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 Wednesday, October 17, 1945, at 10:15 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Sproul, Vice Chairman

Szymczak

McKee

Ransom

Draper

Evans

Alfred H. Williams

Mr. Gidney

Mr. Leedy

Mr. Gilbert

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Goldenweiser, Economist

Messrs. Hardy, Hostetler, Irons, Sienkiewicz,

Thomas, and John H. Williams, Associate

Economists

Mr. Wyatt, General Counsel

Mr. Vest, 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

and Statistics of the Board of Governors

Mr. Connell, General Assistant, Office of the

Secretary of the Board of Governors

Messrs. Flanders, Young, McLarin, and Day, alter

nate members of the Federal Open Market Com

mittee

Messrs. Leach and Peyton, Presidents of the Fed

eral Reserve Banks of Richmond and Minneapolis,

respectively

Chairman Eccles stated that it

would be necessary for him to leave

the meeting at 10:50 a.m. to attend a meeting of the Finance Subcommittee

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10/17/45

of the National Advisory Council on International Monetary and Financial

Problems which had under consideration important aspects of the financial

assistance to be given by this country to Great Britain.

At his request,

it was understood that a discussion of Treasury financing and open market

policies would be deferred until the afternoon session of this meeting.

On July 5, 1945, in view of the appointment of Mr. Morrill,

formerly Secretary of the Board of Governors,

as Special Adviser to the

Board, the members of the Federal Open Market Committee agreed that, not

withstanding the applicable provisions of the by-laws of the Federal Open

Market Committee, Mr. Morrill should be continued as Secretary of the

Committee pending the next meeting when the necessary formal action could

be taken.

Upon motion duly made and seconded, it

was voted unanimously (1) to approve, ratify,

and confirm the informal action of the members

of the Federal Open Market Committee on July 5,

1945, with respect to the Secretary of the

Committee, and (2) to continue Mr. Morrill as

meeting of the Fed

Secretary until the first

eral Open Market Committee after February 28,

sentence of

1946, notwithstanding the first

section 2 of article II of the by-laws of the

Federal Open Market Committee which provides

that the Secretary of the Board of Governors

shall be Secretary of the Committee.

Upon motion duly made and seconded, and

by unanimous vote, the minutes of the meeting

of the Federal Open Market Committee held on

June 20, 1945, were approved.

Upon motion duly made and seconded, and

by unanimous vote, the actions of the execu

tive committee of the Federal Open Market Com

mittee as set forth in the minutes of the

meeting of the executive committee on June 20,

1945, were approved, ratified, and confirmed.

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10/17/45

Mr. Rouse discussed the important points in a report of open mar

ket operations prepared by the Federal Reserve Bank of New York covering

the period from June 21, 1945,

to October 11, 1945, inclusive.

the meeting copies of the report were distributed.

During

Mr. Rouse also re

viewed briefly a supplementary report prepared by the Federal Reserve

Bank of New York covering operations during the period October 12-16,

1945, inclusive.

Copies of both reports have been placed in the files of

the Federal Open Market Committee.

Upon motion duly made and seconded, and

by unanimous vote, the transactions in the

System account during the period from June

20, 1945, to October 16, 1945, inclusive,

were approved, ratified, and confirmed.

Mr. McKee referred to the outstanding permissions granted by the

Board of Governors to certain member banks to accept drafts and bills of

exchange up to 100 per cent of their unimpaired capital and surplus, and

inquired whether it

would be advisable at this time, when few if

any banks

had acceptances outstanding in an amount in excess of 50 per cent of their

unimpaired capital and surplus, to revoke the outstanding permission and

require new applications for authority to accept up to 100 per cent of

capital and surplus, which would be considered by the Board on the basis

of the surrounding circumstances in each individual case.

Mr. Rouse said that the Committee on Bankers'

Presidents'

Acceptances of the

Conference had been studying the question what should be done

with respect to bankers'

acceptances and the acceptance market and that a

report would be submitted to the Presidents'

be sent to the Board of Governors.

Conference which could also

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All of the members of the Federal Open Market Committee and the

Presidents of the Federal Reserve Banks were in

agreement that the pres

ent was an appropriate time to review the whole situation and determine

what, if

any, action should be taken.

In August 1945 Mr. Rouse received a telephone request from Mr.

Bell, Under Secretary of the Treasury, that the name of Fiscal Assistant

Secretary of the Treasury Bartelt be added to the list

receiving the

weekly report of open market operations and money market conditions pre

pared by the Federal Reserve Bank of New York.

Market Committee at its

Since the Federal Open

meeting on May 15, 1943, decided that the report

should be sent only to a restricted list,

the request was cleared with

Mr. Ransom in the absence of Messrs. Eccles and Sproul, and the name of

Mr. Bartelt was added to the list.

Upon motion duly made and seconded, and

by unanimous vote, the addition of Mr. Bartelt

to the list

receiving the weekly report was

approved, ratified, and confirmed.

Chairman Eccles then called for the reports of the Economists and

Mr. Goldenweiser stated that, inasmuch as he had been out of the country

for approximately three months and was somewhat out of touch with the ex

isting situation,

he had asked Mr. Thomas to make the principal statement.

Mr. Thomas presented a statement on Federal Reserve policies in

the transition period and his statement was followed by comments by Messrs.

Goldenweiser, John H. Williams, Hardy, and Sienkiewicz.

Copies of all of

the statements have been placed in the files of the Federal Open Market

Committee.

10/17/45

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During the course of Mr. Thomas' statement Chairman Eccles left

the meeting.

Following a general discussion of questions raised by the Econo

mists'

statements, the meeting recessed and reconvened at 2:15 p.m. with

the same attendance as at the beginning of the morning session and, in

addition, Mr. Thurston, Assistant to the Chairman of the Board of Gov

ernors.

Chairman Eccles reviewed the discussions which members of the

executive committee had had with representatives of the Treasury since the

meeting of the Federal Open Market Committee on June 20, 1945,

including

the discussions which preceded the submission of the memorandum on

Treasury

financing which was sent to Secretary Morgenthau on July 9,

1945, and the suggestions that were made to the Secretary of the Treasury

by Messrs. Eccles and Sproul on August 22, 1945, with respect to arrange

ments to be made and the securities to be offered in

connection with the

Victory Drive.

Chairman Eccles stated that at the meeting of the executive com

mittee this morning all of the members of the committee felt that no

change could be made in Treasury financing policies or System monetary

and credit policies until after the Victory Drive, but that it

should be

understood that after the Drive the executive committee would continue

its discussions with the Treasury on the question of policies which should

be adopted for the reconversion and postwar periods.

Chairman Eccles also

said that he was satisfied that sometime after the Victory Drive was over

10/17/45

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members or committees of Congress would want to look into the effects of

war financing on the credit and monetary situation of this country and

particularly on the earning position of banks,

and that the Federal Open

Market Committee should continue the studies which were being made so

that it

would be in a position to suggest a practicable solution to the

difficult problems which will lie ahead because of the large volume of

Government securities outstanding.

There was unanimous agreement on the part of the members of the

Committee that the course suggested by the executive committee should be

followed.

Mr. Sproul inquired whether there was anything that could be

learned from the experiences of foreign central banking and governmental

authorities that would be helpful in the solution of the problems facing

the Treasury and the System.

Mr. Goldenweiser said that steps taken by

certain European countries had been effective but that they were much

more drastic than could be undertaken here.

In response to an inquiry from Mr. McKee as to the steps to be

taken by the Federal Reserve Banks to prevent speculative purchases of

securities during the Victory Drive, Mr. Sproul stated that the Presi

dents had discussed this matter with Mr. Bell at the meeting of the Presi

dents' Conference yesterday,

that at that time Mr.

Bell was asked whether

he could give the Presidents any definite instructions with respect to

the kind of policing job the Treasury wanted the Federal Reserve Banks to

undertake, but that Mr. Bell was not in a position to make a definite

10/17/45

reply.

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Mr. Sproul also said that it

Banks were in

appeared that the Federal Reserve

about the same position as in

the Seventh War Loan. Drive

and were faced with a policing problem which, because of reliance on a

certain amount of roll-over purchases and indirect bank buying in order

to make the Drive a success, was an impossible task.

Inasmuch as it was felt that no change

should be made in Treasury financing or Sys

tem open market policies until after the

Victory Drive was over, there was unanimous

agreement that no action should be taken at

this time to change the direction issued to

the Federal Reserve Banks at the meeting of

the Federal Open Market Committee on March 1,

1945, with respect to the purchase of Treas

ury bills at a discount rate of 3/8 per cent

per annum.

In connection with the authority to be granted to the executive

committee to execute transactions for the System open market account, Mr.

Rouse stated that it

was expected that it

would be necessary between now

and the end of the Victory Drive for the System to purchase $1,500,000,000

or more of securities for the purpose of providing necessary bank reserves

and that if

newed it

the existing authority to the executive committee were re

was believed that that would be all that would be required to

meet the situation until the next meeting of the Committee even if

meeting were not held until the end of February of next year.

There was no disagreement with Mr.

Rouse's suggestion and upon motion duly

made and seconded, and by unanimous vote,

the following direction to the executive

committee was approved with the understand

ing that the limitations contained in the

direction would include commitments for

purchases and sales of securities for the

System account:

the

10/17/45

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 maturities 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 pur

pose 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 pur

chased 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 purchased from

time to time for the temporary accommodation of the Treasury]

shall not be increased or decreased by more than $2,000,000,000.

That the executive committee be further directed, until

otherwise directed by the Federal Open Market Committee, to

arrange for the purchase for the System open market account di

rect 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.

Reference was made to the fact that the amendment to Section 14(b)

of the Federal Reserve Act which was contained in the Second War Powers

Act and which authorized the Federal Reserve Banks to purchase directly

of Government securities, would expire

from the Treasury up to $5 billion

at the end of this year, and inquiry was made as to what steps were being

taken to have the authority renewed.

Mr. Morrill stated that it

was understood that Mr. Snyder, Direc

tor of War Mobilization and Reconversion, would go before the Judiciary

Committee of the House of Representatives in the very near future and re

quest a renewal of certain of the provisions of the Second War Powers Act

including the provision above referred to and that while it

might not be

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10/17/45

possible to get the authority extended for an entire year it was likely

that something less than that would be acceptable.

Chairman Eccles stated that if

necessary he would also discuss the

matter with Secretary of the Treasury Vinson.

It

was agreed unanimously by the members of the Committee that in

the absence of unforeseen developments it

was not likely that another

meeting of the full Committee would be necessary before February 28 and

March 1 of next year, that it

mittee would continue its

should be understood that the executive com

discussions with the Treasury as agreed upon

earlier during this meeting, and that, if

at any time the executive com

mittee felt that a meeting of the full Committee should be held, such a

meeting would be called.

Thereupon the meeting adjourned.

Secretary.

Approved:

Chairman.