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, September 24, 1953, at 10:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Sproul, Vice Chairman
Erickson
Evans
Fulton
Johns
Mills
Powell
Robertson
Szymczak
Vardaman
Mr. Riefler, Secretary
Mr. Thurston, Assistant Secretary
Mr. Vest, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Abbott, Hostetler, Peterson, Roelse,
and Ralph A. Young, Associate Economists
Mr. Carpenter, Secretary, Board of Governors
Mr.
Sherman, Assistant Secretary, Board of
Governors
Mr. Youngdahl, Assistant Director, Division
of Research and Statistics, Board of
Governors
Mr. Gaines, Securities Department, Federal
Reserve Bank of New York
Messrs. Leedy, Williams, and C. S. Young, Alternate
Members of the Federal Open Market Committee
Messrs. Bryan, Earhart, and Leach, Presidents of
the Federal Reserve Banks of Atlanta, San
Francisco, and Richmond, respectively
Mr. W. D. Gentry, First Vice President, Federal
Reserve Bank of Dallas
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
June 11, 1953 were approved.
9/2/53
-2
Chairman Martin stated that advice had been received from the
Federal Reserve Bank of New York that Mr. Sproul had been selected as
Manager pro tem. of the System Open Market Account to serve while Mr.
Rouse is in Europe during the period approximately September 16 to
October 28, 1953.
Chairman Martin also noted that Mr. Sproul had been
serving in this capacity since Mr. Rouse left for Europe on September 16.
Upon motion duly made and seconded, and
by unanimous vote, the selection of Mr.
Sproul as Manager pro tem. of the System Open
Market Account to serve during the period while
Mr. Rouse is in Europe from approximately
September 16 to October 28, 1953 was approved.
Upon motion duly made and seconded, and
by unanimous vote, the actions of the execu
tive committee of the Federal Open Market Com
mittee as set forth in the minutes of the
meetings of the executive committee held on
June 11, June 23, July 7, July 21, August 4,
August 25, and September 8, 1953 were
approved, ratified, and confirmed.
Before this meeting there had been sent to the members of the
Committee a copy of a report prepared at the Federal Reserve Bank of New
York covering operations in the System open market account from June 10
to September 18, 1953, inclusive.
At this meeting Mr. Sproul presented
a supplementary report covering commitments executed from September 21 to
September 23, 1953, inclusive, and commented briefly on the reports,
copies of which 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 open market account for the period
June 11 to September 23, 1953, inclusive, were
approved, ratified, and confirmed.
9/2/53
-3
Chairman Martin referred to the action taken at the meeting of
the Federal Open Market Committee on June 11, 1953 in connection with a
proposed revision in the directives of the Federal Open Market Committee
and its executive committee,
at which time the matter was referred by the
full Committee to the executive committee with the understanding that the
latter would appoint two of its members to consider the proposal further.
The executive committee, Chairman Martin noted, at its meeting on June 11
appointed Mr. Sproul and himself for this purpose and it
was understood
that the special committee would submit its recommendations to the members
of both the full Committee and the executive committee.
Chairman Martin went on to say that in accordance with that action,
further drafts of revised directives were prepared and considered.
After
reflection upon the entire matter and in the light of the various drafts
that had been prepared, he said, Mr. Sproul and he felt that it
was ques
tionable whether much would be accomplished by further consideration of a
revision at this time of the directives now in use.
They felt, instead,
that the full Committee and the executive committee might well continue to
utilize the existing forms of directives, modifying them, of course, upon
such occasions as circumstances may dictate.
Accordingly, Chairman Martin
said, the special committee recommended the continued use of the existing
forms,
with changes being made by the respective committees from time to
time as special circumstances may indicate.
The recommendation of the special com
mittee as set forth by Chairman Martin was
approved unanimously.
9/24/53
-4
Chairman Martin called attention to a memorandum prepared by Mr.
Vest under date of September 10, 1953,
with respect to the debt limit of
the United States in relation to purchases by the Federal Reserve Bank
of Government obligations.
The memorandum had been prepared at the request
of the executive committee at its meeting on August 25, 1953 and copies had
been sent to all members of the Federal Open Market Committee.
At the
Channan's request, Mr. Vest summarized the content of the memorandum,
stating that in his opinion obligations of the United States sold directly
to Federal Reserve Banks would not be excluded from the statutory debt
limit of the United States; and that if the Treasury should
issue obliga
tions in excess of that limit and if the Federal Reserve Banks should have
some of the obligations which were issued in excess of the debt limit,
they would be invalid and unenforceable obligations against the United
States.
Furthermore, Mr. Vest said, the memorandum indicated that there
would be no difference between special certificates issued by the Treasury
and an overdraft on the books of the Federal Reserve Banks since the
authority for either type of obligation of the United States must be
derived from the same statutes and, therefore, legally they were in the
same category.
Mr. Sproul stated that this matter had been considered by Counsel
of the New York Bank who had taken the position that any purchases which
the New York Bank might make for the System open market account, or any
overdraft which might occur at the New York Bank which would result in
9/24/53
-5
United States Government obligations in excess
would,
of the statutory debt limit,
as Mr. Vest stated, not represent valid or enforceable obligations.
Mr. Vardaman inquired whether this meant that in the event the New
York Bank incurred an overdraft for the Treasury in excess of the statutory
debt limit, the Treasury would be requested not to formalize the matter by
issuing special certificates of indebtedness to cover the overdraft.
Mr. Vest stated that while he could not answer as to what a Fed
eral Reserve Bank would do, it would be his opinion that the Bank should
follows the normal procedure and get the special certificates since
legally there would be no difference between holding that obligation and
carrying an overdraft.
The answer to the question might depend, Mr. Vest
said, on whether the Treasury would be willing to issue such certificates
if
it
found that, inadvertently,
the overdraft had resulted in
its exceed
ing the statutory debt limit.
Mr. Vardaman stated that he would not consider it
desirable for a
Reserve Bank to accept special certificates to cover an overdraft under
such circumstances,
Mr.
even if
the Treasury were willing to issue them.
Sproul stated that the position of Counsel for the New York
Bank was that the legal position of the Bank would
not be improved if
it
held an overdraft rather than taking the special certificates since in
neither case would the Bank have a legally enforceable claim against the
Government.
-6
9/24/53
Chairman Martin noted that copies of Mr. Vest's memorandum had
been made available to all Federal Reserve Banksfor their information,
and he stated that no further action was called for with respect to the
matter.
At this point members of the staff of the Board's Division of Re
search and Statistics and Division of International Finance entered the
room for a visual presentation on the current economic situation.
A copy
of the script of the presentation has been sent to each member of the Fed
eral Open Market Committee and a copy has been placed in the Committee's
files.
Following the presentation, the members of the staff who had
entered the room for the purpose of assisting in its presentation withdrew
from the meeting.
Chairman Martin stated that as had been brought out by the minutes
of the meetings of the executive committee since the last meeting of the
full Committee, open market operations had been arranged for in accord
ance with the general directive laid down by the full Committee at its
meeting on June 11, which provided, among other things, that transactions
for the System account should be "with a view to avoiding deflationary
tendencies without encouraging a renewal of inflationary developments
(which in the near future will require aggressive supplying of reserves
to the market)."
He noted that, in carrying out this policy, the executive
9/24/53
-7
committee at its meeting on September 8 agreed upon a program of
"active ease", as described in the minutes of that meeting. This was
being followed, he said, with the thought that the System would supply
the reserves needed in the economy to meet the seasonal and growth demands
even though they were large.
It was felt that the risk of inflation was
not sufficiently great to warrant being overly restrictive in the light
of the adjustments that have been appearing on the fringe of the economy.
Chairman Martin then called upon Mr. Thomas who stated that in
making projections of possible demands for Reserve Bank credit during the
rest of this year it
had been assumed that there would be an increase in
the money supply, that is demand deposits-adjusted and currency, for the
year 1953 as a whole of about 3 per cent.
On the basis of this assumption
of moderate needs, Mr. Thomas said, estimates of the amount of Reserve Bank
credit that would be needed to supply the basic reserves had been made.
Thus far, actual developments have been somewhat smaller than projected, he
said, and in
fact growth in demand deposits and currency has been only about
seasonal with no element of long-term growth during the past six months.
After commenting upon recent and projected changes in demand deposits and in
the Treasury balance, Mr. Thomas said that the conclusion appeared to be
that something like $1-1/2 billion of additional Reserve Bank credit would
be required during the last four months of
1953 in order to provide for a
3 per cent growth in deposits and currency for the whole year.
This could
be supplied entirely by System purchases of Government securities, or in part
by purchases (including repurchase agreements) and in part by member bank
9/21/53
-8.
borrowings.
Another way of supplying some of the needed reserves would
be by a reduction in reserve requirements, and still
reserve funds would be provided if
another source of
the Treasury were to use some of the
free gold now held in its general balance.
Chairman Martin suggested that consideration now be given to the
Committee's general policy, i.e., whether it should supply roughly the
amount of reserves which Mr. Thomas' remarks indicated would be needed by
the economy, after which there would follow a discussion of the way in
which any additional reserves might be provided.
Mr. Sproul stated that his views and the estimates of the New
York Bank were in general accord with the views and estimates presented by
Mr. Thomas as far as the need for reserves was concerned.
He said that
whereas heretofore we have been following a policy of contributing to balance
between inflation and deflation, it
is
now his view that policy should be
based on an estimate of the business and credit situation which foresees the
possibility of slipping into deflation, rather than the danger of inflation.
This would indicate a policy of ease and not restraint of credit, one of
supplying reserves needed to meet seasonal and growth factors.
During the
past few weeks, Mr. Sproul said, operations for the System account had pur
sued this objective, but a period of more severe testing will occur during
October and November when other factors affecting the money market are esti
mated to take a considerable amount of funds out of the market.
He noted
9/24/53
.9
that the way in which the Treasury may use its free gold may affect opera
tions for the System account and,
in a comment on the difficulty of making
projections of operation for the System account, Mr. Sproul referred to the
last paragraph of a staff memorandum dated September 21, 1953 on the out
look for Treasury cash requirements and bank reserves, copies of which were
distributed before this meeting.
This paragraph suggested that if demand
deposits were to show a growth for the year 1953 of as much as 3 per cent,
they would have to increase over $6 billion in the fourth quarter and that
such a growth would mean an increase of about $650 million in required re
serves in the last quarter of the year.
The paragraph also mentioned
probable large drains on reserves due to a currency outflow and possible
gold losses; and stated that on the assumption that excess reserves would
remain around $600 million, an expansion in Federal Reserve credit of
approximately $1.3 billion would be required to meet needs for reserve
funds over the remainder of the year, that more than two-thirds of this
demand would probably occur during October and early November, and that if
member bank borrowings were not to increase above the level of excess re
serves, most of these needs would have to be supplied by means other than
discounting.
Mr. Sproul expressed the view that the needs at the end of
the year when demand for currency would rise sharply could most appropri
ately be met by increasing discounts, but aside from that he felt that in
creased open market operations would be needed during the next few weeks.
-10
9/24/53
With respect to the usefulness of the several estimates as a guide to
operations for the System account, Mr. Sproul cautioned that, while such
estimates tended to be borne out over a period of several weeks or months,
they should not be looked upon as precise or accurate projections from
day to day or week to week, and that operations would not necessarily con
form with weekly estimates that might be projected for the period ahead.
Chairman Martin agreed as to the difficulty of day to day estimates
of reserves needed.
He pointed out, however, that what he was seeking at
this time was a pattern with respect to the over-all amount that might
need to be supplied between now and the end of the year.
He asked
whether any of the members of the Committee felt that operations would be
overly tight if they moved in the general direction outlined by Mr. Sproul
and in more or less conformity with the figures which Mr. Thomas had
presented.
Mr. Riefler commented that the estimates presented by Mr. Thomas
and in the staff memorandum assumed a somewhat tighter situation than
might be indicated by the foregoing discussion, the figure of $1.3 billion
of additional reserves was the approximate amount that would be needed to
maintain a rough balance between borrowings and excess reserves.
It was
Mr. Riefler's thought that it might be desirable to have excess reserves
above borrowings; therefore,
he would look upon the $1.3 billion figure
as the minimum additional reserves that probably would be necessary if
borrowings were not to rise above excess reserves.
9/24/53
-11
Chairman Martin stated that irrespective of the level of borrow
ings, he was seeking an indication of the Committee's views as to the
approximate over-all amount of reserves that would have to be gotten into
the market during the rest of the year.
Be asked whether any of the mem
bers of the Committee differed with the estimates presented by Messrs.
Sproul and Thomas, or with the thought that the executive committee, in
arranging for operations, should continue to pursue a policy of active
ease in the market, having in mind the general estimates which had been
cited regarding the amount of reserves to be furnished during the remain
der of this year.
Mr. Mills stated that as he understood it this would contemplate
that additional reserves would be provided in substantial amounts at an
early date, that the operations of the Committee would not be frozen into
any particular attitude as to the relationship between discounts and ex
cess reserves, that there would be flexibility in the Committee's opera
tions as directed by the executive committee, and that at the end of the
year it probably would be desirable to meet the temporary heavy currency
demands more largely through discounts than through open market operations.
Mr. Sproul said that the understanding stated by Mr. Mills, with
which he agreed, would represent a modification of the idea that borrowings
should be held down below excess reserves.
The bulge in need for reserves
at the end of the year, for instance, was one which properly and naturally
accommodated itself to being met at the discount window, he said, if
that
9/24/53
-12
window was kept freely open and funds were available.
He felt
that
individual bank situations could be met in that manner more satisfactorily
than through open market operations.
He also noted that repurchase agree
ments represent a flexible instrument for meeting individual market
situations.
Chairman Martin stated that another meeting of the full Committee
probably would be held before the bulk of the year-end demand for currency
appeared and that in the meantime the executive committee would be meeting
from time to time.
He suggested, therefore, that unless there was objec
tion the full Committee approve a continuation of a policy of active ease
with the understanding that reserves would be supplied to the market to
meet seasonal and growth needs, having in mind the estimates of total
needs as presented at this meeting and recognizing that open market opera
tions would be flexible in relation to the volume and timing of supplies
of reserves from other sources.
There was unanimous agreement with this statement of policy.
Chairman Martin then referred to the letter which Mr. Sproul had
sent to members of the Federal Open Market Committee and to the Presidents
of Federal Reserve Banks who are not currently members of the Committee
under date of July 16, 1953.
He also referred to a letter and enclosure
which he (Chairman Martin) had sent to all members of the Committee and
to all Presidents not currently serving on the Open Market Committee under
date of September 15, 1953 with respect to confining operations for the
9/24/53
-13
System account to the short-term sector of the market and to refraining
from certain purchases of Treasury securities during periods of Treasury
financings.
He then made a statement substantially as follows:
In introducing this subject today I feel I want to make a
few comments as Chairman of the Committee with respect to my
general view as to the necessity for the
what I conceive to be issues.
I want to
I welcome the letter Mr. Sproul wrote on
welcome similar letters from all members
System grappling with
make very clear that
July 16, 1953, and I
of the Open Market
Committee at all times. The fullest and most open discussion
we have in the Open Market Committee at all times of problems
of this sort is to the benefit of all of us. I am also con
fident that none of us act on these problems as a face-saving
device or for any reason other than to get the best answer.
I, as Chairman, never ask anybody to vote with me unless their
judgment indicates they conscientiously should do so. Never
theless, it is sometimes necessary for us to disagree. There
are times when you have basic differences of opinion.
After studying Mr. Sproul's letter of last July and think
ing the matter over, I think there
ence of opinion. There is a basic
say in commenting on this, that if
of the meeting last March you will
is more than a minor differ
difference.
I would like to
you will review the minutes
see that I pretty well
stated there the origin of the ad hoc subcommittee report in my
thinking. It really goes back to a time four and one-half years
ago when I first began to get a little on the fringe of this
problem. Many of you, and Mr. Sproul in particular, have had
more experience in actual operations of the open market account
than I, but I was in the Treasury four and one-half years ago
and began then to see some of the problems. A great amount of
bitterness and acrimony can get into the situation when people
I confess that I
say they would have done things differently.
would have done some things differently but I have tried to
refrain from putting this into an area of individuals or
particular operations.
The thing I like most about the Federal Reserve is
the
word "System". The first two words don't make much difference
but "System" does. We are all working in the interests of the
System in all that we are tying to do. The ad hoc subcom
mittee report was to assay the market in terms of the responsi
bility of each of the members of the Open Market Committee for
9/24/53
what is a full operation at times. We were not trying to
criticize anybody at any time. The essence of the problem we
were struggling with was a matter of degree of discretion. Each
member of the Open Market Committee is responsible in a very
real sense for what is the heart of the System.
I don't profess
that I have all the answers, but I do think we want the Manager
of the Open Market Account to have adequate discretion but
don't want to put him in the position of having more discretion
than is necessary; if we are going to give him wider discretion,
then I think each of the members of the Open Market Committee
ought to follow each of the details considerable closer than
we do.
In my letter and memorandum I have concentrated on just two
matters raised at the meeting in June, confining operations to
short-term securities and refraining from certain transactions
during periods of Treasury financings. With respect to the
housekeeping and other matters placed in the hands of the ad hoc
subcommittee, I think Mr. Sproul and the subcommittee ought to
get together and review them. But in these two matters that
came up in June--the confining of operations to short-term
securities and refraining from transactions in certain securi
ties during periods of Treasury financings--I would like to have
a further discussion at this meeting.
It is true that we can call a meeting of the full Com
mittee on 24 hours notice if we have to, and there is no
intention at any time to freeze the Committee's views on these
I think this is a very fundamental
or any other matters.
problem. The whole problem of a free market is a matter of
I think it is essential for us, if we are going to
degree.
operate the type of device we have in the open market opera
tions, that we get out on the table all of the issues, all of
the problems we have, and discuss them. No one can read the
future but I do think it is terribly important for us to have
a framework within which to carry on our thinking. If we want
to recede from a framework, let's do it as a Committee. Let's
give the Manager of the Account all the discretion he must
have in order to operate the account but let's not put him
in the position of bearing the entire brunt and let's not put
the entire Open Market Committee in the position of saying we
have put the Manager of the Account in a position of responsibi
and of our being just a defender of the fact that the
lity
Manager has carried out our instructions. I should like to
have these questions out on the table for discussion. I know
that I could make a motion from the Chair, but since Mr. Mills
feels as I do on this question, I have asked him to present a
motion along the lines of the action I think the full Committee
ought to take at this meeting.
9/24/53
-15
Mr. Mills then referred to the action taken at the meeting of the
full Committee on March 4 and 5, 1953,
when it
was agreed that under
present conditions operations for the System account should be confined
to the short-end of the market (not including correction of disorderly
markets) and at which meeting it was also understood that, pending further
study and further action by the Committee,
hoc subcommittee recommendation that it
the Committee approved the ad
should refrain during a period of
Treasury financing from purchasing (1) any maturing issues for which an
exchange is
being offered,
(2) when-issued securities, and (3) any out
standing issue of comparable maturity to those being
offered for exchange.
These agreements, he noted, were rescinded by a 5 to 4 vote of the Com
mittee at its meeting on June 11, 1953.
Mr. Mills stated that in presenting
the motion, he did so in the belief that the action of the market and the
operations of the open market account had given a very convincing per
formance that the motion to be proposed was a proper policy for the Sys
tem to adopt.
Mr. Mills then moved that the Federal
Open Market Committee take the position that
operations for the System account be con
fined to short-term securities (except in the
correction of disorderly markets) and that
during a period of Treasury financing there
be no purchases of (1) maturing issues for
which an exchange is being offered,
(2) when
issued securities, or (3) outstanding issues
of comparable maturity to those being offered
for exchange; and that these policies be fol
lowed until such time as they may be super
seded or modified by further action of the
Federal Open Market Committee.
9/24/53
-16
Mr. Szymczak seconded Mr. Mills'
motion.
Chairman Martin suggested that Mr. Sproul open the discussion of
Mr. Mills' motion, commenting that he knew Mr. Sproul struggled very vigor
ously for the views he held to be right, that he and Mr. Sproul agreed
on many things, and that he was sure Mr. Sproul would not respect him if
he did not struggle equally vigorously for the views which he held.
Mr. Sproul then made a statement substantially as follows:
1.
My most recent letter and memoranda on open market opera
tions were sent to the members of the Federal Open Market
Committee (and potential members) on July 16, 1953. The
Chairman's reply, dated September 15, 1953, states that
certain of the matters I discussed are still
pending be
fore the ad hoc subcommittee, and he confines his state
ment to a consideration of two matters on which action was
taken by the Committee in June to rescind action taken in
March.
I shall do the same.
2.
Obviously there has not been time since the receipt of the
Chairman's letter and memorandum last Wednesday, to pursue
exhaustive staff studies and prepare an exhaustive rebuttal.
This is probably an advantage.
Too much of our discussion,
perhaps, has been devoted to scoring debating points worked
up by the staff of the Board and of the New York Bank.
I have several pages of discussion here of the Chair
man's letter and memorandum concerning open market tech
niques during the past several months.
I am going to omit
them and merely say that I disagree with his analysis and
with his conclusions. Maybe all that indicates is that it
is possible for two equally sincere people to draw different
3.
conclusions from similar experiences when dealing with the
non-physical world.
If you clear out all of that underbrush it seems to me
that the forest looms up pretty distinctly, I do not see
much remaining difference of opinion, if we straighten
out our assumptions.
9/24/53
4.
-17
It is not the position of the New York Bank, as the Chair
man suggests, (A) "that the Management of the Open Market
Account should be given blanket discretion to operate in
the intermediate and long term, as well as the short-term
sectors of the Government Security Market within general
directives laid down by the Federal Open Market Committee
and the Executive Committee."
It is not the position of the New York Bank that (B)
"it should have (blanket) discretion during periods of
Treasury financing to purchase maturing Treasury issues
for which an exchange is being offered, when issued
securities, and outstanding issues of comparable maturity
to those being offered for exchange."
My position--and that of the New York Bank--is that
the Federal Open Market Committee should lay down the gen
eral lines of credit policy, that the interpretation and
direction of the policy under changing conditions is the
job of the Executive Committee, and that the Executive
Committee should give the management of the Account only
such discretion as to execution of policy, including
market techniques, as is necessary for effective per
formance of its job.
In support of this, I may remind you
that following the action of the Federal Open Market Com
mittee in June, rescinding two of its March actions, it was
I who pointed out to the Executive Committee that the pur
pose of my motion to rescind, was not to control the
actions of the Executive Committee, but to restore its
freedom to use its discretion within the general lines of
policy laid down by the full Committee.
What I have been objecting to as a matter of principleobject to--is trying to write into a "constitution"
and still
of the Open Market Committee, as one member called it, a
prohibition against actions deemed undesirable by particular
members of the Committee, holding particular views, at a
particular time. We can't afford a freeze of ideas or prac
tices.
We who presently constitute the Committee, or a majority
of the Committee, may agree that ordinarily it would be
preferable to conduct our open market operations in short
term Government securities, and that whenever possible we
would like to stay out of the market at times of Treasury
financing. But we shouldn't try to tie our hands by
preventing the Executive Committee from using its judgment,
within the limits of our general credit policy, in what
ever circumstances may arise between meetings of the full
While, as has been pointed out, a meeting of
Committee.
the full Committee can be quickly convened in these days of
-18-
9/24/53
air travel, I do not think the full Committee can or will
be brought together to decide questions of market tech
niques; it isn't
the best way to operate and I doubt if
we really intend to operate that way.
It was to avoid this straitjacket of an imposed "con
stitution" that I proposed the June motion to rescind the
March action on the two points at issue today. That was
the purpose and that was the result of my motion.
So far as I can see our present situation differs
little, if at all, from the final views expressed by the
Chairman in his letter.
If we do not assume, first, that
the Executive Committee cannot be trusted,and, second,
that the New York Bank and the Manager of the System Open
Market Account are so habituated by a long spell of price
support that they will jiggle with the market regardless
of their insturctions from the Executive Committee, that
is where we come out. I don't think the first assumption
is justified and the second, I think, is preposterous.
Therefore, I would say that we are in agreement, as we
stand, and that no further action is needed by this Com
mittee at this time, with respect to the two items pre
sented for discussion.
One further word in an overlong presentation--in this
job I think we need an "informed intelligence conscious of
its (almost) infinite ignorance".
Chairman Martin stated that he subscribed heartily to Mr. Sproul's
last comment.
Mr. Johns then made a statement substantially as follows:
As you all know, at the June meeting I voted in favor of
Mr. Sproul's motion to rescind the March actions on these two
matters. Since that time I have been amazed and disappointed
to find that my vote and the votes of those who voted as I did,
have been construed by some as indicating that it was my desire
to vest in the management of the account or the New York Bank
a large and almost unlimited discretion. I respectfully submit
that such was not the legal import of my vote and I am almost
persuaded to suggest, as a member of the Supreme Court did some
years ago when he said that it is precarious business to try to
psycho-analyze Congressmen, that it was precarious business to
try to psycho-analyze me and the motive behind my vote. What I
did was intended to leave the executive committee a rather large
9/24/53
-19-
area of discretion within which to make decisions which are more
than operating decisions and which involve considerable policy
making prerogatives. As I understand the motion Mr. Mills makes,
the question I am presented with now is whether to continue to
delegate such policy-making authority to the executive committee
or whether to retain that prerogative in the hands of the full
Open Market Committee.
I will admit that from the one point of view of good
administration, it may be that such discretion can be more
easily and possibly at times more quickly exercised by a smaller
body such as the executive committee.
However, I am not con
vinced that there is such lack of ease of administration in
retaining that prerogative in the hands of the full Committee
as might superficially appear.
If,
as usually is the case, the
members of the Board of Governors, who are always members of
the full Committee, are at their posts and Mr. Sproul is at
his post and in constant communication with the offices of the
Board of Governors, the fact is that there are only four
Presidents to be called in order to obtain action by the full
Open Market Committee.
If the urgency of a situation is so
great that a delay of 24 hours within which the Open Market
Committee could convene and assemble around this table would
be serious, I see no difficulty about getting in touch with
the absent Presidents who are members of the full Committee
on the telephone, and I suspect that in most instances that
could be done within a period of 30 minutes.
I am aware of the fact that the executive committee of
I have
the Open Market Committee is a nonstatutory body.
some doubt about the degree of discretion and policy making
hich can be, or at least ought to be, delegated to the
executive committee.
Therefore, Mr. Chairman, having attempted
to psycho-analyze myself, which I think is perhaps more accurate
than psycho-analyzing by others, I am prepared for the foresee
able future, which will probably extend for the duration of my
present membership on the Open Market Committee, to accept the
proposal that the authority to modify the general instructions
be retained in the hands of the full Open Market Committee.
I am, therefore, presently disposed to support Mr. Mills' motion.
Mr. Johns went on to say that he would like to ask a question con
cerning Mr. Mills' motion, namely, whether there was any implication of a
connection between what the motion says and the proposal in the report of
the ad hoc subcommittee to publicize so-called ground rules.
Such
9/24/53
-20
publication, he felt,
might inhibit or make more difficult a change
in
the policy proposed in Mr. Mills' motion.
Mr. Mills stated that the motion contained no such implication.
He added that the booklet on the Federal Reserve System published by
the Board of Governors was being revised and that while the discussion
of open market operations would be written around the background of
confining such operations to short-term securities, there would be
nothing in the text to preclude purchases of securities of any maturity.
Thus, there was no implication that there would be made public any state
ment of principles suggested by the ad hoc subcommittee or that any such
statement would be given to members of the investment community.
Chairman Martin stated that the Comittee should bear in mind
that under section 10 of the Federal Reserve Act the Board of Governors
was required to include in
its annual report to Congress a record of policy
actions taken by the Federal Open Market Committee and that this record
would, of course, be made public in accordance with the statutory provi
sions.
Mr. Johns said that he had no objection to that procedure since
it
was a statutory requirement.
Mr. Robertson referred to the discussion at the meeting last
March of the recommendation of the ad hoc subcommittee that the open market
account make known to dealers in Government securities the "ground rules"
which henceforth would govern the occasions for its transactions with
9/24/53
dealers.
-21
At that time,
he said, it
was clearly understood that there
would be no publication of such rules pending further consideration of
what ground rules might be agreed upon and whether and how such rules
might be made known.
Mr. Erickson said that he had given a great deal of thought to the
subject of Mr. Mills' motion since the meeting of the Committee in June
and that he felt very much as Mr. Johns had expressed himself.
He wanted
to be sure that there was enough flexibility so that action could be taken
to deal with any situation that might arise, but considering all the cir
cumstances, as they exist today,
Mr. Erickson said, he would vote to
approve Mr. Mills' motion.
Mr. Powell stated that he did not particularly like the motion
presented by Mr. Mills because it put into language a continuing directive
to the Open Market Committee concerning a subject which he felt should be
a matter for consideration at every meeting of the full Committee and
perhaps at meetings of the executive committee in the interim.
He doubted
whether there had been experience with enough different kinds of economic
situations to enable the Committee to say its operations should remain in
the short-term market except under most unusual circumstances.
It would
be better not to have such an expression as Mr. Mills proposed, Mr. Powell
felt, unless it was in a form in which it would serve only between
meetings of the full Committee.
Mr. Mills' motion, he thought, was
in
tended as a much more far reaching document and he, therefore, would not
be disposed to vote to approve it.
9/24/53
-22
Mr.
Fulton said that at the time of the meeting of the Federal
Open Market Committee last June he anticipated that operations for the
System account would remain in the short-term sector of the market but he
was apprehensive of having those operations frozen in so that the account
could not operate in other parts of the market.
In the meantime reserve
requirements of member banks have been reduced, a move which had had a
powerful effect in easing the market, and while he felt it still desirable
that the executive committee have considerable latitude in carrying on
operations, he agreed with the statments made by Mr. Johns to the effect
that the full Committee could be brought together at least by telephone
so that there did not seem to be danger that operations in the account
would not have enough flexibility to meet any situation.
On the whole,
in view of these factors and because of the general situation as it
appeared today and with the full expectation that the Federal Open Market
Committee could change the action at any meeting, he would vote to approve
the motion presented by Mr. Mills.
Mr.
Evans stated that he would vote to approve Mr. Mills'
otion,
that he had studied the report of the ad hoc subcommittee carefully, that
he agreed with the conclusions reached in that report, and that he felt
the proposal now before the Committee was simply returning to the posi
tion taken by the full Committee last March after full discussion of the
report.
9/24/3
-23
Mr. Vardaman stated that had he been present at the meeting of the
full Committee last June he would have voted against rescinding the action
taken by the full Committee at its meeting in March, at which time it
agreed that under present circumstances operations in Government securi
ties should be confined to the short-end of the market.
held this view, he would vote to approve Mr. Mills'
Because he still
motion.
At the same
time, he emphasized that he was in favor of giving the executive committee
such operational latitude as was necessary so long as that latitude was
not sufficient to enable the executive committee to conduct its
in
operations
such a manner as to amount to policy decisions,
Mr. Robertson requested that Mr. Mills'
following the reading of it
motion be reread and,
by the Secretary, stated that he would vote
to approve the motion.
Mr.
Szymczak stated that he had been unable to attend the meeting
of the full Committee in June because he was in the hospital on that day,
but if he had been present he would have voted against rescinding the
actions taken at the March meeting on the two points under discussion.
He noted that, at the meeting of the executive committee on June 23,
he
had expressed himself as believing that operations for the System account
should be limited to Treasury bills.
He felt that the full Committee
should be constantly aware of the situation in the Government securities
market and that whenever the situation was such as to call for a change
of policy of the nature of shifting from purchases of short-term securities
-24.
9/24/53
to other sectors of the market, such a change should be authorized
by the full Committee.
He, therefore, favored approval of Mr. Mills'
motion.
Mr. Leedy stated that he was a little disturbed by Mr. Sproul's
suggestion that decisions in such matters as were involved in Mr. Mills'
motion might be delegated by the full Committee to the executive committee.
He wondered what would be left for the full Committee if such decisions
were to be turned over to the executive committee.
Mr. Leedy noted that,
as Mr. Johns had stated, the executive committee is not a statutory body;
it was set up by the full Committee as an operating committee and, while
it has a wide responsibility as to executing operations, he felt that it
should not have responsibility for adopting fundamental policy decisions.
In Mr. Leedy's opinion, decisions of the sort involved in Mr. Mills'
motion were of fundamental importance.
Mr. Williams stated that he was somewhat concerned lest the formal
nature of Mr. Mills' motion and the attendant discussion might give the
Committee's action an air of permanence that it otherwise would not have.
The full Committee,
he noted, has power to make any change at any meeting,
and the extended discussion of Mr. Mills' motion and the formal nature of
the motion should not give the action to be taken an importance out of
proportion to what it
should have.
Mr. Vardaman stated that he would have no hesitation in changing
this or any other action of the full Committee at the next meeting or any
-25
9/24/53
other subsequent meeting if
that seemed appropriate at the time, and he
noted that the last clause of Mr. Mills' motion--"that these policies be
followed until such time as they may be superseded or modified by further
action of the Federal Open Market Committee"-seemed clearly to indicate
that the action proposed was subject to change by the Committee at any
time.
Mr. Robertson stated that this was the very point which had caused
him to request a rereading of Mr. Mills' motion, that he, too, had felt
concern along the lines indicated by Mr. Williams, but that the rereading
of this clause in the motion satisfied him that the matter was properly
covered.
Mr. Williams stated that he certainly did not intend to indicate
an objection to the motion, that in June although not a member of the full
Committee,
he had taken the position that the policies adopted in March
should be looked upon as experimental in nature, and that he still felt
that the Committee should look upon a policy such as that proposed in
Mr. Mills' motion as experimental.
Chairman Martin stated that there was no intention, in raising
this question or in presenting Mr. Mills' motion, to bind the Committee
in
any way that would not be binding in connection with any other decisions
of the Committee.
Mr. Sproul stated that Mr. Williams had expressed very well the
question in his mind.
Taking the background of the whole discussion, the
9/24/53
-26
content of the ad hoc subcommittee report, and the discussion at the meet
ing last March, he felt there was an implication of permanent policy in
Mr. Mills' resolution which, despite the clarifying clause at the end of
the motion, tended to inhibit the free and flexible consideration of the
problem by either the full Committee or the executive committee.
carried with it,
This
he said, the implication of "writing a constitution" for
the open market operation,
of setting down a policy which, under only the
most extraordinary circumstances,
could or should be changed.
He felt
this was the wrong atmosphere to create for the executive committee, and
he found it
difficult to see what change had occurred to cause a shift in
the views of some of the members of the full Committee since last June
which would warrant putting into the record a formal motion such as that
proposed by Mr. Mills.
Mr. Szymczak noted that the full Committee included all
members of
the Board of Governors and five Presidents of the Federal Reserve Banks,
not all
of whom were equally close to the market or to the detailed opera
tions of the System account.
For that reason, he felt it
much better for
matters of this type to be brought to the attention of the full membership
of the Committee so that each individual would be kept alert regarding a
subject for which he had a responsibility, and so that he would have an
opportunity to express himself on any policy to be established.
Mr.
Szymczak also expressed dislike for reaching decisions on the basis of
a closely divided vote such as had taken place at the full Committee
9/24/53
-27
meeting in June when some of the members were not present, and at the
subsequent meeting of the executive committee.
If there were to be dif
ferences of opinion on policy matters, he felt it much better to have the
questions fully discussed at a meeting when all members of the Committee
and the Presidents who were not members could be present,
in an attempt
to find out the best course to follow.
Mr. Johns stated that he had no fear that passage of Mr. Mills'
motion would in any way limit the full Committee in changing the policy.
If
full
any member of the Committee felt the policy ought to be changed between
Committee meetings, he would have an opportunity and responsibility
to make his views known.
June, Mr.
As for reasons for a change in his views since
Johns said that, as first
alternate, he had been called upon to
serve almost continuously as an active member of the executive committee
during the past few months, and that experience had made him feel the
change in authorization was desirable.
During that period, Mr. Johns
said, he would have been most uncomfortable to have taken the action of
authorizing operations in securities other than Treasury bills
without
having had the benefit of consultation with the other members of the full
Committee.
Out of this experience had come the conclusion that decisions
in such matters should be left
Mr.
to the full Committee.
Leach stated that the only aspect of the motion which he did
not like was the air of permanence to which Mr. Williams had referred.
His conception of the Open Market Committee,
he said, was that it
did not
9/24/53
-28
make public statements of its policies and that it
tion indicating that it
would not take a posi
had set any particular policy from here on out.
The fact that some of the members of the Committee attached so much
importance to the subject under discussion indicated to him that the
decision was being regarded as a matter of permanent policy.
Mr.
C. S. Young stated that he shared and believed what Mr. Johns
had said about the executive comittee, that for the first
time in years
he was now hearing that the Federal Open Market Committee was an active
body.
He would like to see the full Committee have a little
more authority
had had and would like to have the members feel that they were an
than it
active part of the open market operation.
grounds for fears in Mr. Mills'
Mr. Young said he could see no
motion and was inclined to feel that its
adoption would make the members of the full Committee feel that they were
more a part of the management of the open market account than they had
been.
He agreed wholeheartedly with the statements Mr.
Johns had made.
Mr. Sproul said there was no question of a policy different from
that being followed being authorized by the Open Market Committee as a
whole if
the resolution proposed by Mr. Mills was adopted; it
was a ques
tion whether the full Committee, with all the background of the discussion,
wanted to put into the record this prohibition on the actions of the execu
tive committee.
Since June,
He felt such a prohibition was unnecessary and undesirable.
the executive committee had operated within the lines of policy
9/24/53
-29
of the Open Market Committee and within the lines proposed by Mr. Mills'
motion.
His objection was to making this a matter of formal record which
he felt
would give to the recommendations of the ad hoc subcommittee an
air of being a permanent part of policy of the full Committee as though
such policies were being "written in tablets of stone".
Chairman Martin stated that he felt sure the minutes of this
meeting would make it
clear that no tablets of stone were being written.
Thereupon, Mr. Mills' motion was put
by the Chair and carried, Messrs. Martin,
Erickson, Evans, Fulton, Johns, Mills,
Robertson, Szymczak, and Vardaman voting
"aye", and Messrs. Sproul and Powell voting
"no".
Mr. Riefler referred to the understanding earlier in the meeting
as to the policy to be pursued in supplying reserves to the market until
the next meeting, and to the wording of the existing directive to the
executive committee covering transactions in the System open market
account.
meeting,
He suggested that, in view of the policy agreed upon at this
it
would be desirable to change the instruction in clause (b)
that such operations should be with a view "to avoiding deflationary
tendencies without encouraging a renewal of inflationary developments
(which in
the near future will require aggressive supplying of reserves to
the market)."
During the ensuing discussion, it
clause should be modified to delete all
was agreed that this
the words following "tendencies"
so that the clause would read "to avoiding deflationary tendencies".
-30-
9/24/53
Mr. Sproul stated in response to a question from Chairman Martin
that he felt the existing limits in the directive would be adequate for
the present.
Thereupon, upon motion duly made and
seconded, the following directive to the
executive committee was approved unani
mously:
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 securi
ties, and letting maturities run off without replacement), as
may be necessary, in the light of current and prospective
economic conditions and the general credit situation of the
country, with a view (a) to relating the supply of funds in
the market to the needs of commerce and business, (b) to
avoiding deflationary tendencies, (c) to correcting a dis
orderly situation in the Government securities market, and
(d) to the practical administration of the account; provided
that the aggregate amount of securities held in the System
account (including commitments for the purchase or sale of
securities for the account) at the close of this date, other
than special short-term certificates of indebtedness purchased
from time to time for the temporary accommodation of the Treas
ury, shall not be increased or decreased by more than
$2,000,000,000.
The executive committee is further directed, until other
vise directed by the Federal Open Market Committee, to arrange
for the purchase direct from the Treasury for the account of
the Federal Reserve Bank of New York (which Bank shall have
discretion, in cases where it seems desirable, to issue
participations to one or more Federal Reserve Banks) of such
amounts of special short-term certificates of indebtedness as
may be necessary from time to time for the temporary acccmoda
tion of the Treasury, provided that the total amount of such
certificates held at any one time by the Federal Reserve Banks
shall not exceed in the aggregate $2,000,000,000.
9/24/53
-31There was a discussion of the next date for the meeting of the
Federal Open Market Committee and, while no definite date was set, it
understood that it
ber 14,
1953.
was
probably would be held during the week beginning Decem
(Later in the day, at the joint meeting of the Board of
Governors and the Presidents of the Federal Reserve Banks,
it
was agreed
that the next meeting of the Federal Open Market Committee would be held
on Tuesday, December 15, 1953.)
Secretary's note: At the meeting of the
executive committee of the Federal Open Market
Committee held immediately following this
meeting, and at the joint meeting of the Board
of Governors and the Presidents of all Federal
Reserve Banks held later in the day, Chair
man Martin reported that the Secretary of
the Treasury had indicated informally that
it was expected that approximately $1 bil
lion of free gold carried in the Treasury's
cash balance would be used during the fall
months of this year, one of the purposes of
such use being to enable the Treasury to
meet necessary payments within the $275
Chairman
billion statutory debt limit.
Martin also noted that, depending upon how
this gold was used by the Treasury, it would
affect the amount and timing of open market
operations.
Thereupon the meeting adjourned.
Secretary
Cite this document
Federal Reserve (1953, September 23). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19530924
@misc{wtfs_fomc_minutes_19530924,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1953},
month = {Sep},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19530924},
note = {Retrieved via When the Fed Speaks corpus}
}