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 Tuesday, April 14, 1959, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Hayes, Vice Chairman, presiding
Balderston
Deming
Erickson
King
Mills
Robertson
Shepardson
Szymczak
Bryan, Alternate for Mr. Johns
Fulton, Alternate for Mr. Allen
Messrs. Bopp and Leedy, Alternate Members of the
Federal Open Market Committee
Messrs. Leach, Irons, and Mangels, Presidents of
the Federal Reserve Banks of Richmond, Dallas,
and San Francisco, respectively
Mr. Riefler, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Jones, Marget, Mitchell, Parsons, Roosa,
and Young, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Special Assistant to the Board of
Governors
Mr. Koch, Associate Adviser, Division of Research
and Statistics, Board of Governors
Mr. Keir, Acting Chief, Government Finance Section
Division of Research and Statistics, Board
of Governors
Mr. Freutel, First Vice President, Federal
Reserve Bank of St. Louis
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4/14/59
Messrs. Daane and Tow, Vice Presidents of the
Mr.
Mr.
Mr.
Mr.
Mr.
Federal Reserve Banks of Richmond and
Kansas City, respectively
Einzig, Assistant Vice President, Federal
Reserve Bank of San Francisco
Gaines, Manager, Securities Department,
Federal Reserve Bank of New York
Anderson, Economic Adviser, Federal Reserve
Bank of Philadelphia
Coldwell, Director of Research, Federal
Reserve Bank of Dallas
Brandt, Economist, Federal Reserve Bank of
Atlanta
Mr. King stated that he wished to refrain from voting on matters
coming before the Committee for action at this meeting.
It
was noted that Mr.
Freutel, First Vice President of the Fed
eral Reserve Bank of St. Louis, was in the Board's building today in
connection with a meeting of the Board and the Presidents of the Federal
Reserve Banks,
and he was invited to attend this meeting in the absence
of Mr.
Mr. Freutel then entered the room.
Johns.
Upon motion duly made and seconded,
and by unanimous vote, the minutes of the
meetings of the Federal Open Market Com
mittee held on March 3 and March 24, 1959,
were approved.
Before this meeting there had been distributed to the members of
the Committee a report of open market operations covering the period
March 24 through April 8, 1959, and a supplementary report covering the
period April 9 through April 13,
been placed in
1959.
Copies of both reports have
the files of the Federal Open Market Committee.
Mr. Rouse reported that the money market had been generally
tight during the period since the last meeting, and particularly so
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during the last two weeks of the period.
Federal funds had been at
3 per cent on most days, while dealer loan rates moved up to 3-1/2
per cent for the first
time since January of last year.
The Account
dealt with this situation mainly through repurchase agreements,
since
the tightness was expected to be only temporary and to disappear with
the float expansion that should be getting under way tomorrow.
last night, there were $245.
8
As of
million repurchase agreements outstanding,
all of which were scheduled to mature on Thursday.
Although the money market had remained on a generally even keel,
Mr. Rouse pointed out that the situation in
market had not been good.
the Government securities
During the past week or ten days there had
been a slow but steady deterioration in market atmosphere.
Nonbank
demand for securities had tapered off substantially, and buyers for
continued commercial bank offerings of the Treasury's latest issues
had been hard to find.
Dealers had marked prices of coupon issues
down, and rates on bills up, in
an effort to stimulate buying interest,
but thus far, at least, there had been no resumption of the large
scale redistribution of securities that occurred in the recent past.
Related to this poor performance was a growing belief in the market
that, in view of the continued improvement in
the business situation
and the heavy schedule of Treasury financing ahead, interest rates
were very likely to move higher in the near future.
Mr. Rouse commented that for two reasons such expectations,
and the resulting deterioration of market atmosphere, had special
4/14/59
-4
significance for the Treasury and the System at this time.
First,
the Treasury must decide by April 30 on the terms of the May
refunding-recommendations to the Treasury would be based largely
on next week's market--and it
already appeared that the Treasury
would not be able to go out beyond the one-year area.
Secondly,
holders of the 4 per cent notes of August 1961-the so-called
2 x 4's--would be making up their minds during the next two weeks
whether they would turn them in on August 1 or hold them until
maturity in 1961.
The issue closed last night at par and 8/32 bid,
equivalent to a yield of 3.11 per cent to August 1, 1959, which was
about 4 basis points higher than the July 16 bills auctioned yester
day at an average rate of about 3.07 per cent.
There had already
been reports that at least one large New York bank was purchasing
the 2 x 4's as a short-term money market instrument, planning to
have them stamped before May 1 and to redeem them on August 1.
Apart from the already-existing incentive to use them as short-term
money market obligations,
a further incentive working toward a large
cash-in of the 2 x 4's was the growing belief of higher interest
rates ahead.
A holder who anticipated that the one-year rate will
be 4 per cent by August 1 could have his 2 x 4's stamped on or
before May 1, redeem them on August 1, and use the proceeds to buy
the certificate into which the Treasury would probably be rolling
over the 1-5/8's on that date.
a year without loss of yield.
The holder could thus shorten up by
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Until 10 days ago, Mr.
Rouse said,
the whole market had
been buoyed up by the substantial nonbank demand for shorter
maturities.
However, with the subsequent fading of this demand,
the picture had become distinctly less favorable for the Treasury.
Mr.
Rouse noted that the projections for the next period
indicated a tendency for natural factors to make reserves available.
Despite the runoff of $100 million of bills in the auction yesterday,
this change in direction of the natural factors might help relieve
the feeling created by statistical pressure.
However, this probably
would not be material unless the present distribution of reserves
changed and reserves flowed back to the central reserve cities.
Mr.
Robertson inquired as to the purpose of the purchase by
the Account of about $75 million of Treasury bills last Friday, and
Mr. Rouse replied that the thought was to try to help bring about
the same atmosphere as existed in the market prior to last week.
The Account Management had tried to do this through the use of re
purchase agreements but thought that perhaps some outright buying
would help.
As it
developed, however,
from the reserve standpoint.
the purchases were needed
The position last Friday worked out
to about $200 million of net borrowed reserves and there promised
to be a considerable accumulation of reserve deficiencies over the
week end, which in
fact actually did develop,
Primarily, therefore,
the purchases were to supply reserves, but at the same time the
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4/14/59
hope was to help recreate to some extent the atmosphere and feel in
the market that the Open Market Committee had requested the Account
Management to maintain during this period.
Mr. Robertson then inquired what the feel was that the Desk
was striving for, and Mr.
in
Rouse replied that the thought was to run
the area of $175 million of net borrowed reserves.
There was a
good nonbank demand for bills and other short-term securities and
the Desk was trying to maintain a condition whereby the redistribution
of securities would continue.
Mr. Rouse also verified that the purchases last Friday were
not for the purpose of easing restraint and added that maintenance
of the same feel in the market was directed at the last meeting of
the Open Market Committee.
At that time, he said, the situation that
had now developed could be foreseen quite well, for there had been a
substantial accumulation of short-term securities in the banks,
particularly in Chicago,
and the market was going to be called upon
to reabsorb a considerable amount of such securities.
Reference was
made then to the possibility that the net borrowed reserve statistics
might have to be much lower in
and maintain the feel in
time.
order to facilitate the redistribution
the market that had prevailed up to that
With the refunding coming so soon after the last financing,
there had not been a full redistribution of the securities,
and it
was hard to say what might happen in view of the frequency of
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4/14/59
Treasury financing and the market's knowledge that the Treasury
would have to come to the market again after the refunding and,
apparently, borrow almost monthly during the balance of this year.
Upon motion duly made and seconded,
and by unanimous vote, the open market
transactions during the period March 24
through April 13, 1959, were approved,
ratified, and confirmed.
Mr.
Young made a statement on the economic situation supple
mentary to the staff memorandum distributed under date of April 10,
1959, his comments being substantially as follows:
Once more, recent economic data provide a record of
general economic advance.
Accordingly, our report today
may be confined to highlights.
(1)
March industrial production rose two full index
points from the revised February figure, bringing the
index level to 147 of the 1947-49 average.
This level,
together with the January and February revisions, now
assures a first
quarter average of 145.
(2)
March gains in output were widespread, with
demands for industrial and construction materials again
mounting and activity in business equipment showing the
beginnings of real strength.
Output of consumer goods,
already at record levels, apparently rose further.
Housing starts for March, which have just become
(3)
available, are up again, to a seasonally adjusted annual
rate of 1,426,000.
Value of construction put in place in
March, after little
change in February, attained another
peak volume, reaching a level 17 per cent above the May
For the nineteenth successive month private
1958 low.
industrial construction declined, but other major con
struction components increased.
Construction costs,
which for several months have been showing creeping ad
vance, are now two to three per cent above a year ago.
(4) Fresh strengthening of the labor market has
been indicated by greater than seasonal rise in manu
facturing and other employment from mid-February to
4/14/59
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mid-March, a decline in the seasonally adjusted unemploy
ment rate over this interval, slightly longer hours of
work per week in March, and increased hourly and weekly
industrial earnings last month.
In the textile industry,
a general wage increase appears in the making, with the
initiative in the rise coming from unorganized mills.
(5) Accumulation of business inventories, which
began in December, was extended through February according
to the latest available figures. The very sharp rise in
February in new orders at manufacturers, as well as the
March increase in activity in durable goods industries,
surely portend that business inventory accumulation will
continue.
In this connection, the latest McGraw-Hill
survey of planned business plant and equipment outlaysresults of which are to be released next Monday--will show
a projected increase for 1959 significantly larger than
that shown by the recent Commerce-SEC Survey.
(6) With activity and employment advancing further,
personal income in March is estimated at $368 billion, up
$3 billion from the final February figure, which was revised
upward, on the basis of very recent reports, by $1 billion.
(7)
Rising personal income naturally gives impetus to
retail buying.
Retail sales in March exceeded moderately the
The advance in sales was
substantial record of December.
general, with department stores doing especially well. March
sales of new and used autos, which were close to the March
1957 rate, were patently strong. Used car prices have con
tinued firm at levels considerably higher than a year ago.
With strong markets for both diversified durables and autos,
consumer instalment credit is showing rapid growth--at a
$4 billion annual rate according to January-February figures.
(8)
Incidentally, the Board's new experimental survey
of consumer buying plans and attitudes, conducted by the
Bureau of Census as of mid-January, turned up with results
about in line with those of the Survey of Consumer Finances
conducted by the University of Michigan in January and
Consumer attitudes appear optimistic, but durable
February.
goods buying plans look only moderately better than actual
buying performance of last year.
Strengthening demands in virtually all sectors of
(9)
the economy are being reflected in a creeping advance in
Also, average
average prices of industrial commodities.
past month, mainly
this
modestly
prices of farm products rose
However,
owing to advances in livestock and grain prices.
these recent price advances have raised only slightly the
average of all wholesale prices.
-9(10) With gains in activity so widespread as recent
reports indicate, GNP estimators are revising their esti
mates of first
quarter advance.
Earlier they were content
to project a $10 billion rise from the fourth to the first
quarter. Recently, however, they have upped their estimate
to $12 or $13 billion-that is, to a $465 or $46 6 billion
annual GNP rate.
(11) Economic intelligence from abroad would indicate
that industrial activity in several leading countries of
Europe rose in February.
This rise would seem to be a re
sponse to stronger consumer demand for durable and nondurable
goods and to increased construction activity. There is little
evidence yet of pickup in European business equipment in
dustries.
U. S. exports continue to sag; the February total
was the lowest since late 1955, reflecting declines in
agricultural exports and to a lesser extent smaller shipments
of equipment.
Mr. Thomas made a statement substantially as follows with refer
ence to the current financial situation:
Recent financial developments, as well as those
described by Mr. Young with respect to other phases of
the economic situation, clearly indicate that Federal
Reserve policy has not been unduly restrictive. Some
question may be raised as to whether it has been adequately
restrictive. Prices of industrial products are rising;
speculative elements continue to be powerful in the stock
market and may be appearing elsewhere; and some kinds of
credit are showing expanding tendencies.
In view, however,
of the broad objective of promoting a growing economy, and
in view of the current level of unemployment, existing
productive capacity, and the moderate current volume of
expenditures for expansion of plant and equipment, there
seems as yet to be no clear-cut need for vigorous restraint
on expansion.
In the credit area, governments and consumers appear
Long-term corporate borrowing
to be the largest borrowers.
in capital markets continues in smaller volume than in
Commercial and industrial loans at banks
several years.
have conformed closely to the customary seasonal pattern,
particularly after allowance for borrowing by sales finance
Consumer instalment credit extensions, however,
companies.
Mortgage demands continue
have reached a new high level.
-10heavy.
State and local government borrowing in capital
markets remains close to the record level of last year
and now exceeds corporate capital issues in dollar
aggregates.
The Federal Treasury completed its $4 billion cash
financing operation on April 1 with a substantial assist
from the banks through direct purchases and loans to
dealers.
The current task is for the banks and dealers
to distribute a large portion of their acquisitions to
the investing public as the Treasury expends the funds it
obtained.
So far this year, the bank underwriting and
distributing operation has been successfully accomplished.
From the end of last June to the end of March, the total
public debt increased by nearly $6 billion while commercial
bank holdings of U. S. securities declined by over $1
billion. In the first three months of this year, when
total public debt decreased by less than $1 billion, com
mercial bank holdings declined by over $3 billion. These
figures do not include the effect of the April 1 financing.
Nevertheless, the net result of all bank credit opera
tions in recent months has been an increase in the private
money supply, after adjustment for usual seasonal variations.
The increase in the four weeks ending March 25 was over $1
Care
billion, following a smaller increase in February.
from
conclusions
in
drawing
however,
should be exercised,
single-day figures for deposits; daily average figures for
member banks seem to indicate only a moderate rate of growth
during the past four or five months.
Expansion in the money supply has not equalled the in
crease in the gross national product. Preliminary estimates
quarter of this year the ratio of
indicate that in the first
the money supply to the gross national product declined to
below 30 per cent-or slightly less than the low point reached
The
at the peak of economic activity in the summer of 1957.
significance of this comparison is dubious, however, in view
of the marked increase in time deposits and in the public's
holdings of Treasury bills during the past year and a half.
The continued growth in the money supply, notwithstanding
the success of banks in disposing of Government securities and
the moderateness of loan demands, would indicate that the
Treasury deficit is having some expansionary effect through
This monetary expansion, together
the use of bank credit.
with the accumulation of other liquid assets, can provide
the basis for further expansion in total spending.
From the standpoint of monetary policy, as suggested
earlier, restraints have evidently not been too severe. Money
4/14/59
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markets were not particularly tight during March notwith
standing heavy seasonal credit demands at the time. An
average of around $500 million of member bank borrowing
has generally not been restrictive in the past. This is
especially true in March when Chicago banks more or less
willingly borrow to hold Treasury bills in anticipation
of customers' demands on the April 1 tax date.
Since the beginning of April, however, there are
indications of increased strains on the money market.
Government securities markets have been weak.
Rates on
90 day Treasury bills have risen this week above 3 per cent.
Yields in the longer-term issues are clustering around or
slightly above the 4 per cent level. These rate rises
probably reflect at least in part the efforts of banks and
dealers to reduce their holdings of recently acquired
securities. Unless these holdings can be reduced as the
Treasury expends its balances, the private money supply
will expand further.
The Treasury still
has a considerable amount of borrowing
ahead, although not as much as in the same period last year.
A moderate amount of cash will be needed in May, with some
debt retirement in June, presumably followed by substantial
borrowing in July. For the four months, May to August, the
net increase in the debt will be about $1.6 billion, or
approximately the same as in the corresponding period last
year.
In the last four months of the year the cash deficit
promises to be considerably less than last year, when the
Treasury borrowed heavily and also drew its cash balance
half of 1960 there should
In the first
down to a low level.
be a substantial net debt retirement in contrast to a slight
increase in the same period this year.
There is a likelihood that corporations may continue to
be moderate purchasers of Government securities through the
It will continue to be necessary, however,
rest of this year.
for much of the Treasury borrowing to be underwritten by the
banks, and pressure on reserves should be continued in order
to force banks to sell the securities as the Treasury draws
down its deposit balances.
The immediate question facing this Committee is to what
extent to relieve the effect of current pressures upon the
Government securities market in view of the difficult problems
that surround the forthcoming Treasury financing operation.
Our projections indicate that seasonal reserve needs during
There seems to be little
the next few weeks will be slight.
Any
reason for buying or selling for reserve purposes.
-12temporary variations in reserve needs could presumably be
met through repurchase arrangements.
If bill rates remain
above 3 per cent and credit demands should tend to mount,
then consideration will need to be given to a further rise
in the Reserve Bank discount rates, as soon as the exigencies
of Treasury finance permit.
Mr. Hayes made the following statement of his views on the busi
ness outlook and credit policy:
As various business statistics for March have become
available, they have suggested that expansion is proceeding
somewhat more vigorously than had seemed probable a month
or two ago. The stimulus provided by the expectation of a
steel strike appears to be only a partial explanation.
Some of the enlarged steel output is supporting a rising
volume of production in metal-using industries, and a modest
start has been made toward inventory accumulation in other
industries besides those using steel. Automobile sales were
unexpectedly strong in March. Retail sales in general have
been highly satisfactory, abetted by a considerable rise in
consumer credit. There is some evidence of increasing
capital expenditures, although it is still too fragmentary
to warrant prediction of a late 1959 level much above the
SEC estimates published some weeks ago.
It is encouraging to note the greater-than-seasonal
rise in total employment in March and the greater-than
seasonal decline in unemployment. In the Second District
the unemployment situation likewise improved, with the
notable exception of areas where the aircraft industry is
heavily involved.
The price picture is
still
generally stable.
In the
next few months the consumer price index may feel some
upward pressure from the usual seasonal rise in food prices.
On the other hand the continued abundance of most world
commodities augurs well for stability in the wholesale index.
While the possibility of excessive wage increases in the
steel industry carries with it a serious threat of upward
price pressure, there are hopeful indications of a salutary
widespread public concern over this problem and its implica
tions, both national and international.
Neither the price situation, nor the volume of new or
unfilled orders, nor recent loan statistics suggest a change
as yet from a generally cautious attitude on the part of
4/14/59
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business to a speculative building of inventories.
We should
welcome the outlook for further increases in economic activity,
which are needed to absorb the still
large volume of unemploy
ment, as long as they can continue gradually and without serious
inflationary pressures.
We should obviously remain on the alert,
but signs of a boom are still
lacking, except in the stock market.
The March figures on bank loans show rather greater
strength in the business loan category than in January and
February--although improved corporate liquidity and lower tax
payments made for lower tax borrowing than in 1956 or 1957.
Consumer loans also rose substantially last month. As for
investments, a comparison of Government security holdings of
all commercial banks on March 11, the latest available date,
with those for late June 1958 discloses that nonbanks absorbed
virtually all of the $12.5 billion increase in marketable
government debt which occurred during that period.
This was
unquestionably a favorable development, even though we cannot
overlook the fact that over-all liquidity outside of the banks
increased greatly as corporations and others added to their
holdings of governments, principally of short maturity. The
growth of this pool of potential spending power, over and above
the money supply proper, will bear watching; but it can hardly
be regarded as undesirable as long as sizeable unused real
Of course, with Treasury cash
resources exist in the economy.
financing remaining a major problem through the rest of 1959,
it is very difficult to forecast how long the nonbank absorption
of new issues will continue and to what extent the money supply,
which has behaved moderately to date, may expand unduly if it
Fortunately,
proves necessary to lean heavily on the banks.
current cautious business spending policies suggest that the
transition, if it occurs, should be gradual rather than abrupt.
In terms of credit policy, our problem at present is to
maintain a reasonably firm rein on credit expansion and a
reasonably firm interest rate structure, without pushing these
tendencies to the point where we inhibit further desirable
expansion. It seems to me that the recent degree of tightness
has been appropriate, and, in the light of the latest business
and credit statistics, I see no reason to intensify this
In fact, I believe we
restraint over the next three weeks.
might be inviting dangers if we were to intensify the present
degree of restraint. During the past week or two there has
been a significant decline in nonbank demand for securities,
and this decline itself--even in the absence of any divestment
of securities by the nonbank sector--has had the effect of
At the same time, the heavy calendar
tightening the market.
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4/14/59
of Treasury financing ahead and the continued improvement
in the business outlook--especially the March employment
figures--have led to the emergence of a belief that interest
rates will almost inevitably move higher. This in turn has
brought into sharp focus the question of the Treasury's
forthcoming refunding and cash financing, and particularly
the question of the disposition of the 4 per cent notes of
August 1961-the so-called 2 by 4's--by holders of that issue.
If it should turn out that the market tightens itself because
of continued slow nonbank demand for securities-or possibly
because of nonbank divestment of securities, which could
begin at any time--particularly with a reactivating of capital
expenditure--then any move toward further restraint by the
System could be a serious mistake, since it would be super
imposed upon increased tightness generated by the market
itself. I would therefore make no overt move toward further
restraint at this time, but would continue to have day-to-day
operations conducted largely in terms of the feel of the
market, with the Manager of the Account instructed to
maintain about the degree of restraint we have had in recent
This might imply a considerable range within which
weeks.
reserve statistics would fall. In my view the directive may
appropriately be left unchanged.
Mr. Erickson stated that the picture in the First District was
one of continuing recovery, but at a more modest pace.
sons were made with a year ago,
the short range, however,
to measure.
From the first
When compari
there was distinct improvement; in
the degree of improvement was mch harder
of this year through April 4,
department
store sales were 4 per cent ahead of the corresponding period a year
ago,
compared with an increase nationally of about 8 per cent.
In the
four weeks prior to Easter they were .7 per cent below the correspond
ing period last year, but that may have been due at least in part to
weather conditions.
A survey of capital expenditures for 1959, now
being completed, indicated tentatively a rise of only 1.6 per cent,
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4/14/59
compared with an estimated increase nationally of 7 per cent, and
in
February nonagricultural employment was down .2 per cent from
January.
On the other hand, a poll of New England purchasing agents
showed an increasingly greater percentage reporting increased pro
duction in
each of the past three months,
and F. W. Dodge figures
for February showed a 38 per cent increase in
construction contract
awards over February of last year, although this was due primarily
The past two weeks had seen
to one large award for an oil refinery.
greater use of the Reserve Bank's discount window and borrowings
yesterday totaled almost $80 million.
Apparently some Boston banks
could not get Federal funds at 3 per cent and came to the Reserve
Bank.
Mr. Erickson expressed the view that for the next three
weeks there should be no overt change in policy.
no change in
the Committee's directive or in
the discount rate, and
he would not increase the degree of restraint.
difficult period, and he would leave it
He would favor
This would be a
to the Manager of the
Account to judge the feel of the market.
Mr.
Irons said that his impression of the national situation
was much along the lines indicated by Mr. Young's statement.
appeared to be growing strength in
There
virtually all major areas of
economic activity, and the over-all picture was one of a strongly
expanding economy.
In the Eleventh District, the picture was much
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4/14/59
the same and could be summed up as generally favorable at very high
levels of activity.
Retail trade in the major cities had advanced
substantially from a year ago and also in
months.
comparison with preceding
The employment and unemployment picture was good and
improving in
the major centers,
with Houston the only city where
unemployment,
at 5.8 or 5.9 per cent, was a high percentage of the
labor force.
While there had been some layoffs in the aircraft
industry around Dallas,
offsetting factors apparently had prevented
the percentage of unemployment from rising appreciably.
May of
those laid off were understood to have moved to other areas of the
country and obtained employment.
situation in
Personal income was up, and the
the petroleum industry had improved.
The oil people
did not particularly like the mandatory import controls but believed
that they could operate satisfactorily with them.
The agricultural
situation had improved considerably during the past week due to snow
and rain.
On the banking side, Mr.
especially city bankers,
Irons said he had been told by bankers,
that loan demand was very strong.
In the
Eleventh District, loan totals did not decline very much a year ago and
the banks came into this year with a rather high level of loans, so a
slight increase now was leading the bankers to feel that loan demand
was quite strong.
been large in
Although borrowing from the Reserve Bank had not
total amount and very few country banks had been borrow
ing, there had been an increasing tendency on the part of large city
4/14/59
-17
banks to come in for a day or two.
As to attitudes, Mr. Irons said that recently he had more
than the usual number of contacts with business executives and
others in
the district and found them quite optimistic almost with
out exception.
Their principal worries were about the wage-cost
problem and the Government deficit.
As to policy, Mr.
Irons said that he was rather satisfied
with developments during the past few weeks.
While he was inclined
to agree with Mr. Thomas that perhaps monetary policy had not been
unduly restrictive, in his judgment it
had been satisfactory.
He
would favor continuing about the same degree of restraint, relying
heavily on the discretion of the Account Management with regard to
open market operations.
If
the economy should continue to move
ahead as strongly as at present, policy might have to be changed
quite soon, but at present, with the Treasury problem in the picture,
it
would be appropriate to maintain the status quo.
He saw no reason
to change the policy directive or the discount rate at this time.
Mr. Mangels reported a continuing rising trend in Twelfth
District economic activity.
Employment was up in
March and insured
unemployment was down, with the decline larger than in any March for
the past four years.
breaking levels.
increased,
Department store Easter sales were at record
Automobile sales were up, steel production had
and there was an improved demand for copper and aluminum.
4/14/59
-18
Western pine lumber production was up 10 per cent from March 1958 and
plywood demand was holding well, but key grades of Douglas fir
been cut in price because of a slight decline in
orders.
had
In agriculture,
cotton planting was expected to increase 12 per cent over 1958, for
the largest planting since 1954; plantings of spring wheat and rice
also were up, with declines in potatoes and hay.
ended April 1,
For the three weeks
all categories of bank loans increased as did holdings
of Government securities, while demand and time deposits both declined.
Twelfth District banks were net buyers of Federal funds last week and
were expected to be net buyers again this week.
Borrowing from the
Reserve Bank had remained intermittent and nominal,
but there were
some indications that the banking situation was getting tighter and
reports were heard that loan demand was likely to increase.
Accord
ingly, some banks were expecting to sell Government securities.
Mr. Mangels said that he would favor continuing to maintain
the present degree of pressure.
He agreed with Mr.
pressure should not be accentuated,
banks a little
Hayes that this
for he would want to give the
time to make an orderly distribution of Government
securities to permanent holders.
Mr.
Mangels expressed some concern
that the threat of strikes might be inflating statistics on production,
new orders,
and inventories, and that the last half of the year might
not show as strong a picture of advance.
therefore be well to wait a little
He felt that it
would
before increasing pressure and
that there would be time to do so in
the next few months if
necessary.
-19
4/14/59
After expressing the view that net borrowed reserves should be kept
within a range from $125 to $150 million, Mr. Mangels said that he
would make no change in
the discount rate at this time and that he
felt the directive was satisfactory.
Mr.
District.
Deming reported serious early spring drought in the Ninth
Except for some local areas in southern Minnesota and the
Upper Red River Valley, both topsoil and subsoil moisture supplies
were low, and high winds and dust storms over much of the area during
the past week caused a further deterioration in
It
appeared that about a fourth of the planted acreage of winter
wheat in
fall
1959 crop prospects.
South Dakota might be abandoned.
Only very favorable rain
and growing conditions for the next few weeks could offset the
early drought for the district as a whole.
Livestock were in
good
condition, thanks to plentiful supplies of relatively cheap feed,
but water supply was a problem in
some areas in
ponds either dry or only partially filled.
business picture looked quite good.
Farmers'
the west, with stock
In contrast, the general
income was still
running
ahead of last year, construction activity was showing a strong seasonal
upturn, both in
residential and other types of building, and there was
a heavy backlog of contracts and new building permits.
Mortgage
credit appeared ample at the moment and for the immediate future,
and employment was improving as construction and mining activity
boomed.
There had been a big push during the past few weeks to mine
-20
4/14/59
and move iron ore from the iron ranges to the lower lake ports;
some ore had been shipped by rail from the ranges rather than wait
for boat shipment when the lakes were cleared of ice.
Expansion
in ore demand was putting new vigor in the depressed iron ore
mining regions of the district.
As to the district barking situation, Mr.
Deming said there
had been a sharp increase in loans during the last part of the first
quarter, particularly in business loans.
Reserve city bankers in
Minneapolis and St. Paul expected a particularly heavy demand for
business loans this summer and next fall, with such demand pretty
much across the board.
Reserve Bank in
since June 1957.
More country banks had borrowed at the
the last half of March than in
any half-month period
In summary, there was a stronger than normal
seasonal increase in business activity in
the district this spring,
with the demand for credit growing rather sharply.
Mr.
Deming expressed agreement with the policy suggestions
made thus far at this meeting.
He was satisfied with what had been
done during the past several weeks,
and he would favor continuing
about the same degree of pressure.
In the absence of Mr.
Allen, Mr.
developments in the Seventh District.
Mitchell reported on
Among other things, he
referred to surprising strength in the producers' durable goods
area and characterized the construction machinery industry as
-21
4/14/59
being in almost a boom period.
last year, it
Farm machinery sales were excellent
appeared that this year might be even better, and
reports on lines such as electrical equipment and oil pipeline
equipment also were encouraging.
On the other hand, the employment
situation did not appear to be quite as good as reported generally.
In Chicago,
this might be due partly to the fact that packing houses
were moving out of the city, thus cutting down the demand for labor
of a type that had difficulty in finding alternate employment.
In
eastern Michigan and the Detroit area the unemployment situation
continued to be bad; in view of current levels of automobile and
truck output, it
did not appear that much more recovery would come
from the automotive industry in the near future.
Hence, it
appeared
that unemployment would continue rather large in that area in the
absence of some rather spectacular development.
As usual, the
Chicago banks lost a substantial amount of private demand and time
deposits during the period between March 25 and April 1, most of
which was replaced by deposits of banks outside the area and by a
large increase in Government deposits.
The Chicago banks also
borrowed to some extent from the Reserve Bank, mostly earlier in
the week, and sold securities.
They were now in the process of
getting the private deposits back to Chicago.
Mr. Leedy stated that Tenth District agricultural conditions
continued favorable.
Although the wheat crop probably would not be
-22
4/14/59
as large as last year, a good crop still
was in prospect.
areas had been hit by drought, particularly in
Some
Oklahoma where only
about 50 per cent of the wheat crop was in good condition.
Slaughter
cattle prices had continued to strengthen and were currently above
year-ago levels, with larger numbers of cattle being marketed.
Feeder cattle prices also continued to advance and currently were at
higher levels than at any time in 1958.
Prospects were favorable
for range and pasture conditions, feed supplies were abundant and
these were factors in the strong demand for feeder stock.
The
unemployment situation had improved, with agricultural employment
contributing substantially to the improvement.
Department store
sales in the district through April 4 showed an increase of 11 per
cent over a year ago.
Demand for credit remained quite strong,
particularly at country banks,
and this was being reflected at the
discount window, where a large number of country banks were borrowing
and there were major borrowings by city banks.
Interbank deposits
at city banks were off sharply.
Mr. Leedy said that except for the Treasury financing he felt
the System might now be giving serious thought to the question of
applying additional pressure on bank reserves.
As he understood it,
the money supply was now 4 per cent above a year ago, which was a
higher level than desirable at this juncture.
Therefore,
the Treasury situation, he would like to be moving in
except for
the direction
-23
4/14/59
of a higher level of net borrowed reserves.
evident in the economy,
its
he felt that the Committee should direct
attention toward moving further in
at the first
With the strength
possible opportunity.
the direction of restraint
During the period immediately
ahead he hoped float would not be permitted to create more ease
than had existed.
Perhaps the market had already discounted to
some extent System action in
and if
the direction of further restraint,
so he felt that the System might have more freedom of action.
In summary,
while he recognized the difficulty as far as the Treasury
was concerned and the complication caused by the 4 per cent notes of
August 1961, he felt that the System ought to avail itself
of any
opportunity to increase slightly the degree of current pressure.
Mr. Leach reported that economic gains had continued in the
Fifth District with the exception of coal mining areas in West
Virginia.
The latest information indicated that employment gains were
widespread and the man-hours had increased in most manufacturing
industries.
Areas of strength included textiles, furniture manufacturing,
cigarette production, lumbering,
and residential building.
Bituminous
coal production declined in March for the sixth consecutive month,
with continuing adverse effects on unemployment in West Virginia.
Continuing, Mr. Leach said the borrowing behavior of member
banks seemed to indicate that monetary policy was having a more
widespread effect on country member banks than generally realized
-24
4/14/59
and that problems of discount administration were already present.
In the first
quarter of 1959, 122 banks borrowed from the Federal
Reserve Bank of Richmond, which represented 27 per cent of all
member banks in
the district, an impressive figure considering that
46 per cent of the member banks had not borrowed during the last
twenty years.
Seven of the banks that borrowed during the quarter
had not borrowed in the previous five years,
and three of the seven
had been out of debt to the Reserve Bank for 22 years or longer.
comparison, only 87 banks borrowed during the first
In
quarter of 1957,
when credit restraint was presumed to have been considerably greater
than now.
There was little
difference in
borrowing during the two periods.
the dollar amount of
Twenty-eight member banks were
indebted to the Richmond Bank for more than one-third of the days in
the first
quarter of 1959, and for many of them the season of greatest
credit demand lay ahead.
Of those 28 banks,
much higher--loan-deposit ratios than in
22 now had higher--many
the first quarter of 1957.
A few of the 28 had no bills or certificates, and it
that nearly all
was assumed
had depreciation in their security accounts.
For the United States as a whole,
Mr.
Leach said, both the
number of country member banks borrowing and the amount of their
borrowings during each of the first
five semimonthly periods in 1959
were larger than during the corresponding periods of 1957.
number of country banks borrowing in
the first
The
half of March 1959,
-25
4/14/59
the latest period for which information was available,
compared with 472 in
the first
half of March 1957,
was 626 as
and average daily
borrowings were $198 million as compared with $171 million. Borrow
ings of reserve city banks,
however, were $43 million lower in
the
first half of March 1959 than in the first half of March 1957, and
borrowings of central reserve city banks were $211 million lower.
From these statistics, Mr.
Leach concluded that recent policy
might have had greater tightening effects on country banks than
aggregate reserve statistics would indicate.
This, together with
the fact that the Treasury was faced with particularly critical
problems in the near future, pointed up the need for care in the
intensification of credit restraint.
On the other hand, recent
economic developments as described in
the staff report and in
the
comments of Mr. Young and Mr. Thomas seemed to call for greater re
straint.
If
it
were not for the condition of the Government securi
ties market and the Treasury problems ahead, he would favor somewhat
greater restraint at this time.
However,
those factors must be con
sidered and the case for going into a more restrictive policy did not
seem great enough to outweigh them.
On balance, therefore, he would
favor maintaining about the same degree of restraint on the avail
ability of reserves in
in
the period immediately ahead, with no change
the discount rate.
Mr. Mills said that he found no cause to alter the position
he had taken previously, as recorded in
the minutes of the last two
-26
4/14/59
Committee meetings, which was in
effect that the System should guard
against allowing the cumulative pressure on reserves inherent in
its
present policy from developing to a point that would convert a mone
tary policy of restraint into one of restriction.
have illustrated some of the pressures present in
policy.
Mr. Leach's remarks
current System
Country banks have gradually been moving toward a freezing
in their positions, aggravated by massive purchases of U. S. Govern
ment securities last year on which they now have a heavy depreciation.
When considering the borrowing position of the member banks,
Mr.
Mills said, one should look both at the total borrowing picture
and the composition of that total.
By this he meant that in reviewing
the total of member bank indebtedness,
attention should be paid
borrowings other than those at the Federal Reserve Banks; namely,
borrowings by way of Federal funds and repurchase agreements.
It was
the grand total of borrowings that in a real sense reflected the
pressure of System policy registered on the heavy side when reductions
in
Federal funds takings occur simultaneously with an increase in
Federal Reserve Bank discounts.
increase in
Under circumstances where a marked
discounts at the Federal Reserve Banks was occurring at
the expense of a reduction in
Federal funds advances,
there was more
severe reserve pressure on the position of member banks than would be
indicated by the level of discounts taken by itself.
A development
of this kind would be a matter of especial importance when moving
into a period in which the Treasury must come into the market for
4/14/59
-27
funds because it
heralded the possibility that a policy such as the
System has been following, when reflected in a rising volume of
Federal Reserve Bank discounts, might become a serious handicap to
the Treasury's financing operations which it
is
an obligation of the
System to foster within appropriate limitations.
Fundamentally,
however, what puzzled him, and surely raised similar questions in
the minds of members of the Committee,
was how to draw an economic
dividing line between prosperity and desirable growth in the economy
and the kind of situation that could burst out into an inflationary
disturbance.
He was apprehensive as to the ability of any group to
read the future so accurately as to be able successfully to impose a
monetary and credit policy capable of influencing future credit
developments that were in
an embryonic stage and might or might not
eventually emerge from their chrysalis.
Mr.
Robertson said that his views coincided with those ex
pressed by Messrs. Leedy and Leach, and he agreed with the suggestion
in Mr.
Thomas'
restrictive.
statement that Federal Reserve policy had not been too
There appeared to him to be nothing that the System
could do at the moment, or for the next three-week period, because of
the Treasury's problem.
However,
as indicated by the picture presented
today, the whole economy was reaching toward boom proportions and he
feared that the System was apt to lose control if
a more restrictive policy at the first
it
opportunity.
failed to adopt
While that
-28
4/14/59
opportunity was not yet here and he would hold still
for the present,
he would not take any action to support the market.
In open market
operations,
he would attempt to achieve an even keel position on the
basis of providing or absorbing reserves to the extent necessary.
Mr. Shepardson said that he could only echo what had already
been said.
As he saw it,
the existing situation could easily explode
into a very undesirable one.
It was regrettable that the Treasury
situation was such as to preclude more definite action at present,
for in the background was an expansion of the money supply that could
be a source of trouble in the not too distant future.
In his opinion,
current figures showed that the System had not been quite as re
strictive in the past month or so as had been envisaged.
Although
accepting the situation as it stood and recognizing that not much
could be done at the moment, he felt that the System should be alert
and on guard against developments that seemed to him to be near the
surface.
Mr. King stated that he did not wish to comment at this
meeting.
Mr. Fulton said that the steel industry was operating near
capacity; much of the current activity had been the result of antici
pation of a steel strike.
The steel companies had offered a one-year
extension of the present contract and the union had refused that
immediately.
Steel men were apprehensive that the union would request
-29
4/14/59
at least a
40 cent an hour increase in wages and fringe benefits,
which they felt would be completely out of the question, and they
were saying that a long strike would be preferable to giving in to
such a demand.
They stated that steel workers were now getting
30 cents an hour more than automobile workers and 63 cents an hour
more than the average of all industrial workers.
indications,
Mr. Fulton said that it
about six weeks'
From present
appeared that a strike of
duration might be possible despite the existence
of substantial unemployment.
Those in
the industry had been amazed
at the record of profits during a period when, in many instances,
operations were only at about 50 per cent of capacity.
With operations
having reached 93-1/2 per cent of capacity nationally and 95 per cent
in the Fourth District, the steel companies were certainly making
money and the union would be endeavoring to get a part of it.
In the
current situation, the automobile industry and many other users were
trying to lay in a 90-day inventory.
Reports from the automobile industry indicated that sales
were doing rather well, and one source had stated that the industry
expected 1960 to be a much better year than 1959, in fact almost
another 1955.
Wage negotiations were also in progress in
the rubber
industry, which had been operating at a high level of production
because of the anticipated strike.
In rubber and also in aluminum,
where negotiations were due to take place in August, there was
4/14/59
-30
stockpiling of inventories.
This factor of stockpiling led some
businessmen to believe that the current high level of activity
represented something of an artificial situation, and there was
caution and hesitation in a number of industries.
Machine tool
orders had increased somewhat and the backlog had extended to
around 3-1/2 months, but much of this was explained by orders for
large machines that take a long time to build.
This industry, like
the steel industry, was feeling the effects of foreign competition,
and if
the wage-price push should continue it
of foreign markets but strong competition in
foreign-made commodities.
feared not only a loss
domestic markets from
Fourth District unemployment had been
declining and only half of the major areas were now classified as
areas of substantial unemployment,
short time ago.
as against almost 90 per cent a
The work-week was now averaging 40.5 hours against
37.3 hours a year ago, and the appearance of overtime suggested that
employers would tend to put additional people to work.
poised on the brink of further increases.
Prices were
Some foundries and
machine tool firms would like to raise prices if
it
were not for the
fact that the level of their operations was on the low side.
District
department store sales for the year to date were about 5 per cent
ahead of last year.
Mr. Fulton expressed concern about the possibility that
yields on Government securities would increase to the extent that
4/14/59
-31
the optional
volume.
4 per cent notes of 1961 might be redeemed in large
He felt that the System could not ignore the situation
of the Treasury, with the requirements for new money and the
possibility of a large redemption of the 4 per cent notes, and he
would take no further restrictive measures at this time.
If
the
System were to stabilize the market at the feel of a couple of
weeks ago, he thought that it
trouble a little
later on.
might save itself from more serious
It was his opinion that net borrowed
reserves around $100 million, with the feel in
would place the System in
a better position without doing violence to
the posture of restraint than if
deteriorate.
the market commensurate,
Another thing in
it
continued to let the market
the minds of bankers was that the
prime rate should go up shortly,
In 1953, he recalled, the result
was rather disastrous when a change in the prime rate came at the
time of a Treasury offering.
If
there was any possibility of
suggesting to the large banks that an increase in
the prime rate
could well be held off for some future time, the Treasury would be
afforded a breathing spell that would be profitable.
The whole
level of the market was the thing that would trigger such an increase
and the System, of course, did have some influence in that regard.
Mr. Fulton concluded by saying that he would not favor any change
in
the discount rate or the directive at this time.
-32
4/14/59
Mr. Bopp said that unemployment remained the major problem
in the Third District, and it was not easy to convince some people
that Federal Reserve policy was appropriate to the present circum
stances.
While not all parts of the district were as depressed as
the hard coal areas,
the labor classification of major areas in
March was unchanged from January and only three such areas had less
than 6 per cent unemployment.
On the other hand, in South Jersey
rapid development was taking place with more applications for new
plants than at any time in the history of the area.
This led him
to conclude that monetary policy could not do very much about
depressed localities and that local leadership had a great deal to
do with developments in a particular community.
In other words, he
felt that monetary policy was not an appropriate instrument for
dealing with local pockets of unemployment and that in many cases
the problem was more a lack of leadership than loss of resources.
Mr. Bopp went on to say that a re-check made in the middle
of last month showed an upward revision in capital expenditure plans
of manufacturing firms in the Philadelphia metropolitan area,
According to the survey, which covered nearly 500 manufacturing firms,
44 per cent in durables and 56 per cent in
(1)
nondurable goods industries:
capital expenditures currently planned for 1959 totaled $345
million--an increase of 29 per cent above the amount estimated in
mid-September 1958; (2) the revised estimates for 1959 totaled about
-33
4/14/59
10 per cent more than actual expenditures in 1958; (3) a relatively
large number of firms had raised their estimates; (4) most of the
dollar increase in durables was accounted for by fabricated metals,
electrical and nonelectrical machinery; in nondurables by petroleum
and coal products, chemicals,
printing and publishing, and paper;
and (5) estimates of capital expenditures in 1960 as compared to
1959 showed that 24 per cent expected them to be larger, 21 per cent
smaller, and 55 per cent about the same.
Another survey showed that prospects for housing in the
district were considered good.
Builders, lenders, and realtors
revealed considerable optimism, tempered of course with caution,
about the 1959 housing outlook.
had increased in
small.
recent weeks,
Demand for new and existing houses
and inventories of new homes were
Mortgage money, although not so plentiful as last year, was
reported to be sufficient for all current needs.
The prevailing rate
for conventional mortgages on new homes, with a one-third down payment,
was 5-1/4 per cent.
FHA mortgages were available at par or discounts
of only one or two points, while VA mortgages were selling at dis
counts of six to eight points, with little
money available.
The
scarcity of VA money reflected in part the reluctance of lenders
to take these mortgages until Congress acted on pending bills to
raise the VA rate.
Although most builders seemed confident about the
housing market, they were being careful to keep their inventory of
-34
4/14/59
unsold homes at a low level.
Usually they built one or more sample
homes and then geared their construction to actual sales.
Mr. Bopp said he would favor continuation of present policy
with respect to the discount rate, the directive, and the tone of
the market.
Mr. Bryan stated that Sixth District statistics were showing
much the same trends as the national figures, although in many in
stances the rate of improvement had been slightly higher than for
the country as a whole.
After citing a number of favorable compari
sons with year-ago and month-ago levels, he said that insured
unemployment was, practically speaking, the only item showing an
unfavorable comparison, and that even so the unemployment situation
was not serious in the district.
With respect to policy, Mr.
with Mr.
Bryan said he was in
agreement
Robertson and with others who had expressed similar views.
He did not think that monetary policy had been particularly tight.
In the three weeks ended April 8, market factors caused a reduction
of $122 million of reserves but Federal Reserve credit supplied
$394 million, so that the System increased the total of reserves
and excess reserves.
On a year-to-year basis there had been about
a 4 per cent increase in total effective reserves,
adjusted to take
into account the difference in reserve requirements.
In his opinion,
the money supply figure was sufficient to finance a first-rate
-35
4/14/59
inflation and it would easily be possible to get into trouble.
One important factor was the situation in which the Federal Govern
ment now found itself by virtue of imprudent fiscal policies over a
period of years.
If
the System tried to ease the Treasury's problem
by means of monetary policy, it
could be in a position for months of
supplying reserves to the market in grossly excessive amounts and
thereby simply make inflation certain.
Therefore, he believed that
the Desk should use every opportunity to effect sales of securities
in the market.
Certainly, it
should not exert much effort to prevent
the market from tightening in the face of developments.
be dissatisfied if
the bill
He would not
rate went 1/4 per cent above the discount
rate.
Mr. Freutel reported that evidence of improvement in
District business continued to accumulate.
Eighth
Construction, in particular,
had picked up sharply with dry weather, and the outlook for building
in
the next few months was very good.
The value of construction
contract awards was about 9 per cent larger in
the first
this year than in the same months of last year.
two months of
There also was an
unusually large volume of work contracted for in the latter half of
1958, much of which was still
had been getting better in
Louisville, Memphis,
were sharing in
in
progress.
Employment conditions
the major metropolitan areas,
Evansville, and Little Rock.
the rise in
St. Louis,
All of these areas
construction, and they also had experienced
-36
4/14/59
marked rises in manufacturing activity.
Improvement in consumer
demand for durable goods had been especially beneficial to Louisville
and Evansville, where a large part of total manufacturing employment
is
in household appliances and automobiles.
St. Louis was feeling a
general improvement in manufacturing output, with steel especially
strong, while outside the major metropolitan areas there had been
gains in the lumber and paper industries.
Output of pine and
hardwoods had been picking up with better weather and had recently
been considerably above average rates of the last three years.
Production of bauxite and aluminum increased in March, but lead out
put in Missouri was still
depressed.
strong in the district, as elsewhere.
Department store sales had been
Increased plantings were
expected for all but a few major crops, with the greatest increase
expected in
cotton.
Mr. Szymczak said that one could make quite an argument for
a more restrictive policy, with the economy trending upward not only
seasonally but over all and with the potentiality of further price
increases.
sector.
About the only prices moving down were in the agricultural
However,
the Treasury was in
the market.
The Treasury had a
severe problem and there was the possibility of a disorderly market
unless the System took cognizance of market conditions.
circumstances,
In the
there appeared to be no choice except to continue to
pursue the policy that had been followed during the period just past.
-37
4/14/59
Mr.
Balderston expressed himself as perplexed by the
dilemma described at this meeting.
Clearly, the business cycle
had pushed into higher ground and the reports made at this meeting
were among the most rosy in
his recollection.
Additional points
that had not been stressed included the improvement in profits
and the cash flow, and to him these were striking developments
relevant to the discussion.
Neither had the comments at this
meeting stressed the improvement in European countries.
He saw
the makings of great inflationary pressure in the future because
the corporate and bank liquidity of the moment was bound to intro
duce water into such brakes as the System could apply.
connection, he recalled that in
In this
the early part of 1955 the System's
measures of restraint were ineffectual during a period when the
banks were in a position to sell securities as rapidly as they
loaned.
The current liquidity,
velocity of deposits,
combined with the potential rise in
was again likely to result in a lag in the
impact of restraining actions.
Despite his concern, however, he
found himself unable to recommend a tightening of policy until
after the impending Treasury financing, for the Treasury problem
seemed to him extremely grave, particularly in view of public
awareness of the strong improvement in practically all segments
of business and the expectation that Congress would continue to
authorize spending in
excess of revenues.
Therefore,
his conclusion,
4/14/59
-38
with which he was quite unhappy, was that present policy should be
continued during the next three weeks, with the hope that after the
Treasury financing the System might be able to apply more restraint.
Mr. Hayes said that the consensus in
terms of policy for the
next three weeks seemed clear and called for maintenance of about the
same degree of restraint as had existed during the past three weeks.
In reaching this conclusion, however,
it
was also clear that the
views of those who had spoken covered a wide spectrum of opinion.
While all
were concerned about the Treasury's problem, there was a
wide variation in views.
There were those who felt
that the Treasury
problem was an additional reason for moving cautiously and that a
certain degree of caution might in
any case be warranted by the lack
of definite inflationary threats at the present time.
There were also
those who concluded with only the greatest reluctance that the System
should refrain from further tightening because of the Treasury.
Between those extremes, many seemed to believe that perhaps the System
might be moving soon in
the direction of further restraint, although
obviously the Treasury's situation precluded such action for the
time being.
At the other end of the spectrum were a few who would
even do a little
It
probing now in
spite of the Treasury's position.
seemed clear that maintenance of the present degree of restraint
was defined pretty much in
terms of the feel of the market rather
than any specific net borrowed reserve figure, for specific figures
-39
4/14/59
had been mentioned only by a small number of those present.
Hayes said he took it
that it
Mr.
was the intention of the Committee
to rely fairly heavily on the discretion of the Manager of the
Account in maintaining the tone of the market about as it
had been.
Mr. Hayes commented that some interesting points had been
brought out in the discussion.
On the one hand, there was the
dilemma the Committee now faced, with the obvious possibility of
serious inflationary difficulties in the future.
Much had been
said concerning the better than expected progress of business,
rather ample money supply,
money supply.
If
the
and the degree of liquidity outside the
tightening should become clearly desirable,
possibly this might make such action a little
more difficult.
On
the other hand, some had expressed the view that there was danger
in moving against inflation at a time when all of the evidence was
perhaps not yet in.
There was also a view that recent statistics
on borrowed reserves and borrowings at the Reserve Banks might not
have given as adequate a picture of the pressures under which the
banking system had been operating recently as one might wish to have.
These comments, while covering a wide spectrum, seemed to him to
indicate quite clearly a consensus in
quo.
favor of maintaining the status
He had heard no suggestion that the directive might be changed
or that near-term consideration be given to any change in
the discount
rate.
Mr. Hayes then inquired whether there were any differing
-40views with respect to his summation of the policy views at this
meeting, and none were heard.
Thereupon, upon motion duly made
and seconded, the Committee voted
unanimously to direct the Federal Re
serve Bank of New York until otherwise
directed by the Committee:
1/
(1) To make such purchases, sales, or exchanges
(including replacement of maturing securities, and allow
ing 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
prospective economic conditions and the general credit
situation of the country, with a view (a) to relating the
supply of funds in the market to the needs of commerce and
business, (b) to fostering conditions in the money market
conducive to sustainable economic growth and stability, 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
securities for the Account) at the close of this date,
other than special short-term certificates of indebtedness
purchased from time to time for the temporary accommodation
of the Treasury, shall not be increased or decreased by
more than $1 billion;
(2) To purchase direct from the Treasury for the
account of the Federal Reserve Bank of New York (with
discretion, in cases where it seems desirable, to issue
participations 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.
It
was agreed that the next meeting of the Federal Open Market
Committee would be held on Tuesday,
May 5, 1959, at 10:00 a.m.
1/ As set forth on page 2 of these minutes, Mr. King had stated
that he wished to refrain from voting on matters coming before
the Committee for action at this meeting. He did not participate
in the vote on the directive.
4/14/59
The meeting then adjourned.
Secretary
-41
Cite this document
Federal Reserve (1959, April 13). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19590414
@misc{wtfs_fomc_minutes_19590414,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1959},
month = {Apr},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19590414},
note = {Retrieved via When the Fed Speaks corpus}
}