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 Wednesday,
PRESENT:
June 22, 1955, at 9:30 a.m.
Mr. Martin, Chairman
Mr. Sproul, Vice Chairman
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston
Earhart
Fulton
Irons
Leach
Mills
Mr. Robertson
Mr. Shepardson
Mr. Vardaman
Mr. Riefler, Secretary
Mr. Thurston, Assistant Secretary
Mr. Vest, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Daane, Hostetler, Rice, Roelse,
Wheeler, and R. A. Young, Associate
Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Carpenter, Secretary, Board of Governors
Mr. Sherman, Assistant Secretary, Board of Gov
ernors
Mr. Koch, Assistant Director, Division of Re
search and Statistics, Board of Governors
Mr. Miller, Chief, Government Finance Section,
Division of Research and Statistics, Board
Mr.
of Governors
Gaines, Securities Department, Federal Re
serve Bank of New York
Messrs. Erickson, Johns,
Powell, and C.
S. Young,
Alternate Members of the Federal Open Market
Committee
Messrs. Williams, Bryan, and Leedy, Presidens of the
Federal Reserve Banks of Philadelphia, Atlanta,
and Kansas City, respectively.
6/22/55
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Upon motion duly made and seconded,
and by unanimous vote, the minutes of the
meeting of the Federal Open Market Comit
tee held on May 10,1955, 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
minutes of the meetings of the executive
committee held on May 10, May 24, and
June 6, 1955, were approved, ratified,
and confirmed.
Before this meeting there had been sent to the members of the Com
mittee a report of open market operations prepared at the Federal Reserve
Bank of New York covering the period May 10 to June 15, 1955,
inclusive,
and at this meeting there was distributed a supplementary report covering
commitments executed June 16-21, 1955.
Copies of both reports have been
placed in the files of the Federal Open Market Committee.
Mr. Rouse noted that the only change reflected in the supplementary
report distributed at this meeting was a reduction of $2,351,000 in the
amount of acceptances held by the Federal Reserve Bank of New York under
the existing authorization of the Committee.
Mr. Rouse said that he felt
the market was aware of the fact that there would be a substantial con
traction in the volume of reserves between now and the end of this month.
There would, however, be some addition to funds in
the market tomorrow as
a result of maturing tax anticipation notes.
In connection with the forthcoming Treasury financing, Mr. Rouse
said that there was considerable discussion in the market as to where the
6/22/55
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reserves which would be necessary to support the financing would come from
and whether such reserves would be provided "freely" or "reluctantly".
Another topic being discussed, he said, was the current administration of
the discount function at the Federal Reserve Banks, there being consider
able gossip to the effect that the discount window was "practically closed,
a la 1953".
Mr. Rouse stated that while this was gossip, he felt it should
be reported to the Committee since the comments persisted.
Upon motion duly made and seconded,
and by unanimous vote, the open market
transactions during the period May 10
to June 21, 1955, inclusive, were ap
proved, ratified, and confirmed.
Chairman Martin referred to the suggestion that he had made at the
meeting on March 2, 1955 that consideration be given to abolishing the
executive committee of the Federal Open Market Committee and that the
matter be placed on the agenda for discussion at this meeting.
He went
on to say that his thinking had not changed very much since March, that
he considered the Open Market Committee to be the heart and core of the
Federal Reserve System, and that the experience of the last few months
gave further indication of the desirability of having the full Open Market
Committee take the responsibility for decisions not only of policy but
also as to open market operations.
It was Chairman Martin's view that
there was merit in abolishing the executive committee.
He recognized, how
ever, that there might be another side to the question, and he wanted to
be sure that adequate time was given for consideration of the question,
6/22/55
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especially if
any of the members of the Committee or other Federal Reserve
Bank Presidents had doubts as to the desirability of such action.
Chairman Martin then referred to the letter distributed by the
Secretary under date of May 10, 1955, which transmitted a draft of pro
posed action of the Federal Open Market Committee abolishing the execu
tive committee, prepared by Mr. Vest, and he requested that Mr. Vest out
line the changes that would be necessary in the event the executive com
mittee were abolished.
Mr. Vest made a statement in which he said that if the Federal
Open Market Committee should determine to abolish the executive committee
it would seem necessary to make certain changes in (1) its Regulation re
lating to Open Market Operations of Federal Reserve Banks, as amended
June 19,
1952; (2) the Rules on Organization and Information of the Fed
eral Open Market Committee,
adopted effective September 11, 1946; (3) the
Rules on Procedure of the Federal Open Market Committee, adopted September
11, 1946, and (4) the by-laws of the Federal Open Market Committee, as
amended March 1, 1952.
It
would also seem desirable, Mr. Vest said, that
the Committee take action to adopt as its own actions and authorizations
any currently effective actions and authorizations of the executive com
mittee now outstanding, and he called attention particularly to the draft
of proposed action which had been distributed to the members of the Com
mittee on May 10, 1955.
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Mr. Vest further stated that if the executive committee should be
abolished there should be a directive from the full Committee to the Fed
eral Reserve Bank of New York providing the same authority as was now pro
vided through the directives of the full Committee to the executive com
mittee and of the executive committee to the New York Bank.
In commenting
on such a directive, Mr. Vest stated that he had prepared a draft which
was substantially the same as the existing directive from the executive
committee to the New York Bank but which would omit the existing clause
(c) of the full Committee's directive to the executive committee, which
clause provided that the executive committee should arrange for transac
tions with a view, among other things, "to correcting a disorderly situa
tion in the Government securities market".
Mr. Vest explained that the
reason for omitting that clause from the draft of directive from the full
Committee to the New York Bank was because, under the terms of the action
of the full Committee at its meeting on March 4, 1953,
intervention to
correct a disorderly situation in the Government securities market could
be initiated only upon the affirmative vote of the executive committee
after the existence of a situation seeming to require correction had come
to its
wise --
attention through notice from the Manager of the Account or other
even though it
was recognized at that meeting that, in the event
of an emergency such as an international crisis, it
might not be possible
to canvass all members of the executive committee before initiating such
intervention.
It
was Mr. Vest's thought that, in view of this existing
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policy of the Federal Open Market Committee, it would not be appropriate
to include in the directive to the New York Bank as agent an instruction
to arrange for transactions with a view to correcting a disorderly situa
tion in the Government securities market.
Mr. Vest stated that if the executive committee were to be
abolished, it would be in accord with the spirit of the Administrative
Procedure Act and desirable to publish in the Federal Register appropriate
notices of the changes in the Rules on Organization and Information and in
the Rules on Procedure, which had been published in the Federal Register
in 1946, as well as to publish the Regulation Relating to Open Market
Operations of the Federal Reserve Banks, as revised.
Chairman Martin said that in the event the executive comittee
were to be abolished his thought was that meetings of the Open Market Com
mittee in the future generally should be held at intervals of three weeks
instead of two weeks, as had been the case with meetings of the executive
committee during recent years.
Mr.
Sproul stated that he assumed there was no substantial legal
question involved in the proposal to abolish the executive committee.
The
executive committee has been legally constituted and could be legally con
tinued, which meant that the Committee was left with the question whether
to continue the executive committee as a matter of administrative appro
priateness,
efficiency, and convenience.
substantially as follows:
Mr. Sproul then made a statement
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I am overlooking - or at least disregarding - the reit
erated charge of Congressman Patman that Congress gave this
great power of directing open market operations of the Federal
Reserve Banks to twelve men, the twelve men gave it to five,
the five gave it to one, and it ended up in the hands of Wall
Street.
I continue to cling to the belief that we shouldn't
change our organizational structure in order to try to ac
commodate ourselves to the attacks of the Congressman.
Now, under present arrangements, with members of the full
Committee who are not members of the executive committee in
vited to attend meetings of the executive committee, we have
been having what are in effect meetings of the full Committee
every two weeks.
This has proved to be possible and desirable
and it might be said to clinch the argument that our present
command over time and space makes the executive committee no
longer necessary. Nevertheless, I think there is something
to be said for keeping an executive committee in being as an
administrative technique, even though our bi-weekly meetings
(or our meetings every three weeks as suggested) become meet
ings of the full Committee in name as well as in fact, and the
executive committee meets only on call. There may be times
when it will be desirable to have a properly constituted body
which can be assembled in a matter of hours, not to make policy
but to refine policy made by the full Committee on its way to
the management of the Account, as in case of disorderly markets.
And there may be emergency situations in which such a properly
constituted body would be in a position to make policy, tempo
rarily, in behalf of the full Committee on something better than
an ad hoc basis.
It has been suggested, I know, that such situations can be
met, when necessary, by a few telephone calls, but I have never
had much confidence in this method of reaching committee deci
sions except on routine matters. When something more than
routine consent is the business at hand, a telephone canvass
is no substitute for a face-to-face meeting at which ideas can
be developed and debated, and the reaction of your associates
to those ideas can be observed and taken into account. A tele
phone canvass depends too much on who asks the question and how
he asks it.
I am left with the feeling - and it is no more than that
that we would be giving up something we may want or need if we
I would prefer to have our
abolish the executive committee.
present bi-weekly meetings (or meetings every three weeks)
6/22/55
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of the executive committee changed into meetings of the full
Committee, but to have the executive committee kept in being,
for possible use in special circumstances to sort out issues
as between top policy and spot policy, and in emergency con
ditions temporarily to make top policy. In other words, I
do not think we have to abolish the executive committee in
order to try to make sure that the full Committee accepts
and discharges its responsibilities under the law, and there
may be occasions when those responsibilities can be better
discharged if an executive committee is kept in existence.
If the executive committee is abolished, we should
certainly have in mind the continuance of such meetings as
this, at least four times a year, when all parts of the Sys
tem are brought together to discuss matters of broad policy
and important operations. And there should be better prepara
tion for these meetings, in terms of a carefully prepared
agenda and necessary background documents available well in
advance, and more time allowed for deliberation and discus
sion, even though we take one or two days to it, instead of
half a day.
Mr. Leach said that, as a member of the full Committee and of the
executive committee since March 1 of this year, he had been impressed by
the fact that almost all members of the full Committee had attended each
of the meetings of the executive committee held during the past three
months.
On the basis of this experience, it seemed to him practicable
to have meetings of the full Committee frequently, and he had come to the
conclusion that there was no real need for an executive committee.
If
the executive committee were abolished, Mr. Leach felt that, as Mr. Sproul
had suggested, there should continue to be at least four major meetings
of the Federal Open Market Committee a year at approximately quarterly
intervals at which all of the Presidents of the Reserve Banks would be
present when policy matters could be fully discussed.
He also suggested
6/22/55
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that attendance of voting members at meetings of the Open Market Committee
scheduled at more frequent intervals,
such as every three weeks as sug
gested by Chairman Martin, might be aided if the groups of three Federal
Reserve Banks (such as the Boston, Philadelphia, and Richmond Banks)
were to elect two alternate members,
instead of only one as is now pro
vided.
Mr. Leedy said there was only one phase of the proposal that gave
him concern.
This was the question whether abolishment of the executive
committee would mean that the Presidents who served in rotation but who
were not currently members of the Committee might be placed further out of
touch with the work of the Committee than has been the case in the past.
If
the practice were continued of having four meetings a year of the type
now held, at which policy matters were fully discussed, the proposed change
might have no effect.
However,
if policy actions might be taken at each
of the meetings suggested at three week intervals, and if the Reserve Bank
Presidents not serving on the Committee were not to be given an opportunity
to participate in these meetings,
Mr. Leedy's concern was that some Pres
idents would not be kept as closely in touch with the work of the Commit
tee as they would like to be and as they ought to be.
Chairman Martin said that Mr. Leedy's question came as a surprise
since it
had never occurred to him that the quarterly meetings of the type
held in the past at which all of the Presidents were in attendance would
be abolished.
Nor had it
entered his mind that any President would not
6/22/55
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feel welcome to attend any meetings of the Federal Open Market Committee
that might be held in the future, if
could do so.
he wished to do so and felt that he
His proposal, the Chairman said, was intended to give every
body more participation rather than less participation than they might
have had in the past in all the decisions of the Open Market Committee.
He did not have in mind abolishing in any way the responsibilities of the
Open Market Committee or the responsibilities or participation of any of
the persons connected with it.
Mr. Leedy responded that he was glad to hear Chairman Martin's
statement, adding that he was not opposed to the proposal to abolish the
executive committee and that his concern had been that the Presidents not
serving on the Committee have an opportunity to be in attendance at meet
ings where major matters of policy might be considered.
Mr. Balderston said that on at least one occasion during the past
spring he felt the executive committee did not take the action that was
indicated at the time simply because it was inhibited from doing so--it
did not have the power of the full Committee.
He had the feeling, he said,
that had the full Committee been meeting the timing of Committee actions
might have been better than it
was.
Mr. Balderston said that he was con
cerned about being too late and about not acting on time.
He was very
strongly in favor of Chairman Martin's suggestion that the executive com
mittee be abolished and of Mr.
Sproul's proposal that the thorough-going
quarterly reviews of the economic and credit situation and of policy and
6/22/55
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operating matters be continued at the time of the meetings of the Con
ference of Presidents.
Mr. Robertson said that he felt the executive committee was no
longer needed in view of improved communication and transportation facili
ties.
The holding of frequent meetings of the full Committee would in no
way detract from the need for continuing the thorough-going quarterly re
views of the situation when all Reserve Bank Presidents were in Washing
ton, since it
would be impossible to expect that all Reserve Bank Presi
dents could attend all Open Market meetings held at three week intervals.
Mr. Robertson also suggested that the point mentioned by Mr. Leedy might
be covered by providing specifically that all Presidents of the Federal
Reserve Banks be invited to be present at meetings of the Open Market Com
mittee.
Mr. Vardaman stated reasons why he felt it
ish the executive committee,
was desirable to abol
including particularly the fact that he be
lieved such action would bring the Reserve Bank Presidents closer to the
consideration of open market matters and make them more available for
consideration of such matters.
pathetic to Mr.
Mr. Vardaman also said that he was sym
Leach's suggestion that all Reserve Bank Presidents not
currently members of the Committee be elected to serve as alternate mem
bers.
Mr. Johns said that he had much the same feeling as that expressed
by Mr.
Leedy.
Under present procedure,
when he was a member of the Com
mittee he considered that he was expected to attend all quarterly meetings
-12.
6/22/55
of the Committee and he did not let anything take precedence over that
obligation.
This was different, he felt, from merely being "welcome" or
"invited" to be present if he wished to be.
If
he were expected to be
here, he would be here every three weeks; but he would like to have a
more specific and definite understanding than was indicated by Chairman
Martin's suggestion that all Presidents would be "welcomed" at the meet
ings.
Chairman Martin said that there was the statutory problem; there
were only twelve who could vote on open market matters.
He did not see
how the Committee could compel others to attend the meetings.
It
could
invite but could not "expect" the others to attend frequent meetings if
they had no vote.
Thus, a President who was not actually a statutory
member of the Committee should not feel under compulsion to attend the
meetings, and he noted that the President-members had alternates so that
the Committee could have a full representation even when some of the Presi
dent-members could not attend.
It
was important, he said, that each vot
ing member be present at each meeting if possible or that he be repre
sented by his alternate.
Mr.
Johns commented that those who were not members of the Commit
tee had been called upon to vote and required to vote on a matter before
the Committee and,
in response to Chairman Martin's query, he said he re
ferred to the Chairman's request at the meeting held on March 2, 1955,
that all Reserve Bank Presidents vote on the question of a study to re
view the structural and operating organization of the Federal Open
6/22/55
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Market Committee.
vote, Mr.
The vote of the non-members was not a legally binding
Johns said, but they had been requested and expected to vote
on the proposed study.
Chairman Martin said that when he made the request to which Mr.
Johns referred, he did not have any objection to any of the Presidents
not voting if they preferred not to do so.
However, he then thought the
proposal was of such importance that each President should have an op
portunity to express himself if he cared to do so.
Mr. Earhart said he was in favor of abolishing the executive com
mittee and having the meetings as needed of the full Committee. He could
see, however, that at times some of the President-members might find it
very difficult to be present at meetings held every three weeks, and he
raised the question as to the procedure to be followed in ascertaining
whether the alternate for the President could attend.
Mr. Riefler explained the existing procedure under which all Com
mittee members were advised in advance of meetings and if any indicated
they would be unable to attend, the Secretary promptly communicated with
the alternate to ascertain whether he could attend.
Mr.
Later in the meeting,
Earhart noted that under the by-laws whenever any member of the Com
mittee representing Federal Reserve Banks shall find that he will be un
able to attend a meeting of the Committee, he shall promptly notify his
alternate and the Secretary of the Committee in writing or by telegram,
6/22/55
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and upon receipt of such notice the alternate shall advise the Secretary
whether he will attend such meeting.
Mr. Williams stated that the difficulties foreseen in adopting
Chairman Martin's proposal seemed to him to be inherent in any change.
Under the circumstances,
he thought there ought to be some experimenta
tion with the proposal.
Mr. Balderston said that he thought the best answer to the ques
tion raised by Mr. Leedy and Mr.
Johns was that the Presidents were
wanted at the meetings of the Federal Open Market Committee if
arrangements in
their
their individual districts permitted them to attend;
they need not feel compelled to attend, but they should feel that they
were useful and that it
was desired that they attend if
they could do so.
Mr. Sproul said that he thought the question went beyond the
point discussed.
met when all
In the past, there has been an organization which has
the Presidents were present in Washington and at which meet
ings there had been major discussions of the economic and credit situa
tion and of policy and operating matters.
whole System moved as a body.
be possible (although it
Out of these discussions, the
Under the existing proposal, it would now
was not a likelihood) that less than the whole
System would make major moves of policy.
In the situation which Mr.
Balderston had described when he felt the executive committee had failed
to act because it
was inhibited, he had indicated that had all twelve
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members of the Open Market Committee been present, a major change of
policy might have been made without the other Federal Reserve Bank Presi
dents participating in its consideration or knowing that it
sidered.
Mr.
was being con
Sproul felt that the difficulty could be overcome if,
when
ever consideration was to be given to any major change in policy, all Re
serve Bank Presidents were advised of the meeting and arrangements were
made for them to be present without regard to other commitments they might
have.
Chairman Martin said it
was apparent that the quarterly meetings
of the type held in the past should not be abolished.
were still
However, there
only twelve votes and there could be only twelve votes on
policy at those quarterly meetings.
Everything possible should be done
to broaden the responsibility and the participation of all of the Presi
dents in these discussions.
It was not always possible to say in advance
when a major change in policy might be considered, however, and Chairman
Martin suggested that there was a responsibility on each individual Presi
dent and on each member of the Board of Governors to keep himself suf
ficiently current with the situation and with the possible need for changes
that might arise so that each individual might sense when a major policy
question was likely to come up.
Mr. Johns suggested that a President might think he was keeping
himself informed but he might not, as an individual, see the necessity for
6/22/55
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taking an action which another person would have in mind.
In order to
keep abreast of developments, Mr. Johns felt it would be necessary, in
his case at least, to be present at every meeting in order to know when
changing conditions might call for consideration of major policy changes.
Chairman Martin agreed with Mr.
Johns and added the comment that
this responsibility devolved upon each President and each member of the
Board of Governors.
Mr. Robertson suggested that in the future the Secretary of the
Committee inform each Reserve Bank President as well as each member of
the Board of Governors as fully as possible in advance of each meeting of
all matters that might come up for consideration.
Chairman Martin stated that he felt it
of the Board and all
important for all members
Reserve Bank Presidents to be more abreast than they
have been at times in the past of developments which might affect policy.
This was the objective and purpose of his suggestion for abolishing the
executive committee.
There were cases in which Congressmen and others
felt that "islands of responsibility" developed in the System, not only
at the New York Bank but at other places.
Chairman Martin said that in
his judgment there had been some validity to some of these criticisms,
and there had been some cases in which "islands" had developed in the Sys
tem.
This was a problem which should be kept before the Board and all
Reserve Banks.
There also had been times, he said, when he felt that not
6/22/55
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all of the Board members or the Presidents had participated in discussions
of System matters to the extent that would be desirable.
improved.
This could be
It was Chairman Martin's belief that everything possible should
be done to improve the understanding and participation of all parts of
the System in carrying out its responsibilities.
Mr.
Sproul said that he agreed wholly with the objective of greater
understanding and participation stated by Chairman Martin.
If there have
been "islands of responsibility" in the System, however, they have not
been due to organizational structure, but rather to the competition of
other interests and to the zeal or lack of zeal which some had shown for
participation in the work of the Federal Open Market Committee, the heart
and core of the System to which the Chairman had referred.
Mr. Mills said that the discussion this morning indicated a little
hesitation among the Presidents of the Federal Reserve Banks on whether
the proposed abolition of the executive committee would accomplish the
objective which Chairman Martin had in mind of promoting the concept of
the Federal Reserve through the broadest possible participation in problems
that arise within the System.
This was largely because of the difficulty
which the Presidents would have in attending all meetings of the full Com
mittee which would be scheduled at approximately three week intervals.
If this was a correct assumption, Mr. Mills said, there had already been
much progress made through having meetings of the executive committee at
two week intervals to which alternate members of the executive committee
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were invited.
-18
Under this arrangement the quarterly meetings of the full
Committee with all of the Reserve Bank Presidents in attendance allowed
full discussion of policy matters.
indicated that if
Mr. Mills noted that Mr. Vest had
the executive committee were abolished it
would be
necessary to publish a statement regarding that change in the Federal
Register--a change in the administrative program which might or might
not be lasting.
Mr. Williams had pointed out that the plan would be ex
perimental, and Mr. Mills raised the question whether the experiment
could be accomplished within the present framework of the Open Market
Committee's organization.
If Open Market meetings were held at intervals
of three weeks and all Presidents were invited to attend and found it
possible to attend, the executive committee would be abolished as a de
facto procedure but not de jure.
The proposal could be experimented
with without eliminating the executive committee entirely, and Mr. Mills
said that he had in mind the difficulties that might arise in the event
of an emergency and the development of a disorderly market where a deci
sion to act to correct such a situation had to be made by the Committee.
In such an event, the smaller the group necessary for making such a deci
sion, the more likely that the decision could be reached promptly and
the necessary corrective action brought to bear.
If
the executive com
mittee were thus retained in the manner suggested by Mr. Mills, the deci
sion as to correcting a disorderly market situation could be allowed to
remain in the executive committee.
6/22/55
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Chairman Martin said he had given a great deal of consideration
to the question Mr. Mills raised.
It seemed to him that the Committee
had been experimenting in various ways for two or more years, trying to
get more participation on the part of those connected with the operation.
He did not believe any purpose would be served by continuing on an ad
hoc basis without facing up to the question of the Committee's problems.
Chairman Martin referred to the responsibilities of the Federal Reserve
System, stating that he felt these responsibilities just the same as other
Board members and Presidents do and that he believed the best procedure
was to get all of those problems before the group.
There had been dis
cussions as to whether individuals were welcome at the desk at the New
York Bank and whether they were welcome to attend meetings here at the
Board if they were not statutory members of the Open Market Committee.
His view was that the time had come to make a decision and not to engage
in halfway measures.
He wanted to see whether there was some way of
eliminating some of the difficulties that had shown up in the past.
Chair
man Martin said that Mr. Mills was correct in feeling that some of the
Presidents expressed concern regarding his proposal for abolishing the
executive committee, but he personally had no concern.
He felt this course
should be followed not only on a de facto basis but as a matter of recog
nized change.
Mr. Sproul had indicated the view quite sincerely that the
structure of the organization was working on a sound basis, and Chairman
6/22/55
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Martin said he recognized Mr. Sproul might be correct in this view.
How
ever, his own feeling was that the present structure had difficulties
which the Committee should try to eliminate.
Mr. Johns said that he would not wish to be misunderstood.
He
was not reluctant to come to a meeting of the Federal Open Market Commit
tee every three weeks and he would not feel unwelcome to attend such meet
ings even though not a statutory member of the Committee,
Martin's proposal were to be adopted.
if
He wished to make it
Chairman
clear that
if the proposal was adopted he would plan to attend all meetings that
were called, unless something uncontrollable intervened to prevent his
attending.
Mr.
Johns went on to say, in
response to a question from Mr.
Robertson, that he had obtained a fully satisfactory answer to the ques
tion he had posed earlier this morning.
Mr. Robertson suggested that it
would be desirable to give all
Reserve Bank Presidents an opportunity to express themselves on the matter.
Chairman Martin stated that be would be glad to have this pro
cedure followed with the understanding that if
any of those who were not
members of the Committee did not care to express views on the proposal,
they need not feel called upon to do so.
He then asked for expressions
of opinion on the proposal to abolish the executive committee, and all of
the members of the Committee who were present as well as the Reserve Bank
Presidents indicated that they would favor the proposed action, except
Mr. Mills and Mr. Sproul who stated that they would do so with reluctance,
6/22/55
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and Mr. Bryan who stated that he would prefer not to express a view al
though he would not wish to be understood as indicating opposition to
the proposal.
Thereupon, upon motion duly
made and seconded, the Federal
Open Market Committee approved by
unanimous vote the following ac
tions:
(1) That the Regulation of the Federal Open Market
Committee relating to Open Market Operations of the Fed
eral Reserve Banks, as amended effective June 19, 1952,
is hereby further amended effective immediately as follows:
(i) by striking out all of subsection (e) of section 2 of
such regulation and all of section 5 thereof, and (ii) by
appropriately renumbering subsequent sections of the regula
tion.
(2) That the Rules on Organization and Information
of the Federal Open Market Committee adopted effective
September 11, 1946, are hereby amended effective immediately
as follows: (i) by striking out all of section 3 of such
rules and by appropriately renumbering the subsequent sec
tions thereof, and (ii) by striking out the words "or its
Executive Committee" in the first sentence of subsection (c)
of the existing section 6 thereof.
(3) That the Rules on Procedure of the Federal Open
Market Committee adopted effective September 11, 1946, are
hereby amended effective immediately as follows: (i) by
striking out the words "to its Executive Committee or" in
the next to the last sentence of section 2 of such rules,
(ii) by striking out the words "under the direction of the
Executive Committee" in the last sentence of section 2
thereof, and (iii) by striking out "or its Executive Com
mittee" in section 5 of such rules.
(4) That the by-laws of the Federal Open Market Com
mittee, as amended March 1, 1952, are hereby further amended
effective immediately as follows: (i) by striking out the
words "and the minutes of all meetings of the Executive Com
mittee held since such meeting" in paragraph 1 of section 7
of Article I of such by-laws, (ii) by striking out the word
6/22/55
-22-
"both" and the words "and the Executive Committee" in the
last sentence of section 5 of Article II thereof, (iii)
by
striking out all of Article III thereof and renumbering
Article IV as Article III.
(5)
That all actions taken, resolutions adopted, and
authorizations granted heretofore by the executive commit
tee, which are still
in effect, are hereby adopted by the
Federal Open Market Committee as its actions, resolutions,
and authorizations as fully and effectively as if they had
been originally taken, adopted, or granted by the Federal
Open Market Committee and are continued in effect until
such time as they may be rescinded or modified by the Fed
eral Open Market Committee. Any presently existing author
ity of, or instruction to, any Federal Reserve Bank or the
Manager of the System Open Market Account which is derived
from action taken by the Executive Committee pursuant to
authority conferred upon the Executive Committee by the Fed
eral Open Market Committee is continued in effect, subject
to the same terms and conditions as now apply to such au
thority or instruction, until rescinded or modified by the
Federal Open Market Committee. Any matter heretofore re
quiring action by the Executive Committee must hereafter
be acted upon by the Federal Open Market Committee.
Any
and all powers, authorities, obligations, and responsibi
heretofore conferred upon the executive committee
lities
by the Federal Open Market Committee are hereby rescinded.
In taking these actions, it was
understood that notices of the changes
in the Rules on Organization and In
formation and in the Rules on Proce
dure would be published in the Federal
Register, and that the amended regula
tion relating to open market operations
would be published in full in the Fed
eral Register.
In response to a question from Mr. Shepardson, Chairman Martin
stated that as a part of the action abolishing the executive committee,
it
would be understood that the Secretary hereafter would notify all mem
bers of the Federal Open Market Committee and all other Presidents of
6/22/55
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the Federal Reserve Banks of all meetings of the Committee.
stated that it
was hoped that all
He also
members of the Committee and all other
Presidents would be able to attend such meetings in the future.
Secretary's Note: In accordance with this
understanding, Section 2 of Article I of
the by-laws of the Federal Open Market Com
mittee was changed to eliminate the former
provision that alternate members were not
entitled to attend meetings of the Federal
Open Market Committee except in the absence
from a meeting of the member for whom such
alternate is elected. The by-laws as amended
effective June 22, 1955, are as follows:
ARTICLE I.
MEMBERS
Section 1. Organization - Prior to the first
meeting of
the Committee following March 1 each year, each member of the
Committee representing the Federal Reserve Banks shall cause a
record of his election and of the election of the alternate to
serve in his absence to be forwarded to the Secretary of the Com
mittee.
If any question be raised as to the election or eligibil
ity of such member or alternate, the Committee shall determine
such question before permitting such member or alternate to par
ticipate in the meetings.
Section 2. Alternates - In the event a member is absent
from a meeting of the Committee, his alternate, in attending the
meeting, shall have the same status as the member for whom he is
serving.
Section 3.
Oath - Each member of the Federal Open Market
Committee and each alternate shall take the same oath of office
as that required by the Constitution for officers of the United
States.
Section 4. Quorum - Seven members (including alternates
present and acting in the absence of members) shall constitute
a quorum for the transaction of business; but less than a quorum
may adjourn from time to time until a quorum is in attendance.
Meetings - The Committee shall meet in Washing
Section 5.
ton, D. C. at least four times each year and oftener if deemed
necessary. Meetings shall be held upon the call of the Chairman
of the Board of Governors of the Federal Reserve System or at
Notices of
the request of any three members of the Committee.
6/22/55
calls by the Chairman to other members shall be given by the
Secretary.
Requests of any three members for the calling of a
meeting shall state the time therefor and shall be filed in
writing or by telegram with the Secretary who shall forthwith
notify all members of the Committee in writing or by telegram.
When the Secretary shall have sent notices to all members of the
Committee that a meeting has been requested by three members and
of the time therefor, a meeting shall be deemed to have been
called. Whenever any member of the Committee representing Fed
eral Reserve Banks shall find that he will be unable to attend
a meeting of the Committee, he shall promptly notify his alternate
and the Secretary of the Committee in writing or by telegram, and
upon receipt of such notice the alternate shall advise the Secre
tary whether he will attend such meeting.
Section 6. Conduct and Deliberations - The proceedings, de
liberations, discussions, and actions of the Committee, except
as required by law and except as authorized by the Committee,
shall be strictly confidential, and no information shall be re
leased except as authorized by the Committee and in the annual
report required to be made to Congress by section 10 of the Fed
eral Reserve Act as amended.
Order of Business - The following shall be the
Section 7.
order of procedure to be followed at meetings of the Committee:
1. The Secretary shall present the minutes of
the last meeting of the Committee.
2. The Manager of the System Open Market Account
shall make his report of all operations of the System
Open Market Account occurring since the preceding meet
ing.
3. The Committee Economist shall make his report.
The Committee shall then consider open-market
4.
policies.
By a majority vote of members present, the Committee may adopt
a different order of business for any particular meeting.
ARTICLE II.
OFFICERS
Chairman and Vice Chairman of the Committee
Section 1.
meeting on or after March 1 of each year the Commit
At its first
tee shall elect a Chairman and a Vice Chairman to serve until the
meeting on or after March 1 of the next year. The Chairman
first
of the Committee shall preside at all meetings thereof and shall
The Vice
perform such other duties as the Committee may require.
Chairman shall perform the duties of the Chairman in the absence
of the Chairman.
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Section 2.
Secretary and Assistant Secretary - At its
first
meeting on or after March 1 of each year the Committee
shall elect a Secretary and an Assistant Secretary to serve
until the first meeting on or after March 1 of the next year.
It shall be the duty of the Secretary to keep minutes of all
meetings of the Committee and a complete record of the action
taken by the Committee upon all questions of policy relating
to open-market operations and he shall record the votes taken
in connection with the determination of open-market policies
and the underlying reasons assigned therefor. He shall have
custody of such minutes and records and shall perform such
other duties as the Committee may require. In the absence of
the Secretary of the Committee, the Assistant Secretary shall
act as Secretary pro tem.
Section 3. Economist and Associate Economists - At its
first
meeting on or after March 1 of each year, the Committee
shall elect an Economist to serve until the first
meeting on
or after March 1 of the next year. The Committee shall also
from time to time, as it may decide, elect one or more Associate
Economists. The Economist shall prepare for the use of the Com
mittee and present to it such information about business and
credit conditions as will assist the Committee in the determina
tion of open-market policies, and shall perform such other duties
as the Committee may require.
Section 4. General Counsel - At its first meeting on or
after March 1 of each year the Committee shall elect a General
Counsel and an Assistant General Counsel to serve until the first
meeting on or after March 1 of the next year. It shall be the
duty of the General Counsel to furnish such legal advice as the
In the absence of the General Counsel,
Committee may require.
the Assistant General Counsel shall act as General Counsel pro
tem.
Section 5. Manager of the System Open Market Account
The Committee shall select a Federal Reserve Bank to execute
transactions for the System Open Market Account. Such Bank
shall select a Manager of the System Open Market Account who
shall be satisfactory to the Committee. He shall serve at the
pleasure of the Committee and shall attend all meetings of the
Committee.
Filling Vacancies - At any meeting the Commit
Section 6.
any vacancy in the office of Chairman, Vice Chairman,
tee may fill
Secretary, Assistant Secretary, Economist, Associate Economist,
General Counsel, or Assistant General Counsel.
-26-
6/22/55
ARTICLE III.
AMENDMENTS
These by-laws may be amended at any meeting of the Commit
tee by a majority vote of the entire Committee.
Mr.
Vest inquired whether, in approving the abolishment of the ex
ecutive committee, the Committee also approved the revisions in the form
of directive heretofore issued to the Federal Reserve Bank of New York,
which revisions he had outlined earlier this morning in describing the
changes that would be necessary if the executive committee were abolished,
including the omission from the revised directive of the clause formerly
in the full Committee's directive to the executive committee relating to
action to be taken to correct a disorderly situation in the Government
securities market.
Chairman Martin responded that it was understood by the Committee's
vote that the revised directive outlined by Mr. Vest earlier during the
meeting was approved as to form, as the directive to be issued later during
this meeting by the Committee to the agent Bank.
Secretary's Note: In view of the action
of the Federal Open Market Committee
abolishing the executive committee at this
meeting, members of the executive commit
tee individually indicated to the Secretary
their approval of the minutes of the meet
ing of the executive committee held on June
6, 1955 in the revised form in which they
were distributed on June 20, 1955.
-27
6/22/55
Mr. Riefler stated that a question recently was raised by a mem
ber of the executive committee who did not expect to attend a meeting of
that committee whether, in the absence of himself and the associate econo
mist from that Bank, it would be appropriate to have another member of his
staff (an economist) attend a meeting of the executive committee as an ob
server.
Mr. Riefler said that after discussing the matter with Chairman
Martin, it was agreed that the question of the extent to which observers
should be invited to attend meetings of the Federal Open Market Committee
should be discussed at this meeting.
Mr. Sproul said that if a member of the Committee made an express
request that a member of his staff attend a specific meeting, it might be
desirable to permit such attendance as a means of preserving as much con
tinuity in attendance at meetings of the Committee as was possible.
How
ever, Mr. Sproul questioned the advisability of extending unduly the size
of the meetings since there was a tendency for them to grow into "town
meetings" and the larger the number in attendance, the less likely that
the discussions would be of the character that discussions at open market
meetings should be.
Chairman Martin commented that this was the approach he took to
the suggestion.
He thought the burden of responsibility should fall on
the individual members of the Committee and the other Reserve Bank Presi
dents to attend the meetings or to have their alternates present if
came to voting on matters before the Committee.
Chairman Martin also
it
6/22/55
-28
noted that the larger the number of persons attending meetings,
difficult it
the more
became to maintain the confidential nature of the discus
sions and actions.
Mr. Young said that he would not be in favor of having staff mem
bers brought into the meetings as observers and that in his view con
tinuity of attendance could be preserved through attendance of the mem
bers of the Committee, the other Reserve Bank Presidents, and the associate
economists.
Mr. Fulton expressed a somewhat different view, stating that it
would be helpful to have different members of the staff know how meetings
were conducted.
He did not think this should be a regular practice but
felt there were advantages to be gained by having observers present oc
casionally.
Following a discussion. Chairman
Martin suggested, and it was agreed, that
in the light of the comments made at the
meeting, it be understood that as a gen
eral practice observers would not be per
mitted to attend meetings of the Federal
It was also under
Open Market Committee.
stood that this was not intended to re
strict a President from giving members of
his staff access to necessary documents on
the basis of the broad responsibility that
the individual President might feel for
keeping himself and his staff informed.
Chairman Martin then called upon Mr. Vest for comment on a memo
randum distributed under date of June 2, 1955 with respect to possible
6/22/55
-29
changes in the wording of the directive from the Federal Open Market Com
mittee, discussed at the meeting on May 10, 1955.
The memorandum reviewed
the changes in wording which had been discussed at that meeting and sug
gested alternative language that might be used in the event the directive
were to be changed.
staff that it
It
stated, however, that it
was the consensus of the
would be preferable not to make a change in the form of the
directive in the immediate future unless some further change of policy of
the Committee should make necessary a change in the directive.
During the ensuing discussion, several members of the Committee
indicated that they felt
the alternative wording presented in Mr. Vest's
memorandum of June 2 would be preferable to that now in the directive, but
that they would not be disposed to make a change solely for the purpose
of modifying language.
Chairman Martin commented that the question was
largely a matter of "tidying up" wording, that he did not have a strong
feeling on the question, but that his judgment would be that while the re
vised wording would improve the language of the directive it
would be
preferable not to make a change unless some further change of policy of the
Committee was being made.
Some additional changes in language were also suggested during
the discussion, and Chairman Martin commented that he felt it was not
practicable to draft language for a directive in meetings of this size.
At the conclusion of the discussion, it was agreed that the revised lan
guage outlined in Mr. Vest's memorandum should not be incorporated in the
6/22/55
-30
directive at the present time but that it
would be considered whenever a
change in policy made some change in the wording of the directive necessary.
Chairman Martin next referred to a memorandum from the Secretary
with respect to suggested revisions in
several continuing operating poli
cies of the Committee as proposed by Mr. Robertson at the meeting on
March 2, 1955, which was sent to the members of the Committee under date
of June 3, 1955.
At his request, Mr. Robertson commented upon the changes
which he would propose be made in the continuing operating policies of the
Committee, noting that his changes were intended to be changes of language
which would clarify the intent of the Committee in its continuing state
ments of policy relating to support of Government securities, intervention
in the Government securities market, operations in the short end of the
market, operations during a period of Treasury financing, and operations
for the purpose of providing or absorbing reserves.
called upon Mr.
Chairman Martin then
Sproul who made a statement substantially as follows:
I am sure that you will all understand that I continue to
be opposed to anything which tries narrowly to limit System or
Open Market Committee responsibility solely to the volume of
bank reserves, that I continue to oppose our renunciation of
all or any transactions directly related to security issues in
volved in Treasury financings and the prohibition of swaps, and
that I oppose the limiting of our transactions to short-term
securities, preferably bills.
Whatever suggestions I have to make concerning Governor
Robertson's proposed wording of our directives with respect to
continuing operating policies are, therefore, relatively minor
and probably gratuitous, since I probably will have to vote
against the whole resolution.
6/22/55
-31
Mr. Sproul then suggested some changes in language which he felt
might be desirable if the revision proposed by Mr. Robertson were to be
acted upon.
Chairman Martin stated that he hesitated to have language of policy
statements changed without having given an opportunity for all members of
the Committee to study the suggested changes carefully.
It was his view
that the proposal made by Mr. Robertson as well as the suggestions made by
Mr.
Sproul should be made available to all
members of the Committee before
they were called upon to vote on a change.
Mr. Sproul said that he agreed with the position taken by Chairman
Martin, that he felt
it
was desirable to have time to study the proposed
language of the statements of operating policies, and that it was not
practicable for the Committee as a whole to draft language in meetings
such as this.
Following further discussion,
Chairman Martin's suggested proce
dure was approved unanimously.
At the meeting on March 2, 1955, Mr. Robertson made a statement
with respect to the use of repurchase agreements in which he proposed that
their use be continued where considered advisable, not as a supplementary
technique in the regulation of credit, but for the purpose of enabling
dealers in Government securities to maintain broad and ready markets.
His
statement suggested that this procedure be utilized in a manner similar to
6/22/55
-32
rediscount operations--an open window for carrying dealers at rates pref
erably above but in no event below the discount rate--in order to assist
them in sustaining a closer and more continuous market.
Under this ar
rangement, dealers should feel assurance that the facility was always
available to them within reasonable limits, as the discount window is open
to member banks.
Chairman Martin noted that it
had been understood that Mr. Robert
son's proposal would be considered at this meeting, and he then called
upon him to make such supplementary remarks as he felt were desirable in
connection with his suggestion.
Mr.
Robertson said that
he continued to have grave doubts as to
the legality of the repurchase instrument and as to its
ing or absorbing reserves in the market.
efficacy in provid
He had the feeling, he said,
that the same results could flow from thoroughly legal instruments,
as cash transactions in Government securities.
such
The major point with re
spect to repurchase agreements, he said, was that they were for the purpose
of aiding dealers in making markets for Government securities, and this
he thought could be done much more efficiently if the Federal Reserve Banks
made a completely impersonal arrangement similar to that followed in dis
count policy.
Mr. Mills said that he had two questions regarding Mr. Robertson's
proposal.
First, the purpose of repurchase agreements, he said, was to
6/22/55
-33
supply reserves to the market through a device other than general open
market operations.
This being the case, the judgment as to when those
reserves should be provided properly should rest with the management of
the System account.
The initiative for providing or absorbing reserves
should lie with the System, Mr. Mills said, rather than with individual
dealers whose reasons for seeking repurchase agreements might not neces
sarily coincide with the objectives of System policy.
Secondly, Mr. Mills
said that an arrangement such as Mr. Robertson proposed was objectionable
in that through it
the System would in a sense be granting limited member
ship in the Federal Reserve System to the dealers.
He did not feel this
would be warranted.
Mr. Bryan said that he was sympathetic to Mr. Robertson's proposal.
As he had observed the use of the repurchase agreement, the instrument
did not have the purpose of a monetary policy instrument for adding to or
subtracting from reserves.
It was a device that could give some assurance
to the Committee that it did not get a rate that went far beyond the in
tentions of the Committee in periods of tightness.
Thinking of the dis
count rate as the considered System policy, Mr. Bryan said that he felt
the System might use the repurchase agreement at some penalty rate above
the discount rate, knowing that so long as it
was above the discount rate
dealers would scramble otherwise to obtain funds before resorting to the
repurchase agreement.
Mr. Bryan said that he had tended to view the in
strument in this manner rather than as an instrument of monetary policy.
6/22/55
If
it
was an instrument of monetary policy, he doubted whether it
was a
good one.
Chairman Martin said that he was sympathetic to the view expressed
by Mr. Bryan as well as that of Mr. Robertson, but that he thought there
were problems of administration of a proposal such as Mr. Robertson had
made and such a change in policy should not be embarked upon without
thorough study.
Chairman Martin said that he preferred impersonal dealing
to personal dealing at all times, and that this was one of the problems
the Committee should be studying continuously.
He then called upon Mr.
Sproul for an expression of his views.
Mr.
Sproul made a statement substantially as follows:
1.
I disagree with Governor Robertson's general view that
repurchase agreements should not be used as a supplementary
technique in the regulation of credit but should be used for
the purpose of enabling dealers to maintain broad and ready
markets.
I think that they have a real place and purpose as
a supplement to more general credit controls and cannot now
be used to enable dealers to maintain broad and ready markets.
2. Dealers are not now prevented from making broad and
ready markets by an absolute shortage of funds. They can all
borrow up to the prudent limits any lender would set in rela
tion to capital. What they would like to have is assured ac
cess to funds at lower rates so that they would always, or
nearly always, have a profit on the "carry" of their securi
ties in position. No central bank can give such assurance
without also giving up its initiative in credit control, and
there is no warrant in law or in fact for such a relinquish
ment to enable dealers to make broader markets.
3. The risk of conflict with the initiative of the central
bank and with general credit control admittedly depends in
degree on just how the proposal was developed in practice: at
one extreme, if it were to be an open window but always at a
6/22/55
-35-
penalty rate there would be little
or no risk because there
would be little
or no use of the privilege.
At the other
extreme, if it were to be an open window at rates always
favorable to making a profit on the "carry" it would make
the market broader by floating it in a sea of Federal Reserve
credit, no matter what general credit policy might be.
In
between these extremes, that is, with a variable rate used
to promote or retard repurchase agreements at our initiative,
you would only be substituting rate variation for present
quantity (and rate) variation which we now use.
4.
The analogy with member bank borrowing is, I think,
misleading. The discount window is open as a privilege not
a right, there are no credit lines to be drawn on at will,
and the suggestion that member banks should borrow freely
and continuously to enable them regularly to carry part of
their assets has usually been frowned upon.
5. Broadly speaking, dealers now make broad markets and
carry longer positions when they see prospects of rising
prices, and narrow markets and small positions when they see
prospects of falling prices. In general, there are only two
kinds of situations when a dealer's borrowing needs exceed
or seem to him to exceed the limit of funds available to him.
(a)
When he has become overextended in relation to
his capital,
(b) When the money market has tightened and individual
banks are reluctant to borrow at the Federal Re
serve Bank in orderto advance additional funds to
the dealer.
We certainly would not want to step in to relieve the first
situation, and to relieve the second, whenever it represented
an intended result of credit policy, would be partially to
nullify that policy. When the tightening is temporary and not
an intended result of credit policy, the present use of the re
purchase agreement is effective and appropriate as a supplement
to outright open market operations and the discount window.
6. If our markets were differently organized, the situation
of the dealers might be improved. In the London market for
example, short-term dealer portfolios can generally be carried
at a profit, whereas here they must normally expect some loss
on the "carry" of short-term securities and try to make it up
on the spread between their bid and asked quotations and on
fluctuations in prices when their guesses as to future price
movements are correct. To reproduce the London situation even
in part would mean that our money market banks ordinarily would
-36
6/22/55
have to lend to dealers on short-term securities at lower
rates than are now available, that they would vary these
rates from day to day in line with changes in their reserve
position, and that the dealers would come to us only as a
lender of last resort and at a penalty rate when there is
temporarily a shortage of available funds in the market.
They would then be able to average out their occasional
losses, when borrowing at the penalty rate, with their usual
profits and would presumably be encouraged to carry larger
positions and to make broader markets. It would be desirable
to study further whether and how such an institutional change
in our markets might be brought about. Short of that, I do
not see what Governor Robertson's proposal has to offer.
Mr. Bryan said that Mr. Sproul's statement made a closely reasoned
and orderly argument but that he could not follow the statement orally,
and he suggested that copies be distributed for further consideration.
Chairman Martin said that it
would be understood that Mr.
Sproul's
statement would be made available to all members of the Committee in writ
ing, and that further study would be given to the matter at a later meet
ing.
Before this meeting there had been sent to the members of the Com
mittee a memorandum from Mr. Riefler dated June 20, 1955, giving a list
of the persons to whom minutes and other records of the Federal Open Market
Committee had been made available, as indicated by reports made to the
Secretary pursuant to the authorization given at the meeting on March 2,
1955.
A copy of this memorandum has been placed in the Committee's files.
Mr.
felt it
Riefler stated that the memorandum was distributed because he
would be of interest to the members of the Committee and the other
6/22/55
-37
Federal Reserve Bank Presidents to know how extensively minutes and other
Committee records were being made available under the authorization given
last March, which provided that any member of the Committee or any other
Reserve Bank President could make such records available to any employee
of the Federal Reserve System in his judgment, provided he notified the
Secretary of those to whom the records were made available.
Mr. Riefler
noted that in the reports some Federal Reserve Banks indicated by name
secretaries and files personnel handling such records, while others did
not so indicate.
Mr. Riefler also called attention to the fact that at
some Federal Reserve Banks minutes of open market meetings were made
available to virtually no one outside the President's office, whereas at
other Reserve Banks such minutes were available to several persons.
Prior to this meeting there had been sent to the members of the
Committee alternative drafts of a letter to be sent by Chairman Martin to
the Comptroller General of the United States with respect to the request
made by the Chairman of the House Committee on Government Operations that
the General Accounting Office make an audit of the Board of Governors, the
Federal Open Market Committee, and the Federal Reserve Banks and their
branches,
and at this meeting a revised draft of letter was distributed.
At this point, the meeting recessed for fifteen minutes, reconven
ing at 11:46 a.m. with the same attendance as at the beginning of the recess.
After discussion, the letter to Mr.
Campbell, as changed at this meeting,
was approved in the following form:
6/22/55
-38-
"This letter refers to our previous correspondence with
respect to the request you received from Chairman Dawson
of the House Committee on Government Operations that the Gen
eral Accounting Office make an audit of the Board of Governors,
the Federal Open Market Committee, and the Federal Reserve
Banks and their branches for the period January 1, 1953 to
December 31, 1954.
"In my letter to you of April 20, I stated that since the
proposal represented an important departure from long estab
lished practice, with far-reaching implications, we would con
sult as promptly as possible with the Federal Open Market Com
mittee, which is a statutory entity, and with the chairmen,
and presidents of the Federal Reserve Banks. In the interim
we have done so, and the Board has given further consideration
to this request. In addition, I have had two meetings with
Chairman Dawson regarding the matter.
"At the outset I think it should be clearly understood
that the question before us is not whether the Board, the Fed
eral Open Market Committee, and the Reserve Banks should be
audited. They are audited in accordance with standard practices
and exacting procedures, and reports of these audits are avail
able to the appropriate Committees of Congress. For the past
three years the Board has furnished the reports of the audits
made of its accounts to the House and Senate Banking and Cur
rency Committees. Last year the Board also sent the reports
of examination covering the five years 1949-1953 of the twelve
Federal Reserve Banks and branches, as well as the audit of the
Federal open market account to the House Banking and Currency
Committee where they could be examined by all members of the
Congress who wished to see them. The Board stands ready at all
times to make reports of audits of its own operations, as well
as the reports of examination of the Reserve Banks and the
audits of the Federal open market account, available to appro
priate Committees of Congress.
"The matter of a separate audit by the Comptroller General
presents a different question, and we believe that in the light
of the statutes, legislative history, and explicit expressions
of Congressional intent, the Board, in the absence of an express
directive from the Congress, could not lawfully acquiesce in a
separate audit made by your office.
"Chairman Dawson's request that you audit the Board, the
Federal Open Market Committee, and the Reserve Banks is predi
cated upon section 53(b) of Title 31 of the United States Code,
which was enacted as a part of the original Budget and Account
ing Act, dated June 10, 1921. This Act provides in part that
6/22/55
-39-
the Comptroller General 'shall make such investigations and
reports as shall be ordered by either House of Congress or
by any committee of either House having jurisdiction over
revenue, appropriations, or expenditures.' The context of
section 53 seems to us to relate clearly to public funds ap
propriated by and expended in accordance with the directions
of Congress.
"When the General Accounting Office was established in
1921, no exception was made with respect to the Federal Re
serve Board. Accordingly, the accounts of the Board, but not
those of the Reserve Banks and their branches, were audited
for a number of years by the Comptroller General. However,
in the Banking Act of 1933 Congress terminated the authority
of the Comptroller General in this respect. That Act amended
section 10 of the Federal Reserve Act to provide explicitly
that funds of the Board, which are derived from assessments
on the Federal Reserve Banks, 'shall not be construed to be
Government funds or appropriated moneys.' It provided further
that 'The Board shall determine and prescribe the manner in
which its obligations shall be incurred and its disbursements
and expenses allowed and paid...'
The reports of the Senate
and House Banking and Currency Committees on this amendment
stated that its purpose was to leave 'to the Board the de
termination of its own internal management policies.'
"During the enactment of the Government Corporation Con
trol Act, in 1945, Congress gave consideration as to whether
or not the Federal Reserve Banks should be brought within the
purview of that Act, so as to be audited by the General Ac
counting Office. Congress did not include the Federal Reserve
Banks within that Act. At the hearings before the Senate Com
S.469, which became
mittee on Banking and Currency on the bill
the Government Corporation Control Act, Mr. Frank H. Weitzel,
attorney for the General Accounting Office, testified on be
half of the Comptroller General to the effect that Federal Re
for the
serve Banks should not be made subject to the bill
reason that they were supervised very closely by the Board.
(H.R. 2643) pending in the
"As you know, there is a bill
present Congress which would provide for an audit by the Comp
troller General of the Board, the Reserve Banks, and the Open
A similar bill was considered but not re
Market Committee.
ported by the House Committee on Government Operations in the
These measures were predicated, apparently,
last Congress.
on the assumption that, if such an audit is to be undertaken,
it should be authorized by an Act of Congress.
6/22/55
-40
"You may be assured of our desire to cooperate at all
times with your office, as well as with the Committees of
Congress, but in the light of the statutes and expressions
of legislative intent we feel we must adhere to the conclu
sion stated above.
"I have assured Chairman Dawson that, if it meets with
his approval, we would welcome an opportunity to appear be
fore his Committee in order to present the important policy
considerations which are raised by this proposal beyond the
legal aspects of the matter dealt with in this letter."
Secretary's note: The letter was sent
by Chairman Martin to Mr. Campbell,
Comptroller General of the United
States, under date of June 22, 1955,
with a copy to Chairman Dawson, Chair
man of the Committee on Government
Operations of the House of Representa
tives.
Members of the staffs of the Board's Division of Research and
Statistics and Division of International Finance entered the room at this
point for the purpose of assisting in the presentation of an economic and
credit review, illustrated by chart slides.
A copy of the script of the
review has been placed in the Committee's files, and copies were sent to
all members following the meeting.
The review indicated that economic activity is continuing to rise
from record levels, with expansion activated by private spending.
demands are very strong.
Credit
Gross national product in the current quarter
is now estimated at an annual rate of $377 billion--up $7 billion from
the first quarter of this year and also $7 billion above the second quarter
of 1953.
Industrial production in May reached a new high of 138--15 points
6/22/55
-41.
above the 1954 low and 1 point above mid-1953.
pears to be occurring in June.
Some further increase ap
A striking feature of the recent period
has been stability in broad averages of commodity prices, despite sharp
expansion in output.
While industrial capacity and manpower resources, on the whole,
are being used fairly intensively and while some materials are in tight
supply, the degree of utilization of the country's resources--with some
exceptions--is not as intensive as in the spring of 1953.
Since then,
there have been two years of growth in the labor force, in productivity,
and in capacity.
In the spring of 1953, however, activity was leveling
off, whereas this spring it has been advancing.
The review also presented projections of requirements for bank
reserves which indicated that something over $1-3/4 billion of additional
Federal Reserve credit will be required during the rest of 1955 to cover
reserve needs associated with usual seasonal changes plus a three per
cent per annum growth in the money supply.
To maintain excess reserves
of around $600 million, about $700 million of reserves would be needed
during the next two weeks to cover seasonal and holiday currency require
ments as well as the usual end-of-month decline in float, but some of
these could be covered by additional borrowing on the part of member banks,
since "free reserves" are currently in excess of $100 million.
With the
release of reserves by passage of July 4 holiday demands, there should be
adequate reserves to cover the requirements of Treasury financing and most
6/22/55
-42
other demands until the last quarter of the year without further System
operations, except for temporary periods such as around Labor Day. The
remaining $1 billion of reserves would be needed mostly during October
and between Thanksgiving and Christmas.
The means by which the additional Federal Reserve credit is
sup
plied in the next few months will influence the tone of credit markets and
perhaps the nature of developments,
the review said.
The strong economic
situation, the delicate balance of psychological forces in current financial
markets, the obvious desirability of avoiding public misunderstanding of
System policy at this time, and the timing factor of when the reserves are
needed all
seem to point to open market operations, rather than reserve re
quirement reduction.
Some additional borrowing by member banks may be ap
propriate, depending on the strength and nature of credit demands.
ous demands for credit, particularly if
Vigor
of a speculative nature, may call
for the restraint of increased member bank borrowing, and such restraint
could be reenforced if necessary by a further rise in the discount rate.
The meeting then recessed for lunch and reconvened at 1:45 p.m.
with the same attendance as at the beginning of the morning session except
that Messrs. Hostetler, Rice, and Wheeler, were not present.
Chairman Martin referred to the economic review presented before
lunch, stating that it was his belief that the economy was in the midst
of prosperity.
In making this comment, he said, he was not unaware that
6/22/55
-43
there was some unemployment and that in some segments of the community,
such as in coal mining areas, there were technological shifts taking
place affecting employment. He also noted that in the farm area there
were problems which "marred" the general pattern somewhat. However, he
felt that this was the most prosperous period the country had ever been in.
Chairman Martin referred to the statement made by Mr. Sproul at a recent
meeting of the executive committee at which he cautioned the Open Market
Committee that credit policy was not solely responsible for the level of
business activity. The Chairman stated that he felt this was an excellent
point to bear in mind. However, he felt that the psychology of prosperity
had now been built up to a point where there was a very real element of
danger that monetary and credit policy might produce a situation of undue
optimism. Chairman Martin said that it would be deisrable today to review
discount rate policy, money supply policy, and reserve requirement prob
lems, all in the light of the forthcoming Treasury financing.
He referred
to the projections of reserve funds prepared by the staff, indicating what
the need for additional reserves would be in coming weeks, and he also
noted that as far as operations for the System account were concerned there
recently had been a tendency (through no fault of anyone) for the volume
of free reserves to be reflected on the "easy" side of the zero-to-$100
million range plus or minus, rather than on the down-side of that range.
If ever there had been a period when it
would have been desirable to have
6/22/55
.44.
had free reserves ranging lower than the projections, this would have
been the time, Chairman Martin said.
period in which it
ments,
The Committee was now faced with a
would have to supply reserves to meet seasonal require
to meet growth in the economy, and to assist in the Treasury's fi
nancing.
He likened the present situation to one in which a driver of an
automobile was going up a hill and as the grade increased found it
sary to increase pressure on the accelerator:
it
neces
was a question how
much more reserves should be supplied in order to maintain the existing
situation.
Chairman Martin then called upon Mr.
Sproul who made a state
ment substantially as follows:
1. As shown in the reports this morning and as we have
all observed, I think, there is continued growing strength in
the economic situation at high levels of production and employ
ment. This warrants a feeling of satisfaction, tempered by
the fact that activity has been supported by rapid expansion
in consumer and mortgage credit on easy terms, and by the like
lihood that prices, after two years of stability, may now break
out on the up-side, due to pressure from costs and anticipation
of price rises by businessmen and consumers.
2. With continued strength in the economy at the highest
levels yet reached, some evidence has developed of a nearer
approach to full utilization of existing plant, equipment, and
manpower than in the recent past, but there still appears to
be some leeway for increased production and increased produc
tivity, in a highly competitive economy, to counteract these
cost-price influences in part. Restraint from the credit side
can be helpful but not controlling in such a situation. The
pressure of existing credit restraint will increase as demand
for credit increases in coming months, and we shall have to be
alert from here on to the need for further restraint; to signs
of price and credit inflation. Such signs would include rapid
growth of credit to finance inventories, indications of specu
lative buying in anticipation of price increases, further rapid
growth of consumer credit, another speculative surge in the
stock market, and in general the development of super boom
psychology.
6/22/55
-45
3.
Even if the rate of growth in the economy should
be less in the third quarter of 1955 than in past two or
three quarters, the great breadth of the present upward
movement, including nondurable and durable goods, suggests
that whatever slackening in automobile production and what
ever leveling off of housing activity may take place during
next three months will be largely offset by a continued push
upward in other areas. The recent upward revision of pro
spective business expenditures for capital equipment, the
continued high level State and local expenditures, and the
continued evidence of economic strength in many foreign
countries, and the general air of optimism, reinforce this
view.
4. The Treasury picture is largely unchanged. It will
have to issue around 9 or 10 billion of new securities during
last half of the calendar year, though not all of this is net
borrowing. Some 2 or 3 billion will be in replacement of re
deemed savings notes, attrition on maturing issues, and to
redeem CCC certificates and maturing issue loans. Treasury
borrowing, most of which will presumably be at short term
and much of which will have to be done through the banks, will
require the addition of reserve funds to the bank pool. It
carries possible inflationary elements which will have to be
guarded against.
Private demands for bank credit during the remainder
5.
of the year are also expected to be substantial, after a con
traseasonal rise during the first half of the year. Seasonal
needs and some growth needs will require additional reserve
credit, particularly as many banks would appear to have ap
proached or reached the limit of possible shifts of short
term securities to nonbank investors, in order to make way
for increased loans. The total amount of reserves needed to
maintain existing credit conditions, without relaxation of
present restraint, is estimated to be in the neighborhood of
2 billion.
6. It now appears that these combined reserve needs grow
ing out of private demands and Treasury borrowing can be met
by open market operations supplemented by an increase in dis
counting at the Federal Reserve Banks. Most of the increase in
member bank borrowing this year has been at country and reserve
city banks; there is still room for further borrowing and for
this kind of pressure to be felt more largely at the central
reserve city banks. This would afford a measure of insurance
against a too free dispensation of reserves through open market
operations.
6/22/55
-46
7. Our primary task is to provide the reserves needed
by a prosperous growing private economy, and our secondary task
is to provide the reserves needed to facilitate unavoidable
Treasury financing so that it will neither absorb funds needed
by the private economy nor be the vehicle for an excessive
credit expansion. This will mean treading a pretty narrow
path between too little and too much. Open market operations
are convenient for the main part of the task, but the finer
adjustments both in terms of reserves provided and in terms
of keeping the right amount of pressure on the reins can come
from seasonal use of the borrowing privilege. An increase in
member bank borrowing, in the aggregate, should be welcomed,
as seasonal needs develop. We should be ready to meet reason
able demands at the discount window. We should also be ready
to increase the discount rate when the business and credit
situation suggest it and the Treasury's financing schedule
permits it. Continued pressure on the banks and an enlarged
supply of short-term Government securities should result in
a rising trend of short-term interest rates, which could set
the stage for another increase in the discount rate either
after the Treasury's July-August cash financing or before its
October cash financing.
Chairman Martin inquired of Mr. Sproul as to his views regarding
Mr. Rouse's comment at the beginning of this meeting concerning gossip in
some parts of the money market to the effect that the discount window at
the Reserve Bank was "closed a la 1953".
Mr. Sproul stated that it was difficult to understand this feeling,
since whenever the question had been brought up the response of all Fed
eral Reserve Banks was that no practices were being followed that would
lead to gossip of the sort indicated.
Mr. Sproul said that he had no rea
son to doubt that the feeling did exist, however, and that in some way the
impression had gotten around that the Federal Reserve was not going to welcome borrowers at the discount window this year.
6/22/55
-47
Chairman Martin said that this was an important point to bear in
mind.
He did not believe that the System could dissipate the gossip by
a statement; it would have to do it by the actions taken at the discount
window.
Mr. C. S. Young stated that in Chicago he had observed the same
feeling as that indicated by Mr. Rouse, and Mr. Erickson made a similar
comment with respect to the Boston District.
Mr. Johns said that in the Eighth District he thought there was
no misunderstanding with banks about administration of discount policy
when discussions were on the basis of a specific situation.
However,
when discussions were in general terms, there had been an impression,
perhaps growing out of the recent revision of Regulation A, of doubt as
to whether discount policy had changed.
Mr. Bryan expressed the view that, in part, member banks wished
to misunderstand discount policy.
He had had occasion, he said, to talk
with several banks in the Atlanta District recently about their situations
and, despite the care used in discussing the matter with them, some had
chosen to interpret the situation as meaning that the Federal Reserve did
not wish to take care of member banks at the discount window this year.
Mr. Robertson commented that he thought it would be possible to
overemphasize the feeling reported to exist and that the System might well
find that actions taken to correct the feeling might result in promoting
the idea that the discount window was "wide open."
6/22/55
Chairman Martin said that Mr. Robertson had made a good point and
that, as indicated before, he felt the best procedure was for each Reserve
Bank President to use his judgment in trying to clarify discount policy
as the occasion arose, and not to make any concerted drive in this direc
tion.
Turning to operations for the System Open Market Account, Chairman
Martin inquired of Mr. Sproul whether his view was that the Committee
should continue to try to maintain free reserves ranging from zero to $100
million, plus or minus.
Mr. Sproul responded that his thought was that the Committee should
maintain its
existing policy, but that he had not understood that policy
as having been refined down to a $100 million range of free reserves either
side of zero.
Rather, he had thought that departures from zero free re
serves range might be wider than that in either direction, so long as such
departures were temporary and did not create an impression of a change in
existing credit policy.
Mr.
Sproul thought that, in addition, the Commit
tee would now have to pay more attention to member bank borrowing and more
attention to movements in market rates, rather than looking primarily to
free reserves as a single guide.
Mr.
Leach said that he thought there should be no change in exist
ing policy but that it
would be satisfactory to him if there was a little
more tightness than had existed in recent weeks.
He felt that the objectives
6/22/55
-49
discussed at the June 6 meeting of the executive committee were right but
that the degree of tightness that had existed had not quite conformed to
those objectives.
Mr. Leach said that free reserves should not be the
sole guide and he would rather achieve the result with a little
more tight
ness than had been apparent recently.
Mr. Earhart and Mr. Sproul both concurred in Mr. Leach's state
ment.
Chairman Martin stated that one of the questions was whether to
supply reserves during the period of the forthcoming Treasury financing
freely or reluctantly.
He felt that the Committee should not mislead the
Treasury into thinking that it
Treasury financing.
was going to pour reserves in to support the
On the other hand, he would not indicate that the Com
mittee would be reluctant to supply the reserves needed, but that they
should be supplied on the basis of current needs.
He felt this could not
be measured by the words "tightness" or "ease" and he realized how diffi
cult it
was to maintain a market situation in line with the Committee's ob
jectives when there was such a small supply of Treasury bills in the market.
Mr. Mills said that he was thoroughly sympathetic at the present
time with the point of view of increasing restraint but that such an in
crease in restraint would be difficult to attain at the time of the Treas
ury's forthcoming financing.
There should be some minimum amount of free
reserves in the market at the time of the Treasury financing, he said, to
6/22/55
-50
serve as a lubricant which would facilitate the operations of dealers
in meeting their own requirements and to assist others during the Treas
ury financing.
Unless there was such a volume of free reserves,
Mr. Mills
felt there would be a distinct possibility of another refunding with heavy
attrition, and the impression might be created that the Federal Reserve
was so intent on its
the Treasury.
ings were to be
own policy that it
was indifferent to the needs of
This would be more likely to occur if the open market meet
set
three weeks apart commencing with this meeting.
If
the market could have some lead from the Federal Reserve as to the minimum
amount of reserves that would be in the market, it
might serve the System's
purposes as well as the needs of the Treasury more effectively.
Mr. Rouse said that there had been a statistical appearance of
greater ease than actually existed in the market.
and outside,
Both in New York City
reports indicated that individual banks felt
was tighter recently than it
had been earlier.
their situation
Mr. Rouse felt that within
the next three weeks market needs for reserves would be in the magnitude
of one-half billion to $700 million, and the bulk of the buying of bills
to meet that need would have to be done prior to the probable announcement
of the Treasury financing during the week of July 4.
Buying by the Fed
eral Reserve in advance of the announcement would be reassuring to the
market, Mr. Rouse said, even though the volume of free reserves did not
make for a "flush" situation:
the mere addition of such reserves would
be taken as an indication that the System was going to "see the Treasury
through".
6/22/55
-51
Chairman Martin said this was very encouraging.
He felt that both
the statistics and psychology of the situation needed to be considered.
In response to a question from Mr. Leach, Mr. Rouse expressed
the view that bills or other short-term securities would be available to
enable the System account to buy what was needed during the next three
weeks,
and he did not think such purchases would have an undue influence
in decreasing interest rates during that period.
In response to a request of Mr. Robertson, Mr. Thomas stated that
there were arguments both for and against a reduction in reserve require
ments as a way to meet the need for additional reserves during the period
of the Treasury financing.
effect.
Such a reduction would have a psychological
It would place in many banks free reserves which they would not
use in connection with the Treasury financing and thus those banks would
be free to use the reserves in making loans of a less desirable and more
speculative character.
Mr. Thomas also felt a reduction in reserve re
quirements would be interpreted as a step toward ease and for the purpose
of facilitating the Treasury financing, regardless of what the Committee's
current general policy might be.
If
the reserves were provided through
open market operations, presumably they would not be furnished until the
pressures were reflected in the market.
Further, by providing the re
serves through open market operations, a smaller volume might be furnished,
depending upon how the situation developed.
6/22/55
-52
Chairman Martin said that since the meeting of the executive
committee early in June, he had given a great deal of consideration to
the ways in which reserves might be provided.
He felt there was no
way of making a reduction in reserve requirements so that it would
not be misinterpreted: such a reduction would compound the talk of ease.
Banks had been advocating a reduction in reserve requirements for some
time and there had come to be a tendency to expect such a reduction.
Chairman Martin went on to say that following the executive committee
meeting on June 6 he, Mr.
Sproul, and Mr. Balderston talked with Treasury
officials about the matter of providing the reserves that would be needed
this summer.
Mr. Balderston said that he felt a reduction in reserve require
ments would put funds into the market in the wrong place,
way, and at the wrong time.
It
in the wrong
would be completely misunderstood.
It
would add to the System's difficulties in trying to maintain a degree of
"restraint" and still
put reserves into the market to meet the various
needs that would arise this summer and fall.
Mr. Robertson said that he felt the Committee should be more
restrictive than it
had been.
He would be much happier if
it
could main
tain a greater degree of restraint than had been maintained recently, with
out jeopardizing the Treasury financing program.
Chairman Martin said that there appeared to be agreement that the
existing policy should be continued, and the question was one of how to
6/22/55
-53
implement that policy.
He then called upon Mr. Rouse for suggestions re
garding the instructions to be issued to the New York Bank, and Mr. Rouse
indicated that the limitation in the first
paragraph of the directive be
set at $1 billion rather than the existing $750 million, in view of the
purchases that would be necessary during the next three weeks.
It
was
also noted that the directive to be issued to the New York Bank by the
full Committee would be in the form presented by Mr. Vest earlier in this
meeting in connection with the discussion of the abolishment of the execu
tive committee.
A copy of the revised form of directive was distributed
at this point.
Chairman Martin suggested that, in issuing the foregoing instruc
tion, all members of the Committee bear in mind Mr. Mills' point that
Committee members keep in touch with the situation and be available in
the event it
was necessary to communicate with them regarding developments
during the next three weeks.
Mr. Mills inquired whether the understanding that operations would
be confined to short-term securities, preferably bills, continued in ef
fect, and Chairman Martin stated that this was correct.
Mr. Robertson suggested that the directive to be issued by the full
Committee to the New York Bank provide that the Federal Reserve Bank of
New York shall not enter into repurchase agreements at a rate below the
discount rate of the Federal Reserve Bank of New York.
6/22/55
-54.
This proposal was discussed briefly and, at Chairman Martin's
suggestion, it
was agreed that it
should be held over for consideration
at the next meeting of the Committee.
Mr. Balderston inquired whether the directive would give author
ity to the Manager of the System Account to take into account the rate of
speed at which the economy was moving in providing reserves during the
next few weeks.
His view was that the public should understand that the
present high level of business justified a higher discount rate than now
existed and that if the Treasury financing were not to take place in the
immediate future, it would be appropriate to increase the discount rate
to 2 per cent at once.
However, the System had to take into account the
Treasury financing problem.
Mr. Bryan said this was closely allied to the problem that was
bothering him regarding the apparent consensus of the Committee.
felt that the situation needed some restraint.
He
He felt the discount rate
had not been made effective as a restrictive device because the System
had permitted the going rate in the short-term market to be at times sub
stantially below the discount rate and never quite up to it.
therefore,
if
it
He wondered,
would be appropriate to begin feeding reserves to the
market before the short-term rate had gotten up to the discount rate.
Chairman Martin commented that the short-term rate was a product
of circumstances largely beyond the System's control at the present time,
in view of the short supply of Treasury bills in the market.
6/22/55
-55
Mr. Sproul said that he did not think the Committee should look
upon the provision of reserves during the next few weeks as "pouring
gasoline on the fire".
They were to maintain the existing measure of
restraint as nearly as possible in view of prospective over-all needs.
If the situation continued to need restraint, as now seemed likely, an
increase in the discount rate could again be considered when the Treasury
financing was out of the way. With respect to Mr. Bryan's comment about
not putting reserves into the market until the short-term rate had moved
up, Mr. Sproul felt that in the light of the Treasury financing and the
attitude existing in the market, it would not be wise to try so precisely
and with such a high degree of refinement to say when the System account
should begin to put in reserves.
If the full Committee were to attempt
to do this, it would run a real risk of causing a misunderstanding of
System policy and of having the Treasury financing turn out to be a fail
ure, with the result that the whole policy the Committee was pursuing
might be lost.
It might well be consistent with policy to have the short
term rate go up, but Mr. Sproul said that as he saw it that did not mean
that the rate should go up within the next two weeks; it could be expected
to go up with the increased seasonal demands, with the growth demands,
and with the other factors that may be anticipated during the period imme
diately ahead.
In response to a question from Mr. Robertson as to whether this
was the time to consider an increase in the discount rate, Mr. Thomas
6/22/55
-56
said that this raised the question of rate relationships.
It was a ques
tion of a reasonable relationship between the rate at which the System
would buy bills, the rate at which it would make repurchase agreements
on bills, and the discount rate.
The discount rate is a penalty rate
and the general approach was that banks should try to make their adjust
ments in reserve position through the bill market before borrowing at
the Reserve Bank as a general rule.
Also, if a policy of not making re
purchase agreements below the discount rate were to be adopted one might
raise the question in terms of rate relationships why the System would
purchase any bills below the discount rate.
Mr. Bryan said that he was not suggesting a precise relationship
between rates but that he questioned whether the System, on its
initiative,
own
should make massive additions to reserves in advance of a
rise in the short-term rate.
System account were a little
He felt that it
would be desirable if
the
reluctant about large infusions of reserves
at this time.
Mr.
Thomas stated that the projections indicated it
would be neces
sary for the System account to purchase at least a half billion dollars
within the next ten days to cover usual seasonal needs and the restoration
of the Treasury balance at the Reserve Banks to a more normal level.
After further brief discussion, Chairman Martin inquired whether
there was objection to approval of the directive to be issued by the full
Committee to the New York Bank in the form presented by Mr. Vest earlier
6/22/55
-57-
in the meeting with a limit of $1 billion for the first
paragraph.
Thereupon, upon motion duly made
and seconded, the Committee voted
unanimously to direct the Federal
Reserve Bank of New York until other
wise directed by the Committee:
1. To make such purchases, sales, or exchanges (in
cluding replacement of maturing securities, and allowing
maturities to run off without replacement) for the System
Open Market Account in the open market or, in the case of
maturing securities, by direct exchange with the Treasury,
as may be necessary in the light of current and prospec
tive 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 fostering growth and stability in the economy by
maintaining conditions in the money market that would avoid
the development of unsustainable expansion, and (c) 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 securi
ties 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
Treasury, shall not be increased or decreased by more than
$1,000,000,000;
2. To purchase direct from the Treasury for the ac
count of the Federal Reserve Bank of New York (with discre
tion, in cases where it seems desirable, to issue participa
tions to one or more Federal Reserve Banks) 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 at any one time by the Federal Reserve
Banks shall not exceed in the aggregate $500 million;
To sell direct to the Treasury from the System ac
3.
count for gold certificates such amounts of Treasury securi
ties maturing within one year as may be necessary from time
to time for the accommodation of the Treasury; provided that
the total amount of such securities so sold shall not exceed
in the aggregate $500 million face amount, and such sales
shall be made as nearly as may be practicable at the prices
currently quoted in the open market.
6/22/55
-58
Chairman Martin stated that with the abolishment of the executive
committee he had in mind that meetings of the full Committee hereafter
would be scheduled at intervals of three weeks.
He suggested that the
next meeting be set for 10:45 a.m. on July 12, 1955, and that it
tenta
tively be understood that meetings also would be held on Tuesdays, August
2, August 23, and September 13, 1955.
Mr. Leach suggested that the practice which had been followed
in connection with meetings of the executive committee in the past of
distributing to the members of the Committee a staff report on the eco
nomic and credit situation be continued for meetings of the full Commit
tee in the future.
He felt the report was of more value if
it
could be
received in advance of the meeting so that the Reserve Bank Presidents
bad an opportunity to review the report of the Board's staff and compare
it
with information available in the individual districts before the meet
ing.
Chairman Martin stated that this procedure would be continued
in the future.
Thereupon the meeting adjourned.
Secretary
Cite this document
Federal Reserve (1955, June 21). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19550622
@misc{wtfs_fomc_minutes_19550622,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1955},
month = {Jun},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19550622},
note = {Retrieved via When the Fed Speaks corpus}
}