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, September 22, 1959, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin,Chairman
Hayes, Vice Chairman
Allen
Balderston
Deming
Erickson
Johns
King
Mills
Mr. Robertson
Mr. Shepardson
Mr. Szymczak
Messrs. Bopp, Fulton, Bryan, 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. Hackley, General Counsel
Mr. Thomas, Economist
Messrs. Jones, Parsons, Roosa, and Young,
Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Koch, Associate Adviser, Division of Research
and Statistics, Board of Governors
Mr. Keir, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr.
Scanlon, First Vice President, Federal
Reserve Bank of Chicago
Messrs. Ellis, Hostetler, Daane, and Tow, Vice
Presidents of the Federal Reserve Banks of
Boston, Cleveland, Richmond, and Kansas
City, respectively
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Mr. Einzig, Assistant Vice President, Federal
Reserve Bank of San Francisco
Mr. Anderson, Economic Adviser, Federal Reserve
Bank of Philadelphia
Mr. Coldwell, Director of Research, Federal
Reserve Bank of Dallas
Mr. Holmes, Manager, Securities Department,
Federal Reserve Bank of New York
Mr. Brandt, Economist, Federal Reserve Bank
of Atlanta
Mr. Knipe, Consultant to the Chairman, Board
of Governors
Chairman Martin stated that, unless there was objection, he
would like to have Mr. James L. Knipe,
attend the meeting.
Consultant to the Chairman,
There being no objection, Mr. Knipe entered the
room.
Upon motion duly made and seconded
and by unanimous vote, the minutes of
the meetings of the Federal Open Market
Committee held on August 18 and September
1, 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
September 1 through September 16, 1959, and a supplementary report
covering the period September 17 through September 21, 1959.
Copies of
both reports have been placed in the files of the Committee.
Mr. Rouse supplemented the written reports with a statement as
follows:
The most significant development of the past three weeks
has been the deterioration in the atmosphere of the Government
securities market. This reached a climax early last week. At
that time rates on Treasury bills reached new high levels, with
the longest outstanding bills bid at above 5 per cent. Also at
that time it was reported to us that some dealers were reluctant
9/22/59
to make good markets in bills and were operating on an order
basis. This was an extreme, and there has been some improve
ment in the market since that time.
Indications are, however,
that the improvement is mainly technical since there has been
no real change in the basic factors that underlie the wide
spread pessimism that characterizes the market.
The market's pessimism grows out of the interrelation of
two basic factors. The first is the heavy current and
prospective demands for credit by the private sector and by
the Treasury, and the second is the fact that the Treasury's
needs will have to be met through resort to short-term
financing. Credit demands of the private sector of the
economy have already been extraordinarily large, and we are
just entering the period of a seasonal buildup of such demands.
There is a widespread belief that the economy shows sufficient
underlying strength to surge ahead rapidly at the conclusion
of the steel strike and that this will bring with it further
unusual demands for credit by the private sector. The Treasury's
needs for funds will be substantial over the next few months,
beginning with about $3.5-4.0 billion in October. Furthermore,
and quite apart from these immediate needs, there is a growing
concern over the fiscal situation generally, since indications
point to continuing, if reduced, budgetary deficits. The
midyear budget review should be released shortly in view of
the adjournment of Congress a week ago. Against the back
ground of these heavy current and prospective demands for
credit, the failure of Congress to come to grips with the
interest rate ceiling on marketable Treasury bonds has had a
First, as I noted earlier, the failure
pervasive influence.
of Congress to act means that the Treasury will have to resort
over the next few months to the short end of the market to
meet its needs. Secondly, that failure has raised fundamental
questions as to whether this country is really capable of
keeping its fiscal affairs in order.
While the market anticipates large and growing demands
for credit stemming from the demand influences I just mentioned,
it also anticipates that the System will not abdicate its
responsibilities and freely provide the funds to meet all these
It is expected that restraints over the creation of
demands.
credit will continue.
These fundamental influences of demand and supply for
credit have led to a general conviction that interest rates,
which are already at the highest point in a quarter of a
century, will rise still further. This conviction was
heightened in the past three weeks by more immediate influences
which played an important role in the extreme pessimism that
emerged in the market early last week. First, the large
9/22/59
demands for liquidity around the mid-September tax and
dividend dates caused an excessive supply of Treasury
bills to appear in the market as corporate demand
virtually dried up and as repurchase agreements which
corporations had made with dealers matured; corporations
also engaged in some outright liquidation of bills.
Furthermore, bank reserve positions came under increased
strain as banks accommodated the heavy mid-September
demand for loans, and hence some banks also sought to
liquidate Treasury bills.
The second of the more immediate
influences on the market was the focusing of attention on
the large prospective demand for credit in the immediate
future.
The announcement of the Treasury's October cash
financing is only ten days away.
Furthermore, a heavy
calendar of Government agency financing will be superimposed
on the Treasury's operation. This agency financing is
highlighted by the developing plans of the Federal Home Loan
Banks to borrow a total of $300 million new money between
now and early November and the difficulties facing the
Federal Land Bank in the refinancing of its October 20
maturity in view of the latter's
legal limitation of a 5 per
cent rate exclusive of commission. Another influence on the
market during the past three weeks was the appearance of a
press article in a national publication which called
attention to the dangers inherent in the current fiscal
situation and which went so far as to suggest that a "money
Furthermore, the publication in the
panic" might develop.
New York Bank's Monthly Review of an article dealing with
the discount window led some to believe that access to the
window might be sharply curtailed although locally it was
recognized as a description of the way the window has
The publication of the
operated over a number of years.
of these articles, and the interpretation placed on
first
the second, are symptomatic of the state of mind of the
That
market as it approaches the Treasury cash financing.
state of mind is one of underlying pessimism that, given
the strong current and prospective demand for credit, and
its limited availability, interest rates--including the
discount rate--will increase. It is in such an underlying
atmosphere that the Treasury must set terms on its financing
next week. It looks as though the Treasury will need help
from the underwriters in this financing, i.e., from the
large banks from coast to coast.
At a recent meeting of the Committee there was discussion
of the prospective investment by the International Monetary
Fund of an additional $300 million of Treasury bills. We have
been working, in conjunction with Mr. Thomas and Mr. Riefler,
with the IMF on an investment program for this $300 million.
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A part of that amount, $100 million, became available last
week, and we have thus far bought $22 million bills, and
have tendered for $8 million, in working toward the program
adopted by the Fund. We have discretion as to the timing
of these purchases and as to the issues purchased under the
program.
This statement may appear pessimistic since the market
has been somewhat better in the last few days, but the
bidding in yesterday's auction showed a considerable lack
of interest, even though the average rate at which bills
were allocated had fallen from the previous week.
Thereupon, upon motion duly
made and seconded, and by unanimous vote,
the open market transactions during the
period September 1 through September 21,
1959, were approved, ratified, and
confirmed.
Members of the staff of the Board of Governors entered the
room at this point for the purpose of presenting a review of the
economic and credit situation in the form of a chart show.
Copies
of the script, Economic Situation After the Steel Strike, and of the
accompanying charts were sent to the members of the Committee follow
ing the meeting, and copies also have been placed in
the Committee
files.
Mr.
Young introduced the economic review with the following
statement:
From the spring of 1958 through June this year
recovery in economic activity was rapid and uninter
In 14 months, industrial production rose
rupted.
to a point about 7 per cent above the
cent
23 per
After June, production
prerecession level of mid-1957.
by the steel and
affected
directly
not
industries
in
copper strikes rose somewhat, but the total index
declined from 155 in June to 119 in August.
For all goods and services the rise in output was
$53 billion or 12 per cent, almost all in physical
9/22/59
volume.
This increase reflected chiefly a major advance
in consumer spending, which had declined little
during
the recession; an upsurge in residential building; a
dramatic shift from rapid inventory liquidation to rapid
accumulation; and an increase in Government expenditures.
Business capital outlays, which declined until the third
quarter of 1958, have risen since then. In the current
quarter, despite the strike, GNP may be above the second
quarter annual rate of about $4 8 5 billion.
With production rising, profit margins have widened
and profits--which had dropped sharply--have risen well
above prerecession levels.
Reflecting market views as to
prospects for earnings and capital values, prices of
common stocks by this summer had advanced two-fifths and
were one-fourth higher than in mid-1957.
In recent weeks
they have declined and at yesterday's close were 8 per
cent below their high of early August.
Stock prices rose much more than dividends and stock
yields declined sharply.
Meanwhile; yields on bonds rose
to levels far above those on stocks and the spread for
some time now has been unusual.
Expansion in business, consumer, and Government demands
for goods and services has been facilitated by a rapid rise
in credit outstanding.
Federal requirements for funds have
been high this year partly as a result of the delayed impact
of the recession in reducing revenues.
In capital markets,
corporate flotations have been at a more moderate pace this
year.
Abroad, activity this year has expanded considerably
and in some countries such as Germany and the Netherlands
demand for labor is beginning to press on the available
In Japan industrial output is up even more than
supply.
in the United States.
Gold and foreign exchange reserves
of many countries have been greatly strengthened.
Foreign
demands for U. S. goods were declining until last spring
but are now on the increase, while shipments to the United
States are no longer rapidly rising.
effects
As is usual in a recovery period, the initial
of increased demands have been largely to increase production
rather than to raise prices. Sensitive materials have
advanced about 10 per cent, as they did from early 1954 to
mid-1955. Industrial commodities have shown an increase
somewhat larger than that before mid-1955, but perhaps not
as large as might have been expected in view of the greater
increase in industrial production this time.
As in the period from early 1954 to mid-1955, farm
prices have declined considerably during the recovery period
9/22/59
and, as a result of offsetting changes, the index of all
wholesale prices has shown little
change.
Whether market pressures, domestic and international,
will bring about a marked rise in industrial prices such
as developed after mid-1955, is a central current question.
Closely related questions are whether, after activity is
resumed at steel mills, total output will be appreciably
higher than before the strike, and if so, how closely it
will approach the limits of our expanded capacity.
Events of the past year and a half suggest that activity
may rise considerably in the period ahead but do not provide
assurance that substantially higher levels can be reached
without strong upward pressures on prices.
One encouraging
feature of the current situation is evidence of some free
productive capacity at a time of record final demand and of
rapid inventory rebuilding.
Another encouraging feature is the prospect for
balancing of the Federal budget in fiscal 1960, after a
deficit of $13 billion in fiscal 1959, a fact not to be
lost sight of because of present Treasury financing
difficulties--although it may be regretted that a surplus
is not being achieved.
Money rates now are higher than at any time in 1953 or
Net borrowed
1957 and considerably higher than in mid-1955.
reserves are at the level reached at the end of 1955.
Corporations and banks are in less liquid positions than at
this stage in some earlier cycles--although corporations
have substantial holdings of Government securities.
One prospect after steel production is resumed is a
generation of demands from many sources in a short period,
carrying activity to a very high level in relation to
capacity and putting industrial prices under strong upward
However, some features of the current situation
pressure.
suggest that anti-inflationary monetary policy is beginning
to temper business and investor exuberance in forward
In this more realistic environ
expectation and planning.
ment, strike settlement might be followed by more orderly
expansion of economic activity from present high levels
without inflationary price advances.
The presentation was concluded by Mr.
Thomas with substantially
the following remarks:
Uneasiness about the state of money markets, plus the
hard facts of heavy Treasury financing in the period
immediately ahead and peak demands for private credit, are
9/22/59
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among the important elements that need to be considered in
appraising the general business and financial situation.
The postwar years, like the 1920's, have been years of
strong upward push in demand and production. Real gross
product has grown at a substantial rate, with only three
important interruptions--in 1949, 1954, and 1958--and these
turned out to be mostly inventory adjustments.
Demand in
fact has been so strong that the basic problem of monetary
policy has been to hold credit within bounds in order to
discourage speculative spurts in demand and prices and
thereby promote sustainable growth in output. It is to be
hoped that through such restraints the speculative excesses
of the late 1920's and the credit collapse of the 1930's
may be avoided.
A continuing problem in promoting orderly growth and
maintaining stable prices has been the development of
cumulative forces during various phases of the business
cycle. In fact, in contrast to the 1920's, price increases
during boom periods--immediately after the war, during the
Korean period, and even in the period of high activity from
1955 to 1957--have been great enough, along with failure of
prices to decline during recession, to lend support to the
view that creeping inflation is inevitable-and perhaps even
essential for continued growth. Acceptance of this view by
many people in business, academic circles, and Government,
lies at the heart of many of the difficult problems that
face the System at this time.
A basic issue at this stage of the cycle is whether
further substantial expansion can be achieved in the near
future without distortions in prices, production, and incomes
that would prevent sustained growth over a considerable
period and also place new difficulties in the way of inter
national balance-of-payments adjustment. Increasing demands
after mid-1955 resulted in relatively small increases in
output but marked advances in prices; the rise in gross
product in current dollars was much greater than in real
terms. Distortions such as undue inventory accumulation,
too hasty capital expansion in some areas, too rapid a rise
in debt burden, and consumer resistance to price increases
undermined the prevailing high activity and led to the
recession of 1957-58. During these years the United States
also failed to strengthen its international competitive
position. Can that type of development be avoided this
time?
As has already been indicated, the existence of somewhat
larger industrial capacity in relation to current production
and the agricultural supply situation provide reason to think
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that price advances as rapid as those that occurred after
mid-1955 can be avoided.
Moreover, the strengthened
competitive position of other industrial countries and
their restraints on inflationary developments may also
help to hold down price rises in this country. But if
actions are taken to stimulate demand and to raise costs
and prices, and if expectations of inflationary developments
continue, efforts to prevent rising prices and to achieve
this goal of sustained growth may be thwarted.
Expansion in economic activity and price increases in
recent years have been accompanied by persistently heavy
demands for credit and by growth in total debt, in the bank
credit component, in the money supply, and in other liquid
assets. When private credit demands have slackened in some
areas, governmental borrowing has generally increased.
Demands for mortgage credit have been persistently strong
with variations in the amounts extended determined by other
competing demands.
Savings have increased along with the
growth of income, with significant variations among the
various sectors--consumers, business, and Government.
A significant feature of credit developments has been
the proportion of savings that has gone into consumer
indebtedness, including mortgages, and into governmental
debt, relative to investment for expansion of productive
An essential for the promotion of sustainable
capacity.
growth with stable prices is the maintenance of an
appropriate balance of consumption, savings, and investment
of the type that contributes to expansion in output. This
is a combined problem of fiscal, debt management, and
monetary policies and of private actions with respect to
costs, prices, and long-term commitments.
Money supply, which is the responsibility of the Federal
The growth has
Reserve, has expanded during recent years.
generally not been as great as that in GNP at constant prices,
and GNP in current prices has risen at an even faster pace.
Turnover of money, therefore, has increased, reflecting in
part the utilization of money substitutes, some of which were
accumulated in the past and some currently.
Debt management and Government actions to insure or
guarantee values of various forms of indebtedness and to
enhance their liquidity have contributed to the growth of over
The sharp increase
all liquidity other than cash balances.
and the virtual
outstanding
obligations
in short-term Treasury
in view of
particularly
them,
decreasing
of
impossibility
must be
that
factor
a
is
ceilings,
rate
existing interest
the money
of
level
appropriate
the
considered in determining
likewise
is
It
credit.
bank
of
supply and the availability
9/22/59
-10-
a factor that may be expected to produce money market
pressures whenever heavy cash needs emerge-as illustrated
by last week's developments.
The idea that in such a situation the Federal Reserve
System should do something--beyond meeting seasonal needsto ease the financial strain or to prevent further tightening,
may be supported by arguing that the situation in financial
markets is becoming disorderly-an argument which at some
point might have some validity--or on the ground that public
and private demands for credit should not be restricted
because its restriction will limit growth and economic
activity.
However, in view of the present levels of
activity and the prospect for higher levels when output of
steel is resumed, and in view of upward pressures on costs
and prices, the need for maintaining restraints seems
persuasive.
Another question of great importance to the System at
the present time is how much positive value there is in
large increases in interest rates as a restraining factor in
themselves, apart from the basic weapon for limiting growth
of credit availability in the face of increasing demands for
funds.
Clearly, high interest rates help towards balance
of-payments equilibrium, and clearly the healthy functioning
of the whole interest rate structure is essential for the
market's allocation of supply to meet competing demands.
Under the circumstances likely to prevail in the months
ahead, increasing the availability of credit for the purpose
of keeping interest rates from rising can provide no
assurance of either stable money markets or the allocation
of resources in a manner that will maintain sustainable
growth.
Supplementing this broad review of economic forces,
comments may be added about certain specific aspects of the
(1) Partial figures for city banks for
immediate situation:
September 16 indicate that in the past three weeks bank
credit supplied may not have been quite as large as usual
during the September tax period; (2) demand deposit expansion
at city banks also appears to have been somewhat smaller
than usual, following a seasonally-adjusted decline in
August, and correspondingly required reserves have increased
less than projected three weeks ago; and (3) projections of
reserve needs for the future indicate that to maintain
about the recent degree of restraint and cover seasonal
demands, about $100 million of additional reserves should
be supplied in each of the next three weeks. Additional
amounts will be needed in November and December.
9/22/59
-11There being no questions regarding the economic and
financial review, Chairman Martin next called upon Mr.
Hayes, who
commented as follows:
The lull
in business activity reflecting mainly
the slowly spreading effects of the steel strike has
developed about as expected. For August we have seen
a fairly sharp drop in industrial production, a small
increase in seasonally adjusted unemployment, and a
slight decline in retail sales. The Second District
has been affected somewhat less than the nation as a
whole.
One of the strongest factors in the outlook is the
upward trend of private expenditures on plant and
equipment.
Earlier estimates have been raised, with a
9 per cent gain now expected for the full year 1959
over 1958, and a considerably higher annual rate in the
last quarter.
Residential housing volume, while perhaps
limited somewhat by the cost and availability of mort
gage money, has held up better than had been expected.
As is so often the case, the price situation is
not clear cut.
The index of wholesale prices was down
in August, especially in the area of farm products and
processed foods, whereas the consumer price index showed
a disturbing upward tendency through July, the latest
month for which it has been reported.
Recent wage
settlements and price developments in several industries
Stock prices have dropped
justify some uneasiness.
about 7 or 8 per cent in the past six weeks--the decline
being attributed to the steel strike, rising interest
rates, and some drying up of interest on the part of
large investors at current advanced prices.
It seems well to recognize that a real showdown is
in process in the current struggle in the steel industry.
There is therefore a possibility at least that a rather
lengthy period of strike-induced stagnation is in sight.
On the other hand, I think the probabilities are strongly
in favor of a rapid recovery as soon as the strike ends,
perhaps developing boom characteristics.
In the area of bank credit the most striking develop
ment since the preceding meeting is the sharp drop in the
seasonally adjusted money supply reported for August. We
estimate a money supply increase for the past four months
at an annual rate of 1 per cent, as against about 2-1/2
The comparable 12-month
per cent in the past twelve months.
9/22/59
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period in 1954-55 showed a 3.8 per cent rise, suggesting
that the record of early action to combat inflation has
been more impressive this time than in the previous business
expansion.
The rise in bank loans in August was at a record
level; and while the banks have continued to be able and
willing to dispose of Government securities at a record rate,
the net effect has been to make them increasingly illiquid.
We are of course again confronted with a difficult
Treasury financing operation--a cash offering of perhaps
$3.5 billion--with the market apprehensive in view of the
very sharp run-up in interest rates on Treasury securities
and other market paper in recent weeks, some of which
reflected a sharp reversal in corporate demand for Govern
ments as well as the growing illiquidity of the banks.
This, combined with the spreading public view that credit
may be becoming unavailable, suggests a situation in which
I believe we should adopt a cautious attitude. Last week
our directors expressed the fear that we might be pressing
the economy a little
too hard.
I would certainly not advocate any change in our basic
policy of credit restraint. However, having confirmed that
policy publicly with our latest discount rate increase, I
think we can well afford to recognize the Treasury's problem
and the pressure of seasonal demands for credit and to try
to take some of the sharp edge off the present policy of
restraint with a view to helping the market achieve at
least some temporary rate stability. We should make clear
our readiness to provide for seasonal needs. It would be
better to put out some reserves now in a modest amount
rather than run the risk of subsequent knots in the market
that would require a large injection of reserves.
I think
the Manager should be given considerable leeway, with the
understanding that any shading in the degree of restraint
should be handled in such a way as to avoid any erroneous
It seems to me
impression of a change in basic policy.
that the directive should be continued as it is.
Mr.
Erickson said that the economy in the Boston District con
tinued to be healthy.
Whatever softness there was in the statistics
seemed due to seasonal factors rather than to the steel strike or to
basic weaknesses in
the economy.
went down 1 per cent in
The industrial production index
July and was expected to decrease further in
August, he said, and department store sales in
three of the four most
9/22/59
-13
recent weeks were off 8 per cent compared with last year, probably
reflecting weather conditions.
ment in
The drop in
July of this year was less than in
insured unemployment had been down in
nonagricultural employ
either 1957 or 1958, and
five of the last six weeks.
At savings banks, deposits showed a 6 per cent increase and mortgages
a 10 per cent increase compared with a year ago.
All information
indicated that the steel strike had had only small effect on the
First District, Mr. Erickson said, noting that carloadings in the
seven weeks of the strike decreased less than 4 per cent in that
area compared with an 11 per cent decrease for the nation.
Speaking of monetary policy for the next three weeks, Mr.
Erickson said he would be inclined to leave open market operations
to the Desk and to keep the same degree of restraint without in
creasing it
in
any way.
He would make no change in the directive
at this time.
Mr. Irons said there had been no important basic changes in
economic activity in the Eleventh District recently.
The oil industry
continued on a nine-day allowable and he doubted whether there would
be much change in
three months.
the district oil situation over the next two or
Agricultural conditions were favorable and this
should be a good year in that field.
excellent during August.
Department store sales were
Employment had improved and unemployment
as a percentage of labor force was running substantially lower than
nationally.
Construction had declined during the past month.
The
9/22/59
-14
effects of the steel strike had not been significant in the Eleventh
District thus far.
Demand for bank loans continued strong, but the
rise had been tempered over the past three weeks.
Member bank
borrowing at the Reserve Bank averaged lower in August than in
Pressure on banks continued heavy, Mr.
July.
Irons said, and their liquidity
positions continued relatively low with ratios of loans to deposits
high.
Mr. Irons said that he felt
operations for the System Account
had been quite satisfactory during the past three weeks,
with continued
pressure in the money market that had not been entirely reflected in
the statistics.
During the next few weeks reserves should be provided
as needed, neither anticipatory nor reluctantly but as the situation
evolved.
Mr. Irons felt
it
particularly important for the System
Account to be free to operate as needed according to the tone and
feel of the market during this period.
He would like to continue
the present degree of restriction, but recalling that over the past
several months he had expressed a view that deviations be on the side
of restraint, he now was inclined to feel that in
this period it
would
be more appropriate that any deviations be on the side of less re
straint.
This was because he believed less damage would be done in
the period of rising seasonal demands for credit just ahead, when the
market would tend to tighten itself
that way than if
anyway, by resolving doubts in
they deviated on the side of restraint.
He would
not change the discount rate or the directive at this time.
9/22/59
-15
Mr. Mangels reported figures for California showing mid
August employment at an all-time record high level.
Unemployment
had dropped to 3.4 per cent of the labor force, the lowest percentage
in
two years.
In the Pacific Northwest the present high rate of
employment reflected a later than usual expansion in
employment rather than in general activity.
agricultural
Seasonal cutbacks in
that area during October were expected with increasing unemployment
during the winter in
various industries.
Consumer spending continued
high, department store sales increasing 11 per cent over 1958 for the
year to date and 12 per cent in
the four weeks ending September 15.
Consumer borrowings also had been increasing.
Mr. Mangels referred to the effects of the strike in copper
mining in
Utah, noting that banks reported some requests for extensions
on loans because of this factor, although it
serious problem.
had not yet become a
He also commented that tax receipts for the State
of Utah would be affected adversely because of the copper strike.
Residential construction was still
a little
higher than last year
but was declining from month to month.
After reporting that a proposed $100 million issue of school
bonds in the State of California had been reduced to $50 million and
that it
had been sold at a yield of 4.01 per cent, Mr. Mangels said
that bankers were emphasizing the feeling of tightness in
the money
market even though loans were showing increases during the past
several weeks.
This increase in loans, however, was offset by sales
9/22/59
-16
of Government securities.
However, Twelfth District banks were
net sellers of Federal funds in
this period and borrowings from
the Federal Reserve Bank had been quite low.
Mr. Mangels said that consideration of the factors reviewed
led him to the conclusion that, while Committee policy should not
be modified, there should be no increase in
the degree of restraint
and the Federal Reserve should be willing to supply freely legitimate
credit needs between now and the end of the year as seasonal demands
increased.
He would make no change in
the Committee's directive.
Mr. Deming said that the long steel strike and the short
small-grain crop were likely to have a double effect on the Ninth
District economy.
The steel strike effects had been masked partly
by an excellent tourist season, but after Labor Day when the tourist
season ended the effects of the strike had begun to show up in the
district, particularly in
seasonal unemployment in
the areas directly affected.
the mining areas was anticipated this winter
and, for reasons that he outlined, income in
severely affected even if
Considerable
the steel strike is
the mining areas would be
settled soon.
The
closely balanced budget of the State of Minnesota would also be
affected adversely by the steel strike.
Cash farm income was likely
to be reduced by 13 to 15 per cent during current crop year, Mr.
Deming said, and the combination of the effects of the steel and
copper strikes and the reduced farm income would undoubtedly have a
dragging effect on the district's
economy during the next twelve
9/22/59
-17
months.
The district would probably tag behind the rest of the
country.
Mr.
Deming said he saw no reason to change the Committee's
directive or the discount rates of the Federal Reserve Banks at this
time.
He agreed that there should be no increase in
the degree of
restraint through open market operations or otherwise in
the light
of all of the factors that had been mentioned at this meeting.
would resolve doubts in
He
carrying out policy on the side of ease rather
than of restraint during the coming weeks.
Mr. Allen commented that the steel supply situation was the
subject of greatest current interest and concern in
Dist.ict.
the Seventh
Although deteriorating at an accelerated pace, the
transition from adequate to inadequate steel supplies had not been
as abrupt as suggested by press reports.
About ten million tons of
the steel on hand at the beginning of the strike were believed to
have been used up by mid-September,
million tons on hand at present,
beginning of 1959.
leaving about twelve to thirteen
or about the amount held at the
This sizable tonnage did not adequately measure
the current steel supply, however, because some firms held relatively
large supplies, because of the problem of mix of inventory, because
some steel was in
speculative channels and would stay there, and
because some users would be slow to deplete stocks below their basic
LIFO stock on December 31.
9/22/59
-18
Newspaper reports notwithstanding, Mr. Allen said that
reports in
the automobile industry indicated that steel inventories
would permit it
to operate at scheduled rates of production at least
until October 15 and possibly until October 31.
If
as reported the
steel industry could reach 60 per cent of capacity by the end of
the first
week of production after the end of the strike and 90 per
cent by the end of the second week, and if
the mills went back into
operation soon after October 1, there might be little,
hesitation in
if
any,
automobile production.
Loan expansion at reporting member banks had slackened over
the past three weeks,
Mr. Allen said, security loans having been
paid down and real estate loans having been virtually unchanged.
Consumer loans continued strong.
decline in
The most striking feature was the
growth of loans to business, he said.
Factors contributing
to this included the high degree of corporate liquidity and accumula
tion of tax funds as manufacturers of metal products liquidated
inventories.
Despite the slow-down in
loan growth,
positions had become tighter, particularly in
where deposits were down rather sharply,
the larger centers
although the tightness of
Chicago banks had become no greater than in
summer.
bank reserve
late spring or early
Increased reserve pressures had appeared in Detroit and
Milwaukee as well as Chicago.
On the other hand, country banks
had reduced their borrowings somewhat from the unusually high levels
of recent months.
9/22/59
-19
Mr. Allen said he felt the Committee should maintain
approximately the current degree of restraint.
He hoped and he
believed that the high cost of money was beginning to bite.
He
thought there would be an increased bite resulting from the policy
that the Committee had been following,
but he could see no reason
now to change what the Committee was doing.
As Mr. Thomas had
noted, additional reserves would be needed to meet seasonal demands
between now and the end of the year.
make no change in
Mr. Allen said that he would
the directive at this time, although he hoped
the time would come soon when the reference to expanding employment
opportunities might be removed from clause (b) of the first
para
graph.
Mr. Leedy said that Tenth District conditions continued
strong even though output of agriculture, particularly of wheat,
was smaller this year than last.
There was some concern as to
the prices of livestock and banks lending on livestock were said
to have attempted to cut back such loans and to require additional
security.
Insured unemployment continued at a lower level than in
the nation as a whole.
Department store sales since the first
of
this year continued to show gains which have been exceeded only in
the Twelfth District.
loans in
in
Member banks reported a slight increase in
the past three weeks, but there had been some reduction
demands on the Kansas City Reserve Bank discount window.
9/22/59
-20
Mr. Leedy said he subscribed to what had been said thus far
regarding policy for the coming weeks.
He would continue what the
Committee has been doing, making every effort not to tighten any
further.
He would not anticipate the seasonal needs that were coming
up but he would readily respond as the needs actually appeared.
the recent increase in
the discount rate, with no change in
policy, and with the Treasury financing needs this fall,
it
With
credit
would be
inappropriate to change the directive at this time or otherwise to
change any policy indicators.
Mr. Leach said that the Fifth District economy had been
largely unaffected by the steel strike except in
specific areas
such as Baltimore and the West Virginia mining centers.
This was
because the district's economic structure predominantly was not
directly and immediately tied in with activity in
The textile industry remained in
the steel industry.
strong position with virtually no
possibility of scheduling new orders for 1959 delivery in many lines.
Furniture orders picked up strongly in
midsummer, putting unfilled
orders at the highest level in the current expansion.
Bituminous
coal production was at a reduced level because of the continuing
steel strike.
Cigarette sales for 1959 through August established
a new record well above that of 1958.
The rise in cigarette sales
was said to reflect an increase in the number of smokers among teen
agers and women.
The continuing popularity of filter tips and the
growing boom in menthols was primarily responsible for this year's
rise.
9/22/59
-21
Loan demand kept district banks under pressure through the
first
week in
September, Mr. Leach said, this being evidenced by
continued reduction in
investments,
from the Federal Reserve,
by a high level of borrowings
and by net Federal funds purchases.
A
temporary inflow of funds during the past week enabled banks to
reduce borrowings at the Federal Reserve sharply and to sell Federal
funds.
Mr. Leach said that he felt it
would be inappropriate to
tighten credit any further at this time in view of the current
weakness in
financing,
the Government securities market, the impending Treasury
and the continuance of the steel strike with its
effects becoming more and more pronounced.
At the moment,
secondary
he would
resolve doubts on the side of ease while maintaining approximately
the present degree of restraint and recognizing that the need for
further restraint may well reappear in
not advocate a change in
the near future.
He would
the directive.
Mr. Mills said that he was in general agreement with Mr.
Hayes'
appraisal of the economic and financial situation and with
the recommendations that he had suggested as to current policy.
He had grave fears, however,
that the Federal Reserve System was
drifting into a position of clinging dogmatically to policies and
theories that in
the light of current developments deserved a
thoroughgoing rethinking.
He pointed particularly to the psycho
logical factors that clouded the market and which should be a
9/22/59
-22
matter of first
concern in the Committee's policy developments,
adding that he did not believe the Committee could ignore the
effects on general thinking of the decline in
the stock market
or the fears that had been expressed about a Federal Reserve policy
that would so restrict the availability of credit as to handicap
the normal growth of the business community and the regional economy.
Mr.
Mills said that it
might be superstition, but he recalled clearly
many years ago the Hatray failure in
London that unlocked the doors
to a financial collapse, and he read only yesterday of the Jasper
situation that had developed there and which conceivably could
foretell a similar development in
that market.
We in the United
States, he said, must continue to be the element of strength in
the
international picture and should bend our greatest efforts toward
maintaining the sort of strength and the sort of posture that would
give the greatest assurance internationally.
He doubted whether
that confidence would be strengthened if we continually expressed
a lack of confidence in
If
at some point it
our own ability to maintain a viable economy.
should be the desire of the Committee to ease
the situation of the commercial banking system moderately (he
believed in
restraint),
and when the Committee arrived at the point
of wishing to supply reserves, a moderate shift should be engaged
in very cautiously.
This was because the abnormally high level of
member bank discounts at the Federal Reserve Banks has had the
effect of feeding reserves into the Federal funds market which would
9/22/59
-23
not be extinguished simultaneously with an expected reduction in
the volume of discounting,
and as a result when new reserves were
additionally supplied a superfluity of reserves could occur that
might erroneously give rise to an impression of a reversal rather
than a moderation of System policy.
After referring to the information presented by the staff
regarding economic conditions, Mr. Robertson stated that it
was
clear from that presentation that the economy was on the edge of a
boom.
He could see some evidence that during the past three weeks
the policy the Committee had been following had, as Mr. Allen had
commented,
begun to bite.
In Mr. Robertson's view this was wholesome.
He could see no indication that the Federal Reserve was pressing too
hard on restraint, and he would recommend that the Committee maintain
the same degree of tightness that now prevailed throughout the forth
coming Treasury financing period.
He differed perhaps from some
others who had spoken this morning only in that he would not resolve
doubts on the side of ease.
He would hope there would be no doubts
to resolve and that Account operations would maintain an even
position throughout this period.
Mr.
Shepardson said that there seemed to be general agree
ment thus far on the approach to be taken in
the next few weeks,
System operations during
with fine shadings of views as to just exactly
what the position should be.
had expressed himself, that is,
He was inclined to feel as Mr.
Irons
that with seasonal demands adding
9/22/59
-24
pressure during the next few weeks there would be less danger if
the Committee's operations were to err on the side of ease than
if doubts were resolved on the side of increased tightness.
He
would prefer to hold as nearly as possible to the present position,
with a recommendation that if a drop in the degree of pressure
became evident the seasonal demand for credit would be permitted
to restore the present position.
Mr. King said that he agreed generally with the comments
made at this meeting, more specifically with those of Messrs. Hayes,
Irons, and Shepardson.
The need for additional reserves to meet
the seasonal rise had been well pointed up and there was no question
in his mind but that the System should do everything appropriate to
supply the reserves necessary for this purpose.
With reference to
comments that there might be a resumption of boom conditions when
the steel strike ended, Mr. King commented that he doubted industry
would run out of steel before the strike was settled.
The fact that
the strike thus far had had little effect on other parts of the
economy made him think that its settlement might not spur activity
generally.
His discussions with businessmen led him to believe
that the economy was not on the verge of a new boom.
Repeating
that he agreed with the policy suggestion of Mr. Hayes, Mr. King
said that he would make no change in the directive at this time
but would hope that the financing needs during the fall months
would be met through System operations.
9/22/59
-25
Mr.
Fulton described conditions in
he observed them in
the steel industry as
the Fourth District, commenting that in
so far
as the strike was concerned both management and labor appeared to
be standing adamantly on the original premises they had expressed.
He doubted that a noninflationary contract would result in
the end.
There had been rather few complaints as to shortages of steel, but
inventories were becoming unbalanced.
A rapid rise in
unemployment
might result from this factor within the next week or two.
Mr.
Fulton said he was not quite as sanguine as Mr. Allen regarding a
rapid rise in
output in
strike was settled.
steel within the first
two weeks after the
In fact, his information was that 90 per cent
capacity operations would not be attained for some little
time after
production had been resumed.
Mr. Fulton reported that department store sales in
the Fourth
District were holding up well during the current month although un
employment claims had been rising.
Construction had declined and
there was concern regarding the level of housing activity the latter
part of this year.
Loan demands were substantial but banks had not
been coming to the Reserve Bank's discount window in
inordinate
amounts.
Monetary policy, Mr.
Fulton said, should aim toward continuing
the degree of restraint that now existed.
Normal fall
tighten credit and he would favor erring a little
demands would
on the side of ease,
believing that this could be done without doing violence to the
Federal Reserve's position.
9/22/59
-26
Mr. Fulton
went on to say that he would like to see an
effort made to get part of member banks' vault cash counted as
reserves as would be permitted under the new reserve requirements
law.
He hoped that this could be done during the fall of 1959,
thus reducing the need for putting so much in the way of reserves
into the market through Account operations.
in
He would make no change
the Committee's directive or in the discount rate at the present
time.
Mr.
Bopp commented on the discussions that directors of the
Federal Reserve Bank of Philadelphia had regarding a change in the
discount rate subsequent to the meeting of the Federal Open Market
Committee on September 1,
his remarks being for the purpose of
indicating that the fact the Philadelphia Bank was the last of the
Reserve Banks to raise its
in
discount rate from 3-1/2 to 4 per cent
no way indicated that the directors of the Bank were reluctant
to take such action.
With respect to economic developments, Mr. Bopp said that
secondary unemployment in
the Third District resulting from the
steel strike had increased only moderately during the past three
weeks.
Few steel fabricators in
the Philadelphia region had been
compelled to shut down because of a shortage of steel, but some
were reported to be running out of key items and the consensus was
that the shortage of steel would become serious by the end of this
month.
Unless the strike was settled by that time many fabricators
9/22/59
-27
would face reduced operations or shutdowns.
Mr.
Bopp also commented
on the industrial centers classified as chronic labor surplus areas,
noting that five of the seventeen major areas so classified were in
the Third District.
This classification meant that such areas had
an unemployment rate at least 50 per cent above the national average
during four of the past five years.
New claims in Philadelphia for
unemployment insurance averaged somewhat less in the last three weeks
and continued considerably below the corresponding period of 1958,
he said, adding that the Pennsylvania Secretary of Labor and Industry
had reported a few days ago that 78 plants in the State had shut
down completely because of the steel strike.
Philadelphia member
banks increased their borrowings from the Reserve Bank in the latest
week and also had been net purchasers of Federal funds recently.
Mr. Bopp said that he agreed in general with the statements
that had been made regarding Committee policy during the next three
weeks, that is,
it
should aim to maintain the present degree of
restraint and should resolve any doubts on the side of ease.
There
should be no change now in the directive or in the discount rate.
Mr. Bryan commented that almost no new figures on economic
activity in the Sixth District had become available since the meeting
three weeks ago.
At that meeting, he reported that construction
contracts had declined sharply, but more recent information indicates
that this measure has shown a reversal.
August loan figures of banks
showed an almost complete cessation of growth, but this probably was
temporary.
9/22/59
-28
On the matter of national policy, Mr. Bryan said he sub
scribed to the policy implied by Mr. Hayes and by others who felt
that the Committee should freely supply seasonal reserve needs and
make its errors on the side of ease rather than restraint in the
next few weeks.
He added that he had been studying data regarding
the long-run growth rates in reserves of the banking system and that,
on any basis he had been able to arrive at, it appeared that by the
end of this year there would have been no growth rate in reserves
unless the Federal Reserve met seasonal needs and a little bit more.
The System could easily get itself into the position of bringing
about greater tightness this fall than it desired unless it freely
supplied the amounts estimated for these seasonal needs, plus a little
bit more.
Mr. Johns said that economic activity in the Eighth District
gave no noticeable evidence of differing from the nation as a whole.
Louisville had been affected by the scarcity of steel which already
had resulted in curtailed operations at the General Electric appliance
plant, and this had an especial impact on activities in that area
because of the relatively large local importance of that industry.
Mr. Johns said that his views as to policy accorded with those pre
sented by Mr. Hayes.
Mr. Szymczak said that he did not believe the Committee could
afford to change policy at this time.
He felt that the Federal Reserve
9/22/59
-29
should have an operational attitude at the discount window and in
the open market that would not create further tension or further
tightness in
Mr.
the market.
Balderston recalled that three weeks ago he was one of
those who felt
the brakes should be applied more vigorously.
Evidence
that had come forward during the past three weeks had changed his view,
however,
at least for the moment.
In this period the cumulative
effects of System policy to which Mr.
evident.
Mills had referred had become
A report this morning indicated that new orders had declined.
The steel strike was showing no signs of termination.
This was a
strike, he noted, that involved working rules that affect the job
security of union members, and he thought it
difficult strike to settle.
might be an unusually
A resulting concern outside the steel
industry might be inhibiting exuberance and delaying plant construction.
For these and other reasons, Mr.
Balderston said he would sense that
some of the speculative fever that had disturbed him so greatly during
the summer months and which was reflected in the stock market might
for the moment have been reduced.
Consequently, he would continue
the policy of recent weeks but with a great deal of caution in
order
to avoid a psychological knot occurring.
Chairman Martin said that for his part he believed that
System policy had been about right recently and that it
was achieving
the purpose that the members of the Committee had been seeking.
One
9/22/59
-30
of the problems at the moment was to keep from having a psychological
situation carry us away and into a position on one side or the other
which would be inconsistent with the long-term objectives sought by
the Committee.
This was always true, he thought, when the expectation
that the Committee must meet large seasonal requirements and the growth
factor in the economy impinged on what the actual situation in the
economy would be.
The imponderable at the moment was the steel industry.
The
Chairman said he did not think any of us could be certain what the
result of the strike would be when it
was settled.
He was less
optimistic about the result than he was several weeks ago and perhaps
more optimistic about having the economy fall into a more
a little
stable state than then appeared likely.
This was because psychology
was now working toward having a stabilizing influence.
The stock
market had dropped somewhat and some of the fever seemed to have gone
out of it.
People were still
worried about the availability of credit.
We could not know whether the new model automobiles were going to
click, and there was doubt as to whether the new small cars would
sweep the country.
Until the picture was clearer,
the
Mr.
Committee should be cautious in
its
the Chairman's view was that
approach.
He agreed with
Szymczak because he believed the psychological problem that had
been created by the failure of the Treasury to get relief from the
Congress with respect to the interest rate ceiling and the
9/22/59
-31
unquestionable problem that faced the Treasury in
financing, along with all the difficulties in
its
current
the Government
securities market, were matters of major concern to the Federal
Reserve.
He supported Mr. Robertson's view that it
would be
desirable to have perfection in the Committee's policy and opera
tions, but he did not believe that the Committee could get perfection
and he did not believe that it
in its operations.
should ask the Desk to get perfection
Tone, color, and feel in the market were too
difficult to measure.
For this reason, he favored resolving whatever
errors there were on the side of ease during the next three weeks.
This was because he felt that the odds were on this side.
Several
weeks ago he felt that the odds were on the other side.
The Chairman went on to say that his observation of the comments
at this meeting made him feel there was so little difference in the views
expressed that it
was unnecessary to elaborate on the understanding as
to operations for the System Account during the next three weeks.
It
was clear that the majority favored no change in the directive and no
change in the discount rate.
It desired the same degree of restraint
to be maintained, allowing for tone, color, and feel in the market,
with a clear majority resolving whatever deviations there were from
that policy on the side of ease and in favor of giving the Manager
of the System Account the latitude that Mr.
him.
Hayes had requested for
The Chairman inquired whether any of the members of the Committee
differed with these comments and whether any wished to be recorded in
9/22/59
-32
the minutes of the meeting as holding views other than those that
would be recorded in
Mr.
their comments during the go-around.
Mills said that the question of the record of policy
actions of the Committee had come up before and that perhaps the
Committee would like at some time to consider whether the policy
record truly recorded the actions of the Committee.
These actions
were recorded as votes, he noted, but in his view,
the actions were
not based on votes.
The Committee reached a general consensus through
discussion, and the Chairman then asked whether there was a difference
of opinion.
In Mr. Mills'
view, that did not constitute a vote, and
personally, he did not think it possible to take a vote on problems
of the sort that come up in
Open Market meetings.
He contrasted the
procedure at Open Market meetings with that in meetings of the Board
of Governors or in
Boards of Directors of the Reserve Banks, where the
procedure and nature of problems made possible specific votes on
matters concerning which there was no difficulty in reaching formal
decisions by the members.
He suggested that the opposite was true in
the Open Market meetings, where the members came to draw on the thinking
of others and to have the benefit of the regional reports of those
present.
When all of that thinking was distilled, there was a general
area of agreement that could not, in
in a vote.
Mr.
Mills'
opinion, be recorded
The difficult task of drafting the Open Market policy
record called for indicating a consensus by drawing shades of opinion
so that the impression would not be gathered by the reading public
9/22/59
-33
that there was unanimity in
a group as diverse as this.
Chairman Martin said that he was glad Mr. Mills had raised
this question.
in
There had been a number of discussions of this matter
the past and there were differences of opinion as to how the record
might be made most satisfactory.
had been in
error at times in
He thought it
that it
probable that the Chair
should have given individuals
greater opportunity to vote against a policy decision on the record.
As to Mr. Mills' question whether the policy record really gave the
differences of opinion that were brought out in the meetings, Chairman
Martin suggested that it would be desirable for all of the members of
the Committee to review the minutes carefully and to give consideration
to the matter in
terms of the comments that Mr.
Mills had made.
This
was not something that the Committee could come to a conclusion on in
an offhand discussion, and he suggested that at a subsequent meeting a
period be set aside during which there could be a full discussion of
the subject and whether the Committee was developing the kind of policy
record that it should have to meet its obligation to the Congress under
the provisions of the Act.
Chairman Martin said that shades of policy
differences were difficult to record, but on the other hand, he in
tended to make it clear that whenever any individual member of the
Committee wished to record a vote against a policy decision, he should
have full opportunity for doing so and for recording that vote with
whatever amplifying comments he wished to have in
the record.
9/22/59
-34
Mr. Hayes said that he had sympathy with the position indicated
by Mr.
Mills.
He had wondered whether, without recording a vote, the
record of policy actions might state in a general way that there were
differences of opinion in arriving at a policy decision.
Chairman Martin reiterated his suggestion that the Committee
schedule a meeting before the end of this year at which it would
discuss the character and nature of the policy record.
Mr. Hayes then mentioned the desirability of getting drafts of
policy record entries currently, so that the shades of opinion expressed
by the participants would not be lost with the passage of time.
Chairman
Martin responded that the secretariat was working on this and planned to
get the entries to the members of the Committee earlier than in
the past.
Governor Shepardson reverted to the discussion of policy at this
meeting, stating that in this case the consensus was near universal.
Although Mr. Robertson would have favored resolving doubts on the side
of tightness, there seemed to be no other difference in the policy
decision.
Mr. Shepardson suggested that in a case such as this the
writing of a record of the policy decision could include a sentence
that would cover this one shade of difference.
Chairman Martin said he understood this to be the thing Mr.
Mills was suggesting, but he felt that it
would be desirable for the
whole Committee to review the matter and think it
the entire record.
that it
through in
terms of
He also agreed with a suggestion by Mr. Szymczak
would be desirable for anyone wishing to do so to send the
9/22/59
-35
Secretary comments on the form of the policy record.
This should be
taken, he suggested, as an opportunity for anyone who had any disagree
ment with the present form of the policy record to express his views
and give his constructive suggestions,
either in writing or at the
meeting at which the subject would be discussed.
Following a question as to when drafts of 1959 policy record
entries might be available, Mr.
Shepardson recalled that some time ago
it had been the consensus that these entries should be prepared and
distributed from meeting to meeting.
For various reasons this work
had not gotten on to a current basis, he said, but it
was expected
that the draft entries for meetings held during 1959 would be distributed
before the end of the year.
Mr.
Johns commented that without minimizing the importance of
having a policy record that would be an enlightening rather than a
confusing one to the public that read it,
a critical consideration was
whether the written record so confirmed the understanding that the
Manager of the System Account took away from the meetings that his
actions seemed to be consistent with the decisions at the meetings.
He thought this should not be overlooked as a part of the problem of
preparing the record of policy actions.
Chairman Martin then turned to the understanding as to the
policy to be followed during the next three weeks,
stating that he
gathered there was unanimous agreement that the directive to the
Federal Reserve Bank of New York should be renewed without change.
9/22/59
-36-
Hearing no indication that any member of the Committee wished to be
recorded as voting otherwise,
the Chairman stated that the directive
would be so renewed.
Thereupon, upon motion duly made and
seconded, the Committee voted unanimously
to direct the Federal Reserve Bank of New
York until otherwise directed by the Com
mittee:
(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 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
restraining inflationary credit expansion in order to foster
sustainable economic growth and expanding employment oppor
tunities, 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;
To purchase direct from the Treasury for the
(2)
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.
Mr.
Rouse referred to the request of the Joint Economic Com
mittee through Senator Douglas, reported at the meeting on September 1,
9/22/59
1959,
-37
that that Committee be furnished with aggregate figures over a
period of years on Government security dealers'
purchases and sales, and borrowing.
positions, volume of
In a letter to Senator Douglas
on September 11, 1959, he (Mr. Rouse) had explained that all but two
of the dealers had given permission to supply the requested information.
Since these two had declined on the grounds that the burden and expense
of preparing the data would be unreasonable, he had informed the Senator
that the Federal Reserve would not be able to furnish the totals
desired.
This was because the position of at least one of the two
nonreporting dealers might be revealed, since both of the nonreporting
dealers (one large and one very small) had furnished 1957-1958 material
that had been published in the Treasury-Federal Reserve study of the
Government securities market.
Thus,
if
their figures were to be omitted
from a series covering a period of years, their positions might be
revealed by a process of subtraction.
Mr. Rouse said that, accordingly,
his letter had suggested to Senator Douglas that the Joint Economic
.Committee obtain the information directly from the dealers if
the Com
mittee concluded that such procedure would be desirable.
Mr. Rouse went on to say that both he and Mr.
Riefler had now
received telephone calls from Mr. Knowles, Economist, Joint Economic
Committee, requesting that a series of figures for the period since
1950 be furnished by adjusting the total for the firms that had agreed
to supply the data so as to raise it by the proportion reported by the
two nonreporting firms during the 1957-58 period covered by the
9/22/59
-38
Treasury-Federal Reserve study.
Mr. Rouse said that he had pointed
out to Mr. Knowles that such method of adjustment might produce mis
leading figures.
While such a series could be prepared, Mr. Rouse
said that he would not wish to furnish it
to the Committee unless it
were accompanied by a statement that clearly pointed out the statistical
defects in the procedure.
Mr. Riefler said that although he felt the suggestion made by
Mr. Knowles was statistically unsound, there had been a commitment to
furnish data on dealers'
positions, if
in
so doing the Federal Reserve
did not reveal directly or indirectly the positions of individual
dealers.
Therefore,
Mr. Riefler felt that if
the Joint Economic Com
mittee desired to make a written request for the figures, including a
statement as to how it
wanted the estimated totals prepared, there
would not be a good basis for declining to comply with the Committee's
request.
After some discussion and at Chairman Martin's suggestion, it
was agreed that if a written request were received from the Joint
Economic Committee for the preparation of figures on the basis outlined
there would be no objection to complying with the request with the
understanding that when the figures were transmitted they would be
accompanied by a statement commenting on the unreliability of a series
prepared in the manner suggested.
Mr.
Balderston then referred to the discussion near the con
clusion of the meeting on May 26, 1959, regarding the problem of
9/22/59
-39
estimating the money supply.
He recalled the understanding that the
System Research Advisory Committee be asked to prepare a memorandum
setting forth the problem and perhaps making some suggestions,
and he
inquired of Mr. Thomas as to the progress toward developing such a
memorandum.
Mr. Thomas reported that a preliminary memorandum was now being
prepared by a subcommittee and that it
would be considered by the System
Research Advisory Committee at a forthcoming meeting.
Chairman Martin noted that the next meeting of the Committee
would be scheduled for Tuesday,
objection.
October 13, 1959, unless there were
In view of the fact that Tuesday, November 3, which normally
would be the date for the following meeting, was an election holiday in
some States, he suggested that it
meeting for Wednesday,
might be desirable to schedule that
November 4.
After brief discussion, it
was
agreed that the next two meetings of the Committee would be held on
Tuesday, October 13,
and Wednesday,
November 4,
Thereupon the meeting adjourned.
Secretary
1959.
Cite this document
Federal Reserve (1959, September 21). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19590922
@misc{wtfs_fomc_minutes_19590922,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1959},
month = {Sep},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19590922},
note = {Retrieved via When the Fed Speaks corpus}
}