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, February 28, 1946, 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

Messrs. Hardy, 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

Assistant 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. Young and McLarin, alternate mem

bers of the Federal Open Market Committee

Messrs. Leach, Davis, Peyton, and Clerk, Presidents

of the Federal Reserve Banks of Richmond, St.

Louis, Minneapolis, and San Francisco, re

spectively

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Upon motion duly made and seconded,

and by unanimous vote, the minutes of the

meeting of the Federal Open Market Com

mittee held on October 17, 1945, were

approved.

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 meetings of the executive com

mittee on October 17 and December 5, 1945,

and January 23, 1946, were approved, rati

fied, and confirmed,

Mr. Rouse discussed the important points in the report of

open market operations, prepared by the Federal Reserve Bank of New

York, covering the period from October 18, 1945, to February 23, 1946,

inclusive.

Copies of the report were distributed during the meeting.

Mr. Rouse also reviewed briefly a supplemental report prepared by the

Federal Reserve Bank of New York covering operations during the period

February 25-27, 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

October 18, 1945, to February 27, 1946,

inclusive, were approved, ratified and

confirmed.

In response to an inquiry from Mr. McKee as to the possible

effects on the domestic monetary and credit situation during 1946 of

the spending in this country of liquid funds in the hands of foreigners

and the proceeds of foreign loans by the United States, Chairman Eccles

outlined the present situation with respect to membership in the Inter-

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national Monetary Fund and the International Bank for Reconstruction

and Development and the plans for the meeting in connection with the

organization of the Fund and the Bank to be held in Savannah, Georgia,

next month.

March 5,

He also referred to the hearings which were to begin on

1946, on the British loan and stated that the prospects for

the approval of the loan by Congress were improving.

While the British

loan was essential to the successful establishment of the Bretton Woods

organizations, he thought that the effects of the loan on the domestic

situation would not be very great as it

would not involve immediate

purchases of goods in this country and the funds would be spent over a

period of years.

He also said that there had recently been prepared by

the Board's staff a statement entitled "Repercussions on Reserve System

of Bretton Woods Institutions",

and that copies of the memorandum would

be given to the Presidents of all of the Reserve Banks.

Copies of the

memorandum were distributed during the meeting and a copy has been

placed in the files of the Federal Open Market Committee.

Chairman Eccles went on to say that it

was expected that a re

port prepared by the National Advisory Council with respect to foreign

credits other than the British loan would be submitted by the President

shortly.

He added that the report would indicate to Congress that the

additional loans contemplated would be comparatively small in total amount

through the fiscal year 1947 and that the loans would be made through

the Import-Export Bank.

The total of the loans, he said, would be small

so far as their effect on the domestic picture was concerned,

and gold

imports and foreign credits made available by the International Bank

2/28/46

probably would be of much greater importance in their effect on our

monetary and credit situation.

In a further comment, Chairman Eccles said that another factor

that might become of some importance in our market was the freedom with

which foreign balances could be transferred between the Federal Reserve

Banks and private banks, that this could be a disturbing element in

carrying out the System's credit policies, that with the closer relation

ships with foreign central banks that might follow the establishment of

the Bretton Woods organizations it

might be possible to solve this prob

lem, and that he did not think there should be any request for legislation

until the results of the operations under the Bretton Woods organizations

could be determined.

Before this meeting each member of the Committee had received a

copy of the report of examination submitted by the examiner in charge

for the Board of Governors covering the examination of the System open

market account as of November 17, 1945, made in connection with the reg

ular examination of the Federal Reserve Bank of New York.

The report

contained no criticisms or recommendations:

Upon motion duly made and seconded,

and by unanimous vote, the report was re

ceived and ordered filed.

Chairman Eccles and Mr. Sproul reviewed the matters which had

been discussed by the executive committee since the last meeting of the

full Committee as well as the discussion with the Secretary of the Treas

ury and members of his staff on January 30, 1946, at which time there was

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submitted to the Treasury a memorandum which, while not adopted by the

executive committee,

could be used as a basis for discussion and which

set forth a four-point program providing for (1) the elimination of the

preferential discount rate, (2) reduction in the volume of outstanding

Treasury bills and the discontinuance of the posted rate, (3)

over the next few months for the retirement of public debt,

a program

and (4)

legislation to require banks to hold specified amounts of short-term

Government securities.

Chairman Eccles read the memorandum above referred to and there

was discussion of the proposals contained therein,

during which Mr.

Sproul made a statement of the extent to which he had been in disagree

ment with the proposals.

Mr. Flanders,

an alternate member of the Committee,

joined the

me ting during the discussion.

Chairman Eccles referred to a memorandum prepared by Mr. Vest as

General Attorney for the Board under date of January 23, 1946, with re

spect to the independent responsibilities of the System in the credit

field and stated that there was no question but that the System did have

a responsibility for independent action.

It

was the Chairman's opinion

that the System had ample authority to deal with the existing situation

by actions which would increase rates, but that in

view of the vastly

different conditions existing at the present time which were not con

templated when the authority was given,

rates would be entirely unjustified.

action by the System to increase

He felt that the Board of Governors

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2/28/46

as the agent of Congress had no other choice than to report to the

Congress that the powers of the System were inadequate to cope with the

existing situation, other than by an increase in rates,

and what the

alternatives might be.

There was a further discussion of certain of the matters re

ferred to by Messrs. Eccles and Sproul in their views, after which the

meeting adjourned.

Secretary

Approved:

Chairman.