Reserve notes in
circulation and stated that, while he could not say
at this time when the bill
would become law, it
might be well for the
Committee to consider some reduction in the point below which the
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3/1/45
reserve ratio of a Reserve Bank would not be reduced by the alloca
tion of securities in the System account on statement and realloca
tion dates.
Mr. Rouse stated that it
did not appear that the average re
serve ratio for the System would reach 45 per cent until about the
time of the Seventh War Loan Drive, but that the advantage in reduc
ing the minimum now in
effect would be that Banks with low reserve
ratios would be in a position to take substantial additional amounts
of bills which would give them a greater share in the earnings from
the System account.
Upon motion duly made and seconded,
and by unanimous vote, it was agreed that,
pending another meeting of the Federal Open
Market Committee and pursuant to the provi
sions of paragraph 2(a) of the allocation
procedure now in effect, Treasury bills
should not be allocated to any Federal Re
serve Bank in an amount that would reduce
its reserve ratio below a percentage to be
fixed by the executive committee of the
Federal Open Market Committee, it being
understood that the percentage fixed by
the executive committee would not be less
than 40 per cent.
Mr. Rouse pointed out that paragraph 2(b) of the allocation
procedure provided that, between the weekly and month-end adjustments
any Bank desiring to restore its
reserve ratio to a level above 40
per cent would sell to a Bank or Banks having the highest reserve
ratio or ratios a participation or participations in Treasury bills
held in its
option account for a period of days to expire on the
3/1/45
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following Wednesday or month end, whichever was earlier, except that
such adjustments would be made in the System account in the event that
a Bank did not hold sufficient bills in its option account.
that if
the bill
He said
to reduce the reserves required to be maintained by
Federal Reserve Banks became law it
would be desirable to amend the
allocation procedure to reduce the 40 per cent limitation to some
lower amount, and that consideration might be given to taking such
action at this meeting, subject to enactment of the bill, or the mat
ter might be deferred until the next meeting of the Committee, which
undoubtedly would be held in the spring or early summer of this year.
This point was discussed and it
was agreed that no action should be
taken before the next meeting of the Committee.
Mr. Rouse stated that, on the basis of the estimates which
had been made of the amount of reserves that would have to be supplied
by the System before the next meeting of the Federal Open Market Com
mittee was held, it
would not be necessary for the Committee to au
thorize a net increase in the amount of securities in the System ac
count, other than Treasury bills, of more than $1 billion
in view of the uncertainties in
but that
the situation, including the possible
termination of the European phase of the war before the next meeting,
it would be better if the limitations in the existing direction to the
executive committee to effect transactions in the System account were
not changed.
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3/1/45
Thereupon, upon motion duly made and
seconded and by unanimous vote, the follow
ing direction to the executive committee
was approved, with the understanding that
the limitations contained in the direction
would include commitments for purchases and
sales of securities for the System account:
That the executive committee be directed, until other
wise directed by the Federal Open Market Committee, to ar
range for such transactions for the System open market ac
count, either in the open market or directly with the
Treasury (including purchases, sales, exchanges, replace
ment of maturing securities, and letting maturities run
off without replacement), as may be necessary in the prac
tical 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; pro
vided 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 in
debtedness purchased 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, un
til otherwise directed by the Federal Open Market Committee,
to arrange for the purchase for the System open market ac
count 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
Treasury; provided that the amount of such certificates
held in the account at any one time shall not exceed
$1,500,000,000.
Chairman Eccles then stated that there were still
outstanding
certain authorities granted by the Federal Open Market Committee to the
Federal Reserve Banks in 1936 and 1937 and that the suggestion had been
made that it
would be desirable to review these authorities at this time
3/1/45
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for the purpose of determining whether they should be discontinued
or changed in any way.
The first
of these was the authority granted to the Federal
Reserve Banks at the meeting of the Federal Open Market Committee on
May 25, 1936, to make temporary purchases of Government securities
under resale agreements for periods not exceeding 15 days, it having
been agreed at the time that, if
confined to short periods which
would be adequate for the accommodations desired, there would be no
objection to this practice.
It
was stated that this authority had
not been used by the Federal Reserve Banks for a long time.
Mr. Rouse commented that the only use that he could see to
which the authority might be put would be to place funds in
the market
quickly in the event of an emergency and that, while it
might be de
sirable to continue the authority for that purpose, it
was not an im
portant matter.
Upon motion duly made and seconded,
and by unanimous vote, the authority was
terminated, effective immediately.
In connection with the above matter, Mr. McLarin stated that
he thought that it
Bank if it
would be of very material help to a Federal Reserve
were authorized to maintain a small portfolio of Government
securities in an amount not to exceed $200,000 or $250,000 to enable
the Reserve Bank to purchase securities directly from and sell securi
ties directly to the smaller member banks.
Under the present arrangement,
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3/1/45
he said, it
was necessary to take a bank's order and to make a number
of telephone calls to ascertain the best price available and then make
the securities or the proceeds from the sale of securities available
to the member bank only after a delay of several days.
was raised whether the service, if
member banks or whether it
it
to serve all
The question
provided, could be limited to small
would not be necessary eventually to expand
member banks and possibly others.
Chairman Eccles stated that this suggestion presented the whole
question, which had been discussed on various occasions in
the Federal Open Market Committee,
the past by
of the Federal Reserve Banks under
taking to act as dealers for the purchase and sale of Government securi
ties in their respective districts, and he expressed the opinion that
the suggestion should not be adopted unless the Federal Reserve Banks
were prepared to go the whole distance of furnishing a market for Gov
ernment securities in
their districts.
The matter was discussed but no action was taken.
On November 20, 1936,
the Federal Open Market Committee adopted
a resolution authorizing the Federal Reserve Banks, subject to the pro
visions of Section 14 of the Federal Reserve Act, as amended, and the
regulations,
conditions,
scribed thereunder,
and limitations of the Board of Governors pre
but without further direction or authorization from
the Federal Open Market Committee,
to purchase and sell at home or
abroad cable transfers, and bills of exchange and bankers' acceptances
3/1/45
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payable in foreign currencies,
to the extent that such purchases and
sales might be deemed to be necessary or advisable in
the establishment, maintenance,
operation, increase,
connection with
reduction, or
discontinuance of accounts of Federal Reserve Banks in foreign coun
tries.
The purpose of this action was to simplify the procedure in
connection with the handling of accounts with foreign central banks
which are subject to special supervision by the Board of Governors of
the Federal Reserve System under Section 14 of the Federal Reserve
Act.
Mr. Sproul stated that the need for the authority granted by
the resolution still
existed, that the small number of accounts abroad
placed a limit on use of the authority, and that if
discontinued it
the authority were
would be necessary to get the specific approval of the
Federal Open Market Committee for small transactions executed in
the
management of accounts which the Federal Reserve Banks have on the
books of foreign central banks.
There was unanimous agreement that no
action should be taken with respect to the
resolution at this time.
At the meeting of the Federal Open Market Committee on November
30, 1937, it
was decided that, in view of the fact that securities ac
quired by the Federal Reserve Banks in
closed banks would be in
settlement of claims against
such small amounts as to be unimportant from
the standpoint of credit control, the Committee, until otherwise
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3/1/45
directed by it,
would interpose no objection to a Federal Reserve Bank
holding any such securities acquired by the Bank or to the sale of
such securities wherever such sale was deemed to be advisable by the
holding bank.
From the information available to the Committee this
authority had not been used by the Federal Reserve Banks for a con
siderable period, and it
was suggested that it
might well be termin
ated.
Mr. Gidney expressed the opinion that the authority should
be continued as none of the Federal Reserve Banks could foresee when
they might be called upon to use it
in
connection with securities held
as collateral for advances to a member bank which had become insolvent
because of defalcations or some other unusual situation.
The matter was discussed in the light
of Mr. Gidney's opinion, and it was agreed
unanimously that no action should be taken
to terminate or amend the authority at this
meeting.
A discussion of the time for the next meeting of the Federal
Open Market Committee ensued, and it
was tentatively agreed that the
next meeting should be held June 20 and 21, 1945, with the understand
ing that the next meeting of the Presidents' Conference would be held
on June 18 and 19, 1945,
and that any further discussions (other than
the discussions to be held tomorrow) of papers prepared by System econo
mists on economic problems and policies in the postwar period that
might be decided upon should take place during the days specified for
3/1/45
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the meeting of the Open Market Comittee.
Thereupon the meeting adjourned.
Secretary.
Approved:
Chairman.
Cite this document
Federal Reserve (1945, February 28). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19450301
@misc{wtfs_fomc_minutes_19450301,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1945},
month = {Feb},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19450301},
note = {Retrieved via When the Fed Speaks corpus}
}