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 Friday, March 1, 1946, at 10:10 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Sproul, Vice Chairman

Szymczak

McKee

Ransom

Draper

Evans

Leach

McLarin

Young

Clerk

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Thomas and Mr. John H. Williams, Associate

Economists

Mr. Rouse, Manager of the System Open Market

Account

Mr. Thurston, Assistant to the Chairman of the

Board of Governors

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. Whittemore, Gidney, Davis, 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.

The Secretary reported that advices of the election for a period

of one year commencing March 1, 1946, of members and alternate members

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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 alter

nate member;

Hugh Leach, President of the Federal Reserve Bank of

Richmond, with Laurence F. Whittemore, President

of the Federal Reserve Bank of Boston, as alternate

member;

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

Chicago, with Ray M. Gidney, President of the Fed

eral Reserve Bank of Cleveland, as alternate member;

W. S. McLarin, Jr., President of the Federal Reserve Bank

of Atlanta, with Chester C. Davis, President of the

Federal Reserve Bank of St. Louis, as alternate mem

ber; and

Ira Clerk, President of the Federal Reserve Bank of San

Francisco, with J. N. Peyton, President of the Fed

eral Reserve Bank of Minneapolis, as alternate mem

ber.

Upon motions duly made and seconded, and

by unanimous votes, the following officers 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, 1947, with the understanding that

in the event of discontinuance of their official

connection with the Board or a Federal Reserve

Bank, as the case might be, they would cease to

have any official connection with the Federal

In connection with the

Open Market Committee.

election of Mr. Morrill it was agreed unani

mously that the by-laws of the Federal Open

Market Committee, which provide that the

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Secretary of the Board of Governors shall

be Secretary of the Committee, should not

be changed, but that Mr. Morrill should con

tinue to serve as Secretary notwithstanding

the applicable provision of the by-laws:

Marriner S. Eccles, Chairman

Allan Sproul, Vice Chairman

Chester Morrill, Secretary

S. R. Carpenter, Assistant Secretary

Woodlief Thomas, Economist

E. A. Kincaid, John K. Langum, Earle L.

Rauber, 0. P. Wheeler, and John H.

Williams, Associate Economists

George B. Vest, General Counsel

J. Leonard Townsend, Assistant General

Counsel

Mr.

Vest entered the meeting at this point.

Upon motion duly made and seconded, and

by unanimous vote, the Federal Reserve Bank

of New York was selected to execute trans

actions for the System open market account

until the adjournment of the first

meeting

of the Committee after February 28, 1947.

Mr.

Sproul stated that the board of directors of the Federal

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

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 account and 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.

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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 executive committee until the selection of

their successors at the first meeting of the

Federal Open Market Committee after February

28, 1947, except that Mr. McKee was selected to

serve as an alternate only during the period in

which he continued to serve as a member of the

Board of Governors; and his successor, effective

as of the date he qualifies as a member of the

Board, was appointed to serve in the position

of alternate in the place of Mr. McKee:

Members

Alternate Members

Ernest G. Draper

R. M. Evans

M. S. Szymczak

John K. McKee

Ronald Ransom

(To serve in the order named

as alternates for Messrs.

Eccles, Draper, and Evans, ex

cept that, in the absence of

Chairman Eccles, Mr. Ransom

would serve as the first alter

nate.)

Allan Sproul

Hugh Leach

C. S. Young and W. S. McLarin, Jr.

(To serve in the order named as

alternates for Messrs. Sproul

and Leach.)

Mr. Flanders, Consultant to the Board of Directors of the Federal

Reserve Bank of Boston, Mr. Hardy, Vice President of the Federal Reserve

Bank of Kansas City, Mr. Hostetler, Manager, Research Department, Federal

Reserve Bank of Cleveland, Mr. Sienkiewicz, Vice President, Federal Reserve

Bank of Philadelphia, Mr. Irons, Director of Research, Federal Reserve

Bank of Dallas, Mr. Morse, Assistant Director, Division of Research and

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Statistics, Board of Governors, and Mr. Townsend, Assistant General

Counsel, joined the meeting at this point.

Chairman Eccles then called for the reports of the economists

and, at Mr. Thomas'

request, Mr.

Hardy summarized the observations in

his paper "Prospects for Inflation in the Transition Period" which is

to be included in the postwar economic studies being published by the

Board of Governors.

His statement was followed by comments by Messrs.

Thomas and John H. Williams.

Summaries of these two statements are at

tached and copies have been placed in the files of the Federal Open Mar

ket Committee.

Following a brief discussion of some of the problems presented

by the economists,

wages,

particularly with respect to production, prices, and

their effect on the economy, and the policies that should be

adopted with respect to them, the meeting recessed and reconvened at

2:10 p.m.,

with the same attendance as at the beginning of the morning

session except that Messrs. Davis and Peyton were not present and Messrs.

Vest and Townsend were in

attendance.

Reference was made to the resolution adopted by the Federal Open

Market Committee on November 20, 1936, authorizing the Federal Reserve

Banks,

Act,

subject to the provisions of Section 14 of the Federal Reserve

as amended,

and the regulations,

conditions, and limitations of the

Board of Governors prescribed thereunder, but without further direction

or authorization from the Federal Open Market Committee, to purchase and

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sell at home or abroad cable transfers, and bills of exchange and bankers'

acceptances payable in foreign currencies, to the extent that such pur

chases and sales might be deemed to be necessary or advisable in connec

tion with the establishment, maintenance,

operation,

increase, reduction,

or discontinuance of accounts of Federal Reserve Banks in

tries.

foreign coun

As stated at the meeting of the Committee on March 1, 1945, when

this resolution was last considered, the purpose of this action was to

simplify the procedure in

connection with the handling of accounts with

foreign central banks which were 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 this authority permitted purchases and

sales necessary to the maintenance of four accounts which the Federal

Reserve Bank of New York had with the Bank of Canada, the Bank of England,

the Bank of France, and the Bank for International Settlements, that the

amounts in these accounts were relatively very small, that the need for

the continuation of the authority still existed, and that if it were dis

continued it

would be necessary to obtain specific approval of the Federal

Open Market Committee of small transactions executed in the management of

the accounts.

There was unanimous agreement that no

action should be taken with respect to the

resolution at this time.

Reference was also made to the decision reachedat the meeting of

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the Committee on November 30, 1937, that, since securities acquired by

Federal Reserve Banks in

settlement of claims account closed banks would

be so small as to be unimportant from the standpoint of credit control,

the Committee would interpose no objection to Federal Reserve Banks hold

ing such securities or to the sale of such securities whenever deemed

to be advisable by the holding bank.

At the meeting of the Committee on March 1, 1945,

considera

tion was given to the termintion of the authority inasmuch as it

been used for a considerable period.

At that time Mr.

had not

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.

At this meeting Mr. Gidney said that he continued to be of the

same opinion.

It was agreed unanimously that no action

should be taken at this time to terminate or

amend the authority.

Turning to a discussion of credit policy and the policies of the

Treasury with respect to the Government debt, Chairman Eccles

it

stated that

would be difficult to distinguish between the nature of the discus

sions that had already been had with representatives of the Treasury with

respect to future policy and the discussions which might be held in the

near future.

He felt, however,

that, having in mind the program that had

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been proposed in connection with the retirement of the public debt over

the next few months,

consideration might be given to what should be done

iith respect to the preferential discount rate of 1/2 per cent now in ef

fect at the Federal Reserve Banks and the rate of 3/8 per cent at which

the Federal Reserve Banks buy Treasury bills.

It

was his view that it

would be preferable to withhold action on these matters until a decision

was made by the Treasury on the amount of certificates maturing in April

that were to be retired, as the possible effects of the elimination of

the two rates at this time were not as important as the continuation of

the program of retirement of the Government debt under which from one to

two billion dollars of April certificates would be paid off.

It

was the general consensus that informal consideration should

be given by the Presidents and the Board of Governors,

as such, to the

action that should be taken on the preferential discount rate and the

meeting recessed for that purpose.

Following the informal discussion of the Presidents and the mem

bers of the Board the meeting of the Federal Open Market Committee re

convened for the purpose of considering the action to be taken with re

spect to the rate of 3/8 per cent on Treasury bills.

A memorandum of the informal discussion of the Presidents and

the Board has been placed in the files of the Board of Governors.

It being understood that no immediate action

had been decided upon with respect to the elimination

of the preferential discount rate, there was unanimous

agreement that no action should be taken at this time

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to change the direction issued to the Federal Reserve

Banks at the meeting of the Federal Open Market Com

mittee on March 1, 1945, relating to the purchase by

the Banks of Treasury bills.

It was also agreed that, as was understood at

the meeting of the Federal Open Market Committee

on October 17, 1945, the executive committee would

continue to have such discussions with represent

atives of the Treasury as conditions might require

on questions as to policies that should be adopted

for the future.

In connection with the authority to be granted to the execu

tive committee to execute transactions for the System open market account,

Chairman Eccles suggested that, in view of the large transactions that

would take place in the account arising from the needs for reserve funds

in connection with the program for retirement of the public debt and the

redemption of securities in the System account, the limitation on the

authority to the executive committee to increase or decrease the total

amount of securities in the System account should be fixed at $3 billion

instead of $2 billion.

Thereupon, upon motion duly made and

seconded, and by unanimous vote, the following

direction to the executive committee was ap

proved, with the understanding that the limita

tions contained in the direction would include

commitments for purchases and sales of securi

ties for the System account:

The executive committee be directed, until otherwise di

rected 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 the purpose of maintaining about the present

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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

(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

purchased from time to time for the temporary accommodation of

the Treasury] shall not be increased or decreased by more than

$3,000,000,000.

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

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; pro

vided that the amount of such certificates held in the account

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

Mr. McLarin stated that he still

felt that, for the reasons

which he gave at the meeting of the Federal Open Market Committee on

March 1, 1945, the Reserve Banks should have authority to maintain a

small portfolio of Government securities to enable the Banks to pur

chase securities directly from, and sell securities directly to, the

smaller member banks,

and that at the proper time he would like to

bring the matter up for further discussion by the Committee.

It

was tentatively agreed that the next meeting of the

Federal Open Market Committee would be held during the week beginning

June 3, 1946.

Thereupon the meeting adjourned.

Secretary.

Approved:

Chairman.