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 Monday, February 28, 1949, at 10:20 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

McCabe, Chairman

Sproul, Vice Chairman

Clayton

Draper

Eccles

Gilbert

Leedy

Szymczak

Mr. Vardaman

Mr. Williams

Mr. Young

Mr. Morrill, Secretary

Mr. Carpenter, Assistant Secretary

Mr. Vest, General Counsel

Mr. Thomas, Economist

Messrs. Bopp, Irons, Langum, Robb, and

John H. Williams, Associate Economists

Mr. Rouse, Manager of the System Open

Market Account

Mr. Thurston, Assistant to the Board of

Governors

Mr. Riefler, Assistant to the Chairman,

Board of Governors

Mr. Sherman, Assistant Secretary, Board

of Governors

Mr. Ralph A. Young, Associate Director,

Division of Research and Statistics,

Board of Governors

Mr. T. L. Smith, Economist, Government

Finance Section, Division of Research

and Statistics, Board of Governors

Mr. Arthur Willis, Special Assistant,

Securities Department, Federal Reserve

Bank of New York

Messrs. Gidney, Leach, McLarin, and Earhart,

alternate members of the Federal Open

Market Committee

Messrs. Erickson, Davis, and Peyton, Presidents

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of the Federal Reserve Banks of Boston,

St. Louis, and Minneapolis, respectively

Mr. Raisty, Economist, Federal Reserve

Bank of Atlanta

Upon motion duly made and seconded,

and by unanimous vote, the minutes of the

meeting of the Federal Open Market Com

mittee held on November 30, 1948, 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

committee held on November 30, 1948, and

January 4 and 26, 1949, were approved,

ratified, and confirmed.

Mr. Rouse then read and discussed a report of open market opera

tions prepared by the Federal Reserve Bank of New York covering the

period from November 30, 1948, to February 23, 1949, inclusive.

He also

presented a supplementary report covering commitments on February 24

and 25,

1949.

Copies of both reports have been placed in the files of

the Federal Open Market Comittee.

Upon motion duly made and seconded,

and by unanimous vote, the transactions

in the System account for the period

November 30, 1948, through February 27,

1949, were approved, ratified, and con

firmed.

Mr. Rouse referred to the procedure for the allocation of secu

rities in the System open market account, which was put into effect in

January 1948, in a revised form, stating that the new method was work

that

ing satisfactorily,

no adverse comment regarding the procedure had

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been received from the Federal Reserve Banks,

and that he had no

changes to suggest at this time.

Mr. Rouse also referred to the terms upon which the New York

Federal Reserve Bank,

as agent for the Federal Open Market Committee,

will transact business with brokers and dealers in Government secu

rities for the System open market account.

He reviewed briefly the

complaint made by certain unqualified dealers last year, when the

System was purchasing large amounts of Government securities, that un

qualified dealers were in

effect being excluded from the market.

He

also reviewed the consideration given to these complaints by the Fed

eral Open Market Committee,

and the reasons for the conclusion at

that time that no change should be made in the statement of terms.

He added that there was nothing in the present situation that would

warrant a change in the terms.

The reports of the economists were then called for and Mr.

Thomas asked Mr.

John H. Williams to make a statement with respect to

the international situation and outlook.

Mr. Williams reviewed developments in economic activity in

Europe since the end of the war, comparing the progress with that

made in other periods.

He also discussed the efforts of western

European countries to increase their exports by widening trade areas

throughout the world and the situation with respect to supplies of

food and raw materials which had to be imported by those countries.

He stated that the situation appeared to be very encouraging until one

2/28/49

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started to look ahead for the next three or four years, especially

to the time when the present program of aid under the Economic Co

operation Administration would come to an end in 1952, and he ex

pressed the view that it

would be difficult for the western European

countries to maintain their balance of payments after that period,

and that a readjustment of currencies in some western European

countries should be expected because such currencies were overvalued

in relation to the dollar.

Following a discussion of Mr. Williams' remarks, Mr. Thomas

made a statement on the domestic economic situation and outlook.

He referred especially to recent declines in prices, stating that

the declines were probably more helpful than hurtful to the economy

and that the outlook continued to offer the possibility of a resump

tion of inflationary developments as well as a possibility of a

sharp deflationary development or a continuance of a middle-of-the

road course, with further readjustments which would be helpful in

bringing about greater stability in the economy.

He expressed the

view that the more likely development would be the intermediate stage

with no more than a moderate recession.

ing situation, Mr.

In commenting upon the bank

Thomas stated that there had been a definite

slackening in the growth of bank credit since last year and even more

evidence in the opening months of this year that credit was not ex

panding rapidly.

Copies of Mr.

Williams'

talk and a paper on the current

2/28/49

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economic situation, prepared in the Board's Division of Research and

Statistics, to which Mr. Thomas referred in his remarks,

have been

placed in the files of the Federal Open Market Committee.

During a discussion of Mr. Thomas'

remarks,

supplementary

comments were made by Messrs. Langum, Bopp, Raisty, Robb, Irons, Rief

ler, and John H. Williams, as well as members of the Committee, and

it was the consensus that, while there could be a marked movement

either up or down, there was strong likelihood that a downward move

ment would not go far and that readjustments could continue for a con

siderable period of time.

Thereupon the meeting adjourned.

Secretary.

Approved:

Chairman.