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 Saturday, March 1, 1947, at 10:10 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Eccles, Chairman

Sproul, Vice Chairman

Draper

Evans

Mr. Vardaman

Mr. Clayton

Mr.

Mr.

Mr.

Mr.

Whittemore

Gidney

Davis

Peyton

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Thomas, Economist

Mr. Vest, General Counsel

Mr. Rouse, Manager of the System Open Market

Account

Mr. John H. Williams, Associate Economist

Mr. Sherman, Assistant Secretary to the

Board of Governors

Mr. Musgrave, Chief, and Mr. Smith,

Economist, Government Finance Section,

Division of Research and Statistics

of the Board of Governors

Messrs. Alfred H. Williams and Gilbert,

alternate members of the Federal Open

Market Committee

Mr. Stead, Vice President of the Federal

Reserve Bank of St. Louis

The Secretary reported that advices of the election for a

period of one year commencing March 1, 1947, of members and alter

nate members of the Federal Open Market Committee representing the

Federal Reserve Banks had been received, that each newly elected

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member and alternate member had executed the required oath of of

fice, 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;

Laurence F. Whittemore, President of the Federal Reserve

Bank of Boston, with Alfred H. Williams, President of

the Federal Reserve Bank of Philadelphia, as alternate

member;

Ray M. Gidney, President of the Federal Reserve Bank of

Cleveland, with C. S. Young, President of the Federal

Reserve Bank of Chicago, 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

J. 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 motion 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 29, 1948, with the understanding that

in the event of the 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 Open Market Committee. In connection

with the election of Mr. Morrill, it was agreed

unanimously that the bylaws of the Federal Open

Market Committee which provide that the Secretary

of the Board of Governors shall be Secretary of

the Committee should not be changed, but that Mr.

Morrill should continue to serve as Secretary

notwithstanding the applicable provision of the

bylaws

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Marriner S. Eccles, Chairman

Allan Sproul, Vice Chairman

Chester Morrill, Secretary

S. R. Carpenter, Assistant Secretary

Woodlief Thomas, Economist

John H. Williams, Alfred C. Neal,

Donald S. Thompson, William H.

Stead, and Paul W. McCracken,

Associate Economists

George B. Vest, General Counsel

J. Leonard Townsend, Assistant Gen

eral 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 February

29, 1948.

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 Re

serve 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.

Upon motion 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 Chairman of the executive committee)

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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 29, 1948:

Members

Ernest G. Draper

James K. Vardaman, Jr.

Alternate Members

M. S. Szymczak

Lawrence Clayton

R. M. Evans

(To serve in the order

named as alternates for

Messrs. Eccles, Draper, and

Vardaman, except that upon

Mr. Ransom's return, he will

serve as the first alternate

in the absence of Chairman

Eccles and as the third alter

nate in the absence of Messrs.

Draper and Vardaman.)

Allan Sproul

Chester C. Davis

Ray M. Gidney

J. N. Peyton

(To serve in the order named

as alternates for Messrs.

Sproul and Davis.)

Mr. Carpenter stated that the existing authority for distri

bution of the weekly open market report prepared by the Federal Re

serve Bank of New York did not include Mr. Roelse, as Vice President

in charge of the Research Department, and that it

was suggested that

the authority be changed to include that position.

In accordance with this suggestion,

upon motion duly made and seconded, and

by unanimous vote, the distribution of the

weekly report to the following was approved:

1.

The members of the Board of Governors.

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2.

3.

4.

5.

6.

7.

8.

The Presidents of the 12 Federal Reserve Banks.

The Secretary, the Economist, and the Associate

Economists of the Federal Open Market Committee.

The Secretary of the Treasury.

The Under Secretary of the Treasury.

The Fiscal Assistant Secretary of the Treasury.

The Chief of the Division of Bank Operations of

the Board of Governors.

Mr. Rounds, alternate member of the Federal Open

Market Committee; the Assistant Vice President of

the Federal Reserve Bank of New York working under

the Manager of the System Account; the Manager of

the Securities Department of the New York Bank;

the Vice President in charge, and the Manager, of

the Research Department of the New York Bank; and

the confidential files of the New York Bank as

agent for the Federal Open Market Committee.

Reference was made to the resolution adopted by the Federal

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

Reserve Banks, subject to the provisions of section 14 of the Fed

eral Reserve Act 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 sell at home or abroad cable trans

fers and bills of exchange and bankers'

acceptances payable in for

eign currencies to the extent that such purchases and sales might

be deemed to be necessary or advisable in

tablishment, maintenance,

operation,

connection with the es

increase,

reduction, or dis

continuance of accounts of Federal Reserve Banks in foreign coun

tries.

As stated at the meeting of the Committee on March 1, 1946,

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

was to simplify the procedure in connection with the handling of ac

counts with foreign central banks which were subject to special super

vision by the Board of Governors of the Federal Reserve System under

section 14 of the Federal Reserve Act,

Mr. Sproul stated that accounts were maintained by the Fed

eral Reserve Bank with the Bank of Canada, the Bank of England, and

the Bank of France, that the amounts in these three accounts were

relatively very small, totaling at present about $102,000, and that

the need for continuance of the authority which would permit pur

chases and sales necessary to the maintenance of these accounts still

existed, unless it

was desired that specific approval of the Federal

Open Market Committee be obtained covering small transactions exe

cuted in the management of the accounts.

There was unanimous agreement that

no action should be taken with respect to

the resolution at this time.

Mr. Carpenter read an excerpt from the minutes of the meet

ing of the Committee on November 30, 1937, in which it

was stated

that since securities acquired by Federal Reserve Banks in settle

ment of claims account closed banks would be so small as to be un

important from the standpoint of credit control, the Committee would

interpose no objection to Federal Reserve Banks holding such securities

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or to the sale of such securities whenever deemed to be desirable by

the holding Bank.

Chairman Eccles asked whether there was any need for contin

uing the authority or whether it

and, if

would be better to allow it

to lapse

conditions arose which might make such authority desirable

again, to consider the question at that time.

Mr. Gidney stated that the conditions had not changed since

consideration was given to termination of the authority on March 1,

1946,

that it

had not been used for a considerable period of time,

that its use was not anticipated,

but that if

a condition arose where

the use of such authority might be desirable, the necessity for quick

action to protect the interests of a Federal Reserve Bank would make

it desirable to have the authority in

effect.

It was agreed unanimously that no

action should be taken at this time to

terminate or amend the authority.

There were then distributed copies of a memorandum dated Feb

ruary 25, 1947, on the outlook for the debt retirement program.

appeared from the information contained in

It

the memorandum that a sub

stantial Treasury balance would be available for continuing the debt

retirement program during April and perhaps during June and July, and

there was a discussion of the recommendation to be made to the Treas

ury upon receipt of the usual request for the Committee's views in

-8connection with the certificates maturing on April 1.

Consideration

was given to the suggestion that the Treasury retire $1.5 billion of

the April 1 maturity and whether anything should be said at this time

with respect to retirements in June and July.

It was the consensus

that because of the uncertainty regarding Treasury balances the Com

mittee should recommend the retirement of only $1 billion of the April

maturities and that recommendations with respect to June and July ma

turities should be deferred until later when it

would be apparent wheth

er the high level of Treasury receipts was being maintained.

At the conclusion of the discussion,

upon motion duly made and seconded, and

by unanimous vote, it was agreed that

upon receipt of the usual request from

Mr. Bartelt, the following letter should

be sent to the Secretary of the Treasury:

"In response to Mr. Bartelt's request, I am transmit

ting to you the recommendations of the Federal Open Market

Committee with respect to April financing. The Committee

recommends that one billion dollars of April 1 certificates

be retired, in order to continue the program of orderly debt

reduction which has been so successfully followed in the

recent past, and to obtain the modest interest saving in

volved.

"Because receipts have been and appear likely to be

considerably higher than had been expected, it is now esti

mated that the Treasury balance at the end of March will be

over 5 billion dollars, including the 800 million of free

It is also

gold derived from Monetary Fund transactions.

estimated that the balance at the end of April will be at

least 3.8 billion, assuming one billion of April 1 certifi

cates are retired, and will not be less than 3 billion on

June 30 despite the expected excess of expenditures during

the last quarter of the fiscal year.

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"It will be possible to finance the March 15 and

the proposed April 1 retirements out of the Treasury

balances with the Federal Reserve Banks plus a call on

war loan deposits of 500 to 800 million dollars on March

15. A call of approximately this amount at this time

would be desirable to reduce the easing of the money

market that will result from the March 15 payment of

maturing notes."

In connection with the direction issued by the Federal Open

Market Committee on March 1, 1945, with respect to purchases and

sales of bills by the Federal Reserve Banks, Chairman Eccles stated

that it

did not appear that there was any action to be taken toward

changing the direction until the question of future policy with re

spect to Treasury bills had been more fully determined.

Upon motion duly made and seconded,

and by unanimous vote, it was agreed

that no action should be taken at this

time to change the direction issued at

the meeting of the Federal Open Market

Committee on March 1, 1945, with respect

to the purchase of Treasury bills by the

twelve Federal Reserve Banks.

In connection with the authority to be granted to the ex

ecutive committee to execute transactions for the System open market

account,

it

was suggested that because of the somewhat reduced size

of Treasury operations in connection with the program for the retire

ment of the public debt, the limitation on the authority of the ex

ecutive committee to increase or decrease the total amount of securi

ties in the System account should be fixed at $1,500,000,000 instead

of $2,000,000,000.

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-10Thereupon, upon motion duly made and

seconded and by unanimous vote, the fol

lowing 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 open mar

ket account:

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 adminis

tration of the account or for the purpose of maintaining an

orderly market in Treasury securities and a general level

of prices and yields of Government securities which will

support the Treasury issuing rates of 7/8 per cent for one

year certificates and 2-1/2 per cent for 27-year bonds re

stricted as to ownership; 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 cer

tificates of indebtedness 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, 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;

provided that the amount of such certificates held in the ac

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

It

was tentatively agreed that the next meeting of the Federal

Open Market Committee would be held during the week beginning June 2,

1947.

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Thereupon the meeting adjourned.

Secretary.

Approved.

Chairman.