FOMC Minutes

A meeting of the Federal Open Market Committee was held in

the offices of the Board of Governors of the Federal Reserve Sys

tem in Washington on Monday, March 1, 1948, at 10:45 a.m.

PRESENT:

Mr. Eccles, Chairman

Mr. Sproul, Vice Chairman

Mr. Clayton

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Draper

Evans

Gilbert

Leedy

Szymczak

Vardaman

Williams

Young

Mr.

Mr.

Mr.

Mr.

Morrill, Secretary

Carpenter, Assistant Secretary

Vest, General Counsel

Thomas, Economist

Mr. Rouse, Manager of the System Open

Market Account

Mr. Thurston, Assistant to the Board of

Governors

Mr. Sherman, Assistant Secretary, Board

of Governors

Mr. Smith, Economist, Government Finance

Section, Division of Research and

Statistics, Board of Governors

Mr. Irons, Vice President of the Federal

Reserve Bank of Dallas

Mr. McCabe, Chairman designate, Board of

Governors

The Secretary reported that advices of the election, for a

period of one year commencing March 1, 1948, of members and alter

nate members 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

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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 Hugh Leach, President of

the Federal Reserve Bank of Richmond, as alternate

member;

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

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

Reserve Bank of Cleveland, as alternate member;

R. R. Gilbert, President of the Federal Reserve Bank of

Dallas, with W. S. McLarin, Jr., P-esident of the

Federal Reserve Bank of Atlanta, as alternate member;

H. G. Leedy, President of the Federal Reserve Bank of

Kansas City, with C. E. Earhart, President of the

Federal Reserve Bank of San Francisco, as alternate

member.

Mr. Sproul suggested that, pending the designation of Mr.

McCabe as Chairman of the Board of Governors, Mr. Eccles be elected

Chairman of the Federal Open Market Committee.

Inasmuch as the President had indi

cated his intention to designate Mr. Thomas

B. McCabe as Chairman of the Board of Gov

ernors and Mr. Eccles as Vice Chairman, and

in the meantime Mr. Eccles was serving as

Chairman pro tempore of the Board, upon

motion duly made and seconded, and by

unanimous vote, Mr. Eccles was elected Chair

man of the Federal Open Market Committee to

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serve as such until the date when Mr. McCabe

takes office, and the latter was elected to

serve as Chairman of the Federal Open Market

Committee beginning on that date and until

the election of his successor at the first

meeting of the Committee after February 28,

1949.

Upon motions duly made and seconded,

and by unanimous votes, the following

additional 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, 1949. 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 notwithstand

ing the applicable provision of the bylaws:

Allan Sproul, Vice Chairman

Chester Morrill, Secretary

S. R. Carpenter, Assistant Secretary

George B. Vest, General Counsel

J. Leonard Townsend, Assistant Gen

eral Counsel

Woodlief Thomas, Economist

Karl R. Bopp, Watrous H. Irons,

John K. Langum, T. Bruce Robb,

and John H. Williams, Associate

Economists

In taking the above actions it was under

stood that in the event of the discontin

uance of their official connection with

the Board or a Federal Reserve Bank, as

the case might be, the individuals elected

would cease to have any official connec

tion with the Federal Open Market Commit

tee.

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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, 1949.

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.

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 bylaws,

is also Chairman of the executive com

mittee) 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, 1949:

Members

*Marriner S. Eccles

M. S. Szymczak

Allan Sproul

Alfred H. Williams

*When Mr. McCabe takes

office.

Alternates

R. M. Evans

J. K. Vardaman, Jr.

Ernest G. Draper

(To serve in the order named

as alternates for the mem

bers selected from the Board

of Governors.)

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Alternates

C. S. Young

R. R. Gilbert

(To serve in the order named

as alternates for Messrs.

Sproul and Williams.)

Chairman Eccles referred to the resolution adopted on Novem

ber 20,

1936, authorizing the Federal Reserve Banks, subject to the

provisions of section 14 of the Federal Reserve Act, as amended,

regulations,

and

conditions, and limitations of the Board of Governors

prescribed thereunder, but without further direction or authoriza

tion from the Federal Open Market Committee,

to purchase and sell

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

acceptances payable in foreign currencies to the extent that such

purchases and sales might be deemed to be necessary or advisable

in connection with the establishment, maintenance,

operation,

in

crease, reduction, or discontinuance of accounts of Federal Re

serve Banks in

foreign countries.

The resolution was last con

sidered at the meeting of the Committee on March 1, 197, at which

time it

was indicated that the purpose of this action was to sim

plify the procedure in connection with the handling of accounts

with foreign central banks which were subject to such supervision

of the Board of Governors of the Federal Reserve System under sec

tion 14 of the Federal Reserve Act.

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Mr. Sproul stated that three accounts were presently being

maintained by the Federal Reserve Bank of New York with foreign

banks, namely,

Bank of France,

the Bank of Canada,

the Bank of England, and the

that the amounts in these accounts continued to

be small, totalling only $95,000, and that, for reasons previously

stated, it was desirable that the authority be continued.

There was unanimous agreement that

no action should be taken to terminate

or amend the resolution at this time.

Reference was made to an excerpt from the minutes of the

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

was

stated that the Committee would interpose no objection to Federal

Reserve Banks holding securities which they acquired in settlement

of claims against closed banks or to the sale of such securities

whenever deemed desirable by the holding Bank, since the volume

of such securities would be so small as to be unimportant from

the standpoint of credit control.

There was a brief discussion of

the need for this authority and it was

agreed unanimously that no action

should be taken at this time to termi

nate or amend the authority.

There was a further discussion of the recommendations to

be made to the Treasury with respect to Treasury financing and

debt management during which Chairman Eccles stated that in ac

cordance with the action taken at the meeting on Friday, February

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27, 1948, a letter covering the recommendations that had been agreed

upon would be prepared and submitted to the members of the executive

committee for approval.

He suggested that, in view of the changes

in the membership of the full Committee, it would be desirable at

this meeting to confirm the authority to the executive committee to

send the proposed letter.

Upon motion duly made and seconded,

and by unanimous vote, the executive

committee was authorized to prepare and

present to the Treasury recommendations

with respect to Treasury financing and

debt management in accordance with the

discussion as recorded in the minutes of

the meeting of the Federal Open Market

Committee on February 27, 1948.

Mr. Carpenter read the direction issued to the executive

committee at the meeting of the Federal Open Market Committee on

December 9, 1947, authorizing the executive committee to arrange

for transactions in the System open market account.

In a discus

sion of desirable changes in the wording of the direction, it was

agreed that the words "more closely" should be omitted from a

clause in the first paragraph of the direction which would then

read as follows:

"for the purpose of relating the supply of

funds in the market to the needs of commerce and business".

There was also a discussion of the authority that would be

needed by the executive committee during the next few weeks in

view of the probable large volume of security purchases by the

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Federal Reserve Banks growing out of pressure upon the reserve po

sition of banks because of income tax collections.

At the conclu

sion of the discussion Chairman Eccles stated that, should such

action be desirable, additional authority could be granted to the

executive committee by telephone approval of the members of the

full Committee,

and he suggested that the authority of the exec

utive committee be continued with the same limitations as to

amounts as were fixed at the meeting on December 9.

Upon motion duly made and seconded,

and by unanimous vote, the following

direction to the executive committee

was approved, with the understanding

that the limitations contained in the

direction would include commitments for

the System open market account:

The executive committee is 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 with

out replacement), as may be necessary, in the light of

the general credit situation of the country, for the

practical administration of the account, for the mainte

nance of stable and orderly conditions in the Government

security market, and for the purpose of relating the sup

ply of funds in the market to the needs of commerce and

business; provided that the aggregate amount of securi

ties held in the account at the close of this date other

than special short-term certificates of indebtedness

purchased from time to time for the temporary accommoda

tion of the Treasury shall not be increased or decreased

by more than $3,000,000,000.

The executive committee is further directed, until

otherwise directed by the Federal Open Market Committee,

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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 total

amount of such certificates held in the account at any

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

At Chairman Eccles' request, Mr. Rouse reviewed the discus

sion at the meeting of the executive committee on February 26, 1948,

concerning the complaint of dealers who were not qualified to do

business with the System open market account that they were being

forced out of business because the Federal Reserve Banks had been

the principal buyers of Government securities in recent weeks and

because they could not qualify to do business with the System ac

count under the terms established by the Committee in 1944.

During

a discussion of the matter along the lines set forth in the minutes

of the executive committee meeting referred to, views were expressed

to the effect that a careful study of the situation should be made,

particularly with respect to the position of the smaller dealers,

to determine whether the present rules should be modified to enable

additional dealers to qualify to transact business directly with

the System account.

Mr. Sproul stated that the New York Bank had been asked to

make a comprehensive report to the executive committee, which would

reexamine the matter and report to the full Committee.

Chairman Eccles stated that the executive committee, at its

meeting on February 26, considered again the desirability of making

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a special report to Congress of the kind referred to at the October

meeting of the Federal Open Market Committee with respect to the

monetary and credit problems with which the Committee had to deal,

and that the executive committee had agreed unanimously that in

view of the events that had transpired since last October there

would be no point in making the report, and that such a recommen

dation should be made to the full Committee.

reasons for the recommendation,

He outlined the

and Mr. Sproul added that, while

the Committee might again wish to consider the matter, he felt

there was no basis for making a report at this time.

Following a discussion, the recom

mendation of the executive committee was

approved unanimously.

The date for the next meeting of the Federal Open Market

Committee was set tentatively for Thursday and Friday, May 20 and

21, 1948, with the understanding that a meeting of the Presidents'

Conference would be held in Washington on May 18 and 19, 1948,

and that the details of the program for the week would be worked

out by the Secretaries of the Committee and the Presidents' Confer

ence.

Thereupon the meeting adjourned.

Secretary.

Approved:

Chairman.