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, November 24, 1959,
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
at 10:00 a.m.
Martin, Chairman
Hayes, Vice Chairman
Allen
Deming
Erickson
Johns
Mr. King
Mr.
Mr.
Mr.
Mr.
Mills
Robertson
Shepardson
Szymczak
Messrs. Bopp, Bryan, Fulton, 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. Thomas, Economist
Messrs. Jones, Mitchell, Parsons, Roosa, Willis,
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 Re
search and Statistics, Board of Governors
Mr. Keir, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr. Knipe, Consultant to the Chairman, Board
of Governors
Messrs. Hostetler, Daane, and Tow, Vice Presi
dents of the Federal Reserve Bank of
Cleveland, Richmond, and Kansas City,
respectively
Mr. Einzig, Assistant Vice President, Federal
Reserve Bank of San Francisco
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-2
Mr. Coldwell, Director of Research, Federal
Reserve Bank of Dallas
Mr. Anderson,
Economic Adviser, Federal
Reserve Bank of Philadelphia
Mr. Holmes, Manager, Securities Department,
Federal Reserve Bank of New York
Mr.
Brandt, Economist,
of Atlanta
Federal Reserve Bank
Upon motion duly made and seconded,
and by unanimous vote, the minutes of the
meeting of the Federal Open Market Com
mittee held on November 4, 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
November 4 through November 18, 1959, and a supplementary report cover
ing the period November 19 through November 23,
reports have been placed in
1959.
Copies of both
the files of the Committee.
Supplementing the written reports,
Mr.
Rouse made the follow
ing comments on open market operations:
Open market operations supplied only a small amount of
reserves net to the market on a delivery basis during the
period since the last meeting of the Committee.
This small
figure (about $13 million) would be quite misleading, how
ever, as an indicator of Account activity over the past
three weeks.
During this period, for example, the Account
bought $169 million Treasury bills and sold $28.1 million,
while $234,350,000 new repurchase agreements were made and
The
$375,700,000 agreements matured or were withdrawn.
heavy volume of repurchase agreements is of course a
reflection of the need for reserves early in the period, a
development that was reversed by midmonth market factors.
The repurchase agreement was well suited for meeting such
temporary reserve needs, and it also fitted in with the
Treasury's refinancing operation. Now that we are in a
period of growing seasonal pressure on reserves, Account
operations will rely more heavily on outright purchases
of bills.
11/24/59
The Government securities market showed somewhat mixed
tendencies since the last meeting of the Committee.
Develop
ments in the steel situation--and the various interpretations
placed on them--have made the market particularly sensitive
to short-run supply and demand considerations.
The Supreme
Court decision on November 7 upholding the legality of the
Taft-Hartley injunction resulted in a substantial price
decline throughout the Government securities list
on November
9 as the market was impressed by the possibility that resump
tion of steel production would result in the liquidation of
Government securities by corporations and in intensified
credit demands on banks which have been under continuous
pressure for some time.
The psychology was later reversed
by the possibility that the steel unions might resume the
strike after the 80-day cooling off period has ended.
The
sensitivity of the market to short-run developments was
amply demonstrated on November 16 when a new high issuing
rate of 4.332 per cent for 91-day Treasury bills was
established in the auction--although bill rates subsequently
declined 1/4 per cent. It all added up to a feeling of
considerable market uncertainty about the trend of interest
rates.
In general, the market responded satisfactorily to the
Treasury's refunding operation completed early this month
and, initially at least, to the cash financing and refunding
The exchange early
of savings bonds announced last Thursday.
this month of $3 billion of maturing notes and certificates
and of the 4 per cent notes of 1962 into the 4-7/8 per cent
four-year notes represented a successful outcome of the
Treasury's effort to extend debt maturity within the range
The market also took in stride the Treasury
the law allows.
plans to raise $2 billion cash in an auction this afternoon
of 320-day bills. Guesses as to rates range from 4.75 to
4.85 in the auction, with trading in the secondary market
The market has still
expected to start at around 4.90-4.95.
not had time to assess fully the implications of the exchange
into the marketable 4-3/4's offered holders of maturing F
impact on
and G bonds, but there was no pronounced initial
the market for outstanding notes in this maturity range.
The market for corporate and municipal bonds received a
from the successful marketing of the American
decided lift
Telephone and Telegraph debentures last week. Even though
the reoffering yield to investors, at 5.22 per cent, was
lower than some had expected, there was a good institutional
response and an unusual volume of small investment demand has
been reported. The impact of the issue on the corporate and
municipal market bears a striking resemblance to that of the
5's on the Government securities market early last month.
11/24/59
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In response to a question by Mr. Allen, Mr. Rouse said it
was likely that the Treasury would offer securities at auction late
in
December, for payment early in
January.
There was the problem
of meting the maturity of $2 billion of bills on January 15, there
would be a need for additional cash in
the second half of January,
and certificates maturing February 15 would have to be refunded.
Thereupon, upon motion duly made
and
the
the
ber
and
seconded, and by unanimous vote,
open market transactions during
period November 4 through Novem
23, 1959, were approved, ratified,
confirmed.
In supplementation of the staff memorandum distributed under
date of November 20, 1959, Mr. Young presented the following state
ment with respect to economic developments:
With activity in the steel industry resumed after a
four-month interruption, output is rebounding and employ
ment strengthening. What this may mean in terms of
further expansion from prestrike levels remains to be
seen. Over-all, the cyclical stage would appear one of
reduced pace of further expansion, so that, after
recovery from the steel strike setback is completed by
early next year, a slower rate of increase in aggregate
Also, it seems possible
output may well be encountered.
that the stability of money supply and money velocity
over recent months portends that monetary policy has
attained a position of real bite as regards inflationary
pressures and psychology.
If, in the high-level period ahead, more competitive
markets prevail than in 1956-57--a prospect deriving from
our strengthened industrial capacity, our accumulated
stock of housing and consumer durable goods, and our
large supplies of livestock and other farm products--the
System may confront a domestic situation of relative
equilibrium of prices and output, though externally
basic disequilibrium in payments may persist. In these
11/24/59
conditions, the economy's needs and demands for cash balances
may expand with further growth in domestic output and money
income.
The dilemma will be that if the additional cash
balances are not provided by the banking system, overly tight
money may work to frustrate equilibrium, accentuate competitive
price pressures, and hasten the arrival of cyclical climax
and decline.
If additional cash balances are provided too
liberally, on the other hand, they may frustrate competitive
price tendencies and intensify international disequilibrium.
The difficult problem of a desirable pace for further
bank credit and monetary expansion is admittedly a future
problem. But the future in which it will become an actual
problem is not too far distant. Accordingly, it is important
that the Committee begin now to plan such incremental change
in the bank reserve base as may be appropriate for a period
of advanced and delicately balanced cyclical expansion,
accompanied in the typical pattern with various rolling
adjustments.
With regard to the most recently reported statistical
information, the following are the main highlights:
(1) Following reactivation of struck mills, steel
production had climbed by last week to 80 per cent of
capacity and this week may reach a 90 per cent rate. Rise
in steel output together with output in steel-related
industries, despite continued low production in steel
consuming lines, is expected to raise the total index for
The December
production by about two points in November.
rise in the index could carry it back to the June high.
Output of nondurable goods, which reached a new
(2)
high in September, declined somewhat in October, with the
decline accounted for by a moderate decrease in the pro
duction of textiles and rubber products.
October output of household durables, apparently
(3)
because of steel shortage, remained below the highs reached
last summer, but retail sales of such goods continued at
advanced rates through October.
Auto output for November is currently estimated
(4)
at about the August model change-over level of 240,000
units. Dealer deliveries early in the month were down
about 10 per cent below the high rate of early October,
but with output curtailed, dealer stocks dropped a further
50,000 units to 529,000. Meanwhile, used car sales in
early November maintained a rate about 10 per cent higher
than a year ago and used car prices were somewhat softer
than in the late summer at levels about 11 per cent above
last year.
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(5) Manufacturers' orders for, and sales of, durable
goods changed little
in October according to preliminary
estimates.
The September-October level for sales was about
11 per cent under June and for new orders almost 8 per cent
less. Altogether, showings in new order trends are con
sistent with those of the McGraw-Hill survey of business
capital expenditure plans.
These indicate a smaller further
rise in the fourth quarter than earlier projected and also a
smaller rise for 1960 than many forecasters were estimating.
(6) For the fourth successive month, the value of new
construction has declined, though the October decline was
probably associated with structural steel shortages.
The
October rate was a tenth below the June peak, and the
October declines were in both public and private construction.
The October level of construction volume, however, was the
highest on record and slightly above a year ago.
(7)
Also declining for several consecutive months, in
fact five months, were private nonfarm housing starts.
October starts, at 1,180,000 units, were 18 per cent below
the spring high, 9 per cent under the starts volume of a
year ago, and the smallest number in 15 months.
Home
mortgage credit conditions, earlier reported as tight, have
become still
tighter.
(8)
The usual seasonal decline in unemployment from
mid-September to mid-October was more than offset by steel
strike layoffs.
Since mid-October, unemployment claims have
increased quite sharply, so that mid-November unemployment is
likely to show a significant rise from mid-October.
Auto
layoffs and seasonal influences will be main factors in the
increase.
It is a matter of some interest that the State
and local government sector is the only sector in which
significant employment gains have been evident in recent
months.
(9) Personal income in October is estimated at $382
billion, up over $2 billion from August.
The rise recovered
about one-half of the June-August decline. Wages and salary
income changed little
from August, so that the increase was
concentrated in business and proprietors' income, in interest
payments, and in transfer payments.
(10) Retail trade in October was up 3 per cent from
The increase was
September to the July record volume.
concentrated at automotive outlets; sales at other stores
change.
Sales at department stores early this
showed little
month were running slightly ahead of the October volume.
(11) Preliminary data from the latest Quarterly Survey
of Consumer Buying Intentions, taken in October and conducted
-7-
11/24/59
for the Board on an experimental basis by the Bureau of
the Census, show an apparently strong demand for durable
goods. The proportion of consumers planning to buy autos
or household durables was the highest of the four experi
mental surveys so far conducted.
(12) Average wholesale prices have continued to show
little change. On balance, the average of industrial
materials prices probably continues to have an upward tilt.
Among basic materials, prices of steel scrap, copper,
natural rubber, and some textiles have risen further. On
the other hand, prices of hides and leather have declined
sharply; lumber and plywood are down, partly seasonally;
and the price of copper scrap has fallen some. Wholesale
prices of livestock and meat have recently declined about
7 per cent and are about 15 per cent under a year ago.
Meat marketings over the past six weeks have been running
about one-tenth above a year ago.
(13) In Western Europe, activity continues to surge
upward. Advance has been especially marked in durable goods
output and in construction, but all phases of activity are
showing gains.
In Canada, economic upswing has apparently
been regaining momentum.
Mr. Thomas made the following statement with regard to the
credit situation:
Pressures of credit demands have continued to show
little or no further tightening, continuing the lull that
developed in October. During the past week or two there
has been some firming of bill rates, which may be a
reflection of seasonal forces or anticipatory of an
expected forthcoming increase in credit demands. With
operations in steel so quickly restored to a high level,
some upturn in private credit demands may be imminent.
This upturn might coincide with usual post-Christmas
declines in seasonal borrowing, and thus account for a
smaller than usual contraction in the early months of
the year.
Yields on Treasury bonds have generally been firm
at levels below the September peaks. Notwithstanding
further increases in the available supply of notes in
the 4- to 5-year maturity area, yields on such issues
have continued relatively steady, supported by market
demands. Yields on State and local government securities
have declined somewhat further. Market reception for the
moderate volume of new issues being offered has been favor
able, and in addition dealers have added to their own
investment portfolios.
New issues of corporate securities have also been in
moderate volume, even after including the $250 million
A.T. & T. issue. Yields on outstanding high-grade corporate
bonds have been steady, not showing the declines evident in
other sectors of the bond market since September.
Comon stock prices have fluctuated within a restricted
range since the sharp drop in September--somewhat above the
low point reached in that month. Volume of trading has
increased. Stock market credit continued to decline in
October.
Following the increase in bank holdings of Government
securities at the time of the Treasury cash financing in the
middle week of October, holdings of such securities by banks
in leading cities have again been sharply reduced. Holdings
of bills have declined sharply and holdings of notes and
bonds maturing in one to five years have also declined,
notwithstanding new issues of securities within this maturity
range. Increases were shown in holdings of issues other than
bills maturing within one year. City bank holdings of other
securities have also declined.
Reductions in investments considerably more than offset
a moderate-probably less than seasonal-increase in loans,
As a consequence, total loans and investments of city banks
have declined by nearly $800 million in the past four weeks.
Commercial and industrial loans increased by about $300
million, approximately the same as in the corresponding four
weeks last year, but not half as much as in the same weeks
of 1955 and 1956. Loans to sales finance companies have
continued to show little change, but other nonbank finanial
institutions, probably mortgage lenders, increased their
borrowings at banks somewhat in the past four weeks. Loans
on real estate and consumer loans increased only moderately
in the same period.
At country banks, total loans and investments continued
to increase seasonally during October, in contrast to a
decline at city banks. As compared with a year ago, country
banks have shown an expansion of 5 per cent, compared with
little over 2 per cent at reserve city banks and a decline
for New York City banks, Nevertheless, the increases at
country banks for October and also for the four months
ending in October were smaller than those for the corres
ponding periods of other recent years, indicating, perhaps,
a less than seasonal increase.
11/24/59
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Demand deposits adjusted in October, as in the two
previous months, showed less than the usual seasonal in
crease and have not risen on balance since March.
Turnover of deposits has also been level since April,
showing the influence of the moderate decline in over-all
economic activity related to the steel strike.
U. S. Government deposits, which increased sharply
in the middle of October at the time of the Treasury
financing, declined for that month as a whole.
Time
deposits also declined, both at commercial banks and at
mutual savings banks, no doubt reflecting withdrawals to
purchase Treasury securities.
Savings and loan associa
tions showed a smaller increase in outstanding shares
than in October 1958, reflecting a substantial increase
in withdrawals.
In the first
three weeks of November, demand deposits
adjusted declined further, but some decline usually occurs
in that period. U. S. Government deposits also declined.
Time deposits showed a decrease, as is usual at this
season, reflecting shifts of funds from Christmas savings
accounts.
In view of the smaller than seasonal deposit expansion,
bank reserve needs have hardly equalled the usual seasonal
amounts in recent weeks.
The principal drain on reserves
has grown out of the customary autumn currency demand.
Diverse gold movements have largely offset each other, with
net change.
System operations have supplied reserves
little
on balance, and member bank borrowings have averaged less
than $900 million, with net borrowed reserves generally
below $500 million. The period of heaviest pre-Christmas
reserve drains is now beginning, and approximately $700
million of reserves will need to be supplied in the next
three weeks.
Probably the most important decision to be made by the
Committee in the next month will be whether to adjust opera
tions so as to facilitate a renewed growth in bank credit
It
and the money supply--on a seasonally adjusted basis.
may be reasoned that the lack of growth in recent months has
reflected the influence of the steel strike in holding down
demands for credit and money, rather than the restraint of
member bank borrowing on bank credit extensions. A
resumption of credit demands in the period ahead with
additional reserve needs will necessitate increased member
bank borrowing, unless reserves are supplied by System
System policy might be directed toward
operations.
anticipating the demands for reserves by supplying them
Banks, however, might be
through open market operations.
11/24/59
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willing to borrow to meet these needs and System operations
might be withheld until the demands appear in pressures on
the bill
market that seem to be exerting undue restraint.
Maintenance of around half a billion dollars of net
borrowed reserves might well prove to be the proper amount
that would not unduly restrict the desired expansion but
would still
not promote unsound credit commitments for which
demands are likely to arise in coming months.
If increased
reserve demands that develop are met by System operations so
as to maintain such a level of borrowings, then some growth
would be permitted.
Taking a broad view of System policy relative to the
prospective economic situation, rebuilding of steel inven
tories, together with credit-financed consumer purchases
of automobiles and other durable goods and the prospective
growth in business capital expenditures, could inject into
the economy a number of unsustainable elements of expansion
and pressures for price increases in the months ahead.
Continued wage increases, together with strong demands, will
In
be a stimulus to higher prices for finished products.
view of the declining tendency in agricultural prices, the
potential supplies of other basic raw materials that could
dampen price rises in these areas, and the international
competitive situation, continued increases in prices of
finished products can lead to serious difficulties in the
Such tendencies should not be facilitated by
future.
too-ready availability of credit.
Sustainable growth and the avoidance of a build-up of
forces that will later bring about a serious downturn can
probably best be assured by the continuation of some
restraint on credit expansion during the months ahead. Yet
some expansion may well be permitted.
Mr.
Hayes presented the following statement of his views with
respect to the business outlook and credit policy:
Economic developments since the last meeting have
been generally favorable, marked by an unexpectedly rapid
rebound in steel production and by continuing evidence of
underlying strength in the business situation, as sug
gested by over-all data on production, retail sales, and
On the other hand, a balanced
business investment plans.
flow of all kinds of finished steel will not be available
for several weeks, and some secondary effects of the
strike may last even longer. Meanwhile, major uncertainty
11/24/59
-11-
continues as to when and how the steel and other major
labor disputes will ultimately be settled. Fears of a
renewed walkout may induce some caution in business and
consumer spending, and there is no way yet to gauge the
effect of the final settlement on wages and prices generally.
Since newly produced steel during the remainder of the year
will probably be barely sufficient to cover current and
minimum inventory demands of final users, there seems to
be no immediate likelihood of a heavy build-up of steel
inventories to be superimposed on the seasonal expansion
of other inventories.
If the steel conflict is settled
before expiration of the 80-day injunction period, we may
see a sharp upsurge in general economic activity early next
year--but there is no clear evidence now that the rise will
be excessively vigorous.
Results of the October McGraw-Hill survey of business
capital spending intentions point to strength in this sector
of the economy, although much of the expected increase in
actual outlays in 1960 will be due to the postponement to
1960 of expenditures originally planned for 1959.
Of course
it is quite possible that spending targets will be sub
stantially raised once the steel issue is definitely settled.
A recent spot survey conducted in our District confirmed
the general impression that growing tightness in the mortgage
market is exerting an appreciable effect on the volume of
residential construction, particularly in the area of large
Yet, despite some decline, the level
housing developments.
high.
of residential construction is still
Such price data as have become available since the last
meeting have been generally reassuring, with no indication
that strike-engendered shortages have led to extensive price
Booming business abroad, however, may well exert
increases.
gradual upward pressure on some commodity prices.
in the growth of bank
October witnessed a noticeable lull
of all commercial
investments
and
loans
credit, with combined
banks showing the smallest gain for any October in at least a
The slackening was mainly in business loans, whereas
decade.
consumer and real estate loans maintained a pronounced upward
Early November bank credit data are rather inconclusive,
trend.
although they seem to point to a resumption of more substantial
The money supply showed a gain of only
over-all loan growth.
1 per cent to 1-1/2 per cent for the twelve months through
In the last few weeks the banks as a whole have been
October.
under severe pressure, especially in the money centers.
Despite the slackening loan growth in October, loan-deposit
ratios reached record levels both in and outside of New Yorkand this, together with other measures of bank liquidity,
11/2/59
-12
showed so little leeway as to raise serious questions, at
least in New York, concerning the capacity of commercial
banks to provide credit (within the framework set by
present rates of growth in the money supply) for a major
further expansion of business, should that be on the way,
I found the comments of Mr. Young and Mr. Thomas interest
ing, as they pointed out the difficult dilemmas for
monetary policy that we will be encountering soon.
The Treasury's financing problems will be by no means
over with the completion of today's cash offering. An
additional cash offering and a rollover of twelve-month
bills are scheduled for the first
half of January, followed
by a very large refunding in February.
In the next few
weeks financial markets will be subject to the usual
special pressures of the season, including corporate tax
and dividend requirements, besides fairly heavy offerings
of new corporate and municipal issues.
Beyond this there
are some fears in the market of diminishing corporate
interest in Government securities as business spending
gathers momentum.
Facing this period of Treasury and seasonal pressures,
I think the recent degree of credit restraint is appropriate
and should be neither intensified nor relaxed. The banks'
reserve position is well under control, so that we are in
a position to move decisively in either direction at some
It seems to
later date if that should appear desirable.
me that stability in the feel of the market is our best
criterion. This probably would imply, in the absence of
decisive new developments, that the general level of
interest rates would not change appreciably. It would
seem to me that the Manager should have even more than
the usual degree of leeway in this year-end period of
I see no present need
rapid changes and cross-currents.
for a change in the directive or in discount rates.
Mr.
Johns stated that this year's large cotton crop had come
to market earlier and more rapidly than the crops in recent years.
Also, as the result of changes this year in
the Government cotton
price support program, the cotton produced on more than 80 per cent
of the planted acreage was being purchased outright by Commodity
Credit Corporation.
This was the so-called "A" cotton produced by
11/24/59
-13
growers who had elected to plant only their allotted acres.
Under
the present procedure Commodity Credit Corporation was drawing
checks on the Treasury and became the outright owner of this sub
stantial portion of the crop.
As a result the banks had come into
funds as their production loans were paid off; in
contrast to other
years, they did not acquire earning assets in the form of Commodity
Credit Corporation certificates of interest.
Funds had flowed in
large volume to the city correspondent banks, although it
not unreasonable to expect that in
time the country banks might
get around to investing some of the money.
however,
seemed
For the time being,
the country banks were quite liquid and the situation at
the Memphis banks,
at least until recently, was quite different from
what one might expect at this season of the year.
The cotton owned
by Commodity Credit Corporation was being continuously offered for
resale at a price less than the support price for "A" cotton, i.e.,
80 per cent of parity.
While the price was subject to upward
adjustment each month, everyone knew where the cotton was and at
what price it
could be obtained for months in
the future.
Thus,
there was no incentive for cotton merchants to lay in inventories,
and perhaps only a minimum incentive for cotton mills to lay in
inventories.
The appearance of Memphis banks at this time of year
generally is
one of great demand and considerable pressure, leading
them to lay off to correspondent banks large volumes of cotton
paper and to go to the discount window for considerable amounts of
-14
11/24/59
funds.
in
This year, until recently, those banks had not been behaving
the customary manner, but there had now been some turnabout in
the situation as far as cotton loan demand was concerned.
in
Whereas
the early stages of the harvest, mills and processors were not
buying the current crop, they were now buying and in
some volume.
Whether this was hand-to-mouth buying or buying for inventory purposes
was not clear, but in any event the pressure of cotton loan demand on
the Memphis banks had turned upward and at least two of them were
beginning to look as they used to look at this time of year.
situation as it
The
developed this year represented a new experience for
the Reserve Bank and, at least thus far, had rendered considerably
easier the job of administration of the discount window.
Turning to policy, Mr.
Johns recalled that for a long time
he had taken a rather dim view of setting a reserve target as a means
of instructing the Desk and expressing policy.
While he had en
deavored recently to avoid laboring the point, it
occurred to him
that an attempt at this juncture to maintain a reserve target could
bring about results that the Committee did not really want.
even the short-run future was far from clear, he thought it
Although
not
unreasonable to anticipate that the resumption of steel production,
and developments associated therewith, might lead to a considerable
increase in the demand for bank credit.
In the circumstances, he
felt that the Committee ought to be cautious about supplying reserves.
If
a reserve target--either $500 million of net borrowed reserves or
11/24/59
-15
any other target-was adopted and such a demand came to pass, this
might permit a greater expansion of deposits and of the money supply
than he would deem appropriate at this time.
On the other hand, if
loan demand failed to develop, he would not be concerned about some
marked easing in reserve positions.
This, he thought, probably would
indicate a cyclical change that would suggest a revision of the policy
of restraint that the Committee had been following, or some modifica
tion thereof.
Hence, he would be inclined to suggest that for the
few weeks ahead, while the drain on reserves accompanying an outflow
of currency was present, the Committee might gear its sights to
supplying the reserves needed to offset that drain.
While he had
some question as to whether the System should supply reserves to
offset any drain accompanying an outflow of gold, if such an outflow
should come to pass, he felt the System should offset seasonal
losses of reserves, with perhaps some additional reasonable allowance
for growth in
the money supply.
Because it was his guess that the
weeks ahead were going to show a tendency toward expansion, con
ceivably at an unsustainable rate, he also felt that the System
should allow a part of the reserves to be obtained at the discount
window rather than to supply them through outright injections in the
form of open market operations.
He would not be too concerned about
fluctuations in the level of negative free reserves or about any
changes in the money market resulting therefrom.
He felt that the
System must be quite flexible, but for the time being he would lean
-16
11/24/59
in
the direction of being careful to maintain no less than the
current degree of restraint.
If
things should develop on the
expansionary side, perhaps there should be some slight intensifica
tion of restraint.
He would not favor a change in the discount
rate or the policy directive at this time.
Mr.
Bryan, who had returned recently from an advisory
mission to Peru, said that during the period since he last attended
a meeting of the Committee the figures and charts for the Sixth
District showed exactly what one would expect.
situation had deteriorated rather markedly.
The economic
Nearly every series
was down on a month-to-month basis and down substantially from the
1959 peak.
With regard to policy, Mr. Bryan said it
the Committee found itself in
seemed to him that
a peculiarly difficult situation.
The
outlook seemed quite hazy regardless of whether the steel strike was
settled or whether it resumed.
In considering policy at the moment,
he had tended to look at the trend of total reserves rather than
negative free reserves or even the money supply.
From the charts
it could be seen that total reserves had declined irregularly since
early spring and that they were now right on the long-run trend line.
Unless there was a resumption of some growth factor in those reserves,
they would fall slowly below the trend line, a development that would
be regrettable if
it
were allowed to proceed very far.
His inclina
tion, therefore, would be to proceed with extreme care not to overdo
the degree of tightness at this time.
11/24/59
-17Mr.
Bopp made substantially the following comments with
respect to Third District developments and with regard to monetary
policy:
The rebound in steel production has been much faster
than anticipated.
Steel mill operations in the Philadelphia
region jumped from 12 per cent of capacity when the strike
ended to 92 per cent in the latest week--considerably above
the 79 per cent rate nationally.
The large Fairless plant,
which suffered little
damage to its furnaces, is reported
to be operating at 95 per cent of capacity.
About three
fourths of the workers idled by the strike in Pennsylvania
have been called back to work.
All but about 4,000 of the
166,000 steel workers had been called back to work by
November 20, and nearly one-third of the non-steel workers
idled by the strike have returned to work, most of the
returnees being in mining and railroads.
It is encouraging
that in the week ending November 20 secondary unemployment
increased in only three industries--ordnance, paper, and
textiles--and the increases in these industries were
insignificant.
The steel shortage in this area has been most severe
in sheets, structural shapes, and more recently in bars.
Steel fabricators have made a variety of adjustments to
keep operating despite the shortage of steel-shifting to
aluminum, readjusting production lines, and turning to
foreign sources of supply. It is reported that some
companies are making arrangements to import regularly a
certain proportion of their steel requirements in view of
the recurring strikes in the steel industry.
One of our directors, who is president of an oil
company, reported that the industry expects the union to
open negotiations for a new wage agreement early next year,
and that the companies expect to resist strongly a wage
Surplus
increase that would result in higher labor costs.
stocks and competition would make it very difficult to
pass increased labor costs along in the form of high
product prices.
There was a slight decrease in District manufacturing
employment from September to October, according to
preliminary data. Employment decreases in strike-affected
industries were almost entirely offset by increases in
October employment was about 1/2 per
other industries.
New unemployment claims in
cent above a year ago.
-18-
11/24/59
Pennsylvania were off slightly in the latest week, but
changes in the past three weeks have been minor.
Changes in department store sales in the past two
weeks have been somewhat erratic because sales promotions
did not fall
in the same week as last year. Sales for
the past four weeks were 1 per cent above and for the year
to date 4 per cent above a year ago.
October sales of
automobiles in Philadelphia County were about one-fourth
more than September and nearly one-half more than October
of last year.
Freight car loadings rose sharply with the
resumption of steel production.
There was little
change in total credit of District
reporting banks in the three weeks ending November 18. A
moderate increase in loans was nearly offset by a reduction
Business loans, which have
in holdings of securities.
declined in most of the weeks since mid-September, were
unchanged.
The basic reserve position of the large Philadelphia
banks was considerably easier during the past three
In the next-to-latest week, the
statement weeks.
Philadelphia banks had a small average basic excess--the
Their daily average borrowing
since mid-January.
first
from the Reserve Bank was considerably lower, ranging from
$8 million to $12 million. District banks were net sellers
of Federal funds in the past three weeks, but the daily
Total borrow
average was quite small in the latest week.
ing from the Reserve Bank by District member banks dropped
to a daily average of $18 million in the latest week--2.1
per cent of the System total.
I believe we should maintain about the same degree of
restraint for the next three weeks, not only because of the
current Treasury financing but also because it seems appro
priate to the business and financial situation. In my
opinion the Manager of the Account should strive to maintain
about the same degree of pressure, as reflected by the tone
and feel of the market. As long as market rates are at
approximately current levels, I would favor meeting seasonal
I do
reserve needs mainly through open market operations.
directive.
the
not favor a change in the discount rate or in
Mr.
Fulton reported that the steel situation continued to be
the subject of principal interest in the Fourth District.
The steel
companies had made another offer which contemplated referring the
work-rule problems to a committee for review and report later and
11/24/59
-19
also improved the economic package.
However,
the unions rejected
this offer and thus far had made no move to compromise the original
demand,
which was a package of
45 cents per hour spread over a
three-year period.
The attitude of the steel workers was reported
to be cooperative.
While the union had instructed them not to work
overtime or to accept benefits offered by the steel companies,
the
workers were said to be working overtime and accepting the benefits
offered.
One steel mill claimed that the workers would vote to
accept the package offered by the industry, and the companies were
attempting to explain that the work-rule requirements proposed by
the companies would not result in
laying off any of the senior workers
or in disturbing the relationships of the workers with the mills.
The
companies looked for no settlement before the end of the period within
which a vote must be taken.
However,
union leadership and the companies,
pressure would now be on the
and it
that some settlement would be arranged.
was generally expected
In aluminum, the industry
appeared vulnerable because Kaiser, which had already signed an
agreement with the steel workers,
controls about 27 per cent of
the capacity of the aluminum industry.
The copper industry had just
signed an agreement containing what appeared at first
large package.
On further analysis, however, it
to be a very
appeared that the
copper workers were just catching up with the steel workers and were
not obtaining preferential benefits.
11/24/59
-20
Mr. Fulton said that the start-up of Fourth District steel
production had been faster than expected and that production was
expected to be up to about 90 per cent of capacity this week.
There
had been no further large shutdowns because of steel shortages,
it
would take some time to obtain certain types of steel.
but
Chrysler
was laying off additional people, General Motors was flat, and Ford
was putting back some workers in parts manufacturing.
It was reported
that General Motors would not be able to make deliveries of new cars
to dealers until late December.
and were shipping first
The steel mills were being selective
to those customers who were in
bad shape; it
appeared that no steel was likely to be shipped for inventory rebuild
ing until the first
quarter of 1960.
Outbound freight shipments last
week were the highest during the past four-month period and inbound
shipments were the second highest during those four months.
Electric
power output had moved up sharply.
Mr.
Fulton reported that unemployment in the district still
presented a problem, with considerable secondary unemployment.
situation in
bad.
The
the Youngstown and Pittsburgh areas was particularly
However,
department store sales continued good, with the
cumulative figure 6 per cent ahead of last year.
Member bank loans
increased slightly during the past two weeks and the banks had come
to the discount window somewhat more heavily.
While borrowings had
been running around 5 or 6 per cent of the System total, in
week they ran around 10 per cent.
the past
11/24/59
-21
As to policy, Mr. Fulton said that in the present circum
stances he would maintain approximately the same degree of pressure
as had been maintained during the past few weeks, giving the Manager
of the Account adequate latitude.
He would not favor changing the
discount rate or the directive at this time.
Mr. King also expressed the view that there should be no
change in
the directive or the discount rate.
He felt that this was
a time when the Desk must have more leeway than usual in responding
to the feel of the market and in
prime importance, as he saw it,
supplying seasonal demands.
Of
was the supplying of enough reserves
to permit the proper amount of growth and development to continue,
even though this might run the risk of some possible price increases.
In this connection, he suggested that it
was primarily the responsi
bility of industry to fight off wage and price increases.
He was
encouraged to hear Mr. Bopp's report that one of his directors, who
is
president of an oil company, was prepared to resist wage increases
that would result in
base its
higher costs.
If
policy on price levels alone,
proceeding in the wrong direction.
the System should attempt to
he felt that it
would be
He repeated that he would favor
giving greater leeway to the Desk than usual during what he sensed
would be a difficult and uncertain period.
Mr. Shepardson said it
was encouraging if
providing more resistance to wage demands.
management was
On the other hand, each
11/24/59
-22
settlement that had been made seemed to contain some wage increases.
Looking ahead, he felt
that the most likely prospect was an upturn
in activity as steel got rolling.
It
seemed to him that although
industry had a responsibility to face up to, that did not relieve the
System of responsibility for exercising such influence as it
could in
trying to maintain stability of prices and a psychological atmosphere
that would tend toward better adjustment of the foreign trade situa
tion.
Therefore, while he would not favor increasing the degree of
restraint currently being maintained, it seemed to him that the
System must be continually alert to the major threat, although
recognizing the possibility of a turn in the other direction.
As
he said at the November 4 Committee meeting, his observations had
led him to conclude that it is always easier to relax than to take
a tighter hold.
At present he would not favor any easing.
He would
provide the necessary reserves for seasonal needs, but he would try
to continue the existing degree of restraint, at least until the
situation became more clear than it was at the moment.
Mr.
Robertson said he felt sure that Mr.
Shepardson was right.
Although there was the possibility of a downturn, he did not believe
that that would be the direction.
The probability was that in
the
not too distant future there were going to be price changes that
would make one squirm and say that monetary policy could not do any
thing about them.
Consequently,
such as agriculture, were in
although some segments of the economy,
a less favorable position than other
11/24/59
-23
parts of the economy and were under pressure at the moment,
consider it
he would
unwise not to maintain the degree of restraint that had
been built up.
Shepardson.
In one respect he would go a little
beyond Mr.
He was in accord with the view that for the next three
weeks some of the demand for reserves ought to be provided through
the discount window rather than through open market operations.
The
discount facility was designed as an automatic safety valve and the
present appears to be the kind of situation where the discount window
could be utilized effectively.
In summary, Mr. Robertson said that he would try to maintain
the same degree of restraint as maintained up to this point, and that
he would watch the trends carefully.
He would not favor a change in
the discount rate or the directive at this time.
Mr. Mills commented that the Board's research staff had just
issued two memoranda,
one on economic and financial developments in
the United States and abroad and the other on banking and monetary
developments in October.
Careful analysis of those documents in
conjunction with Mr. Young's evaluation of the economic situation
and prospects led him to caution the Committee even more strongly
than in
earlier months about maintaining a degree of tightness in
the money market that would be adverse to economic development and
stability.
It
seemed particularly significant that the banking
system had not experienced the normal seasonal expansion of credit,
and in
his opinion a good reason could be found in
the earlier
-24
11/24/59
impact of a System policy of credit restraint and the shrinkage
that had taken place in
the money supply.
The shrinkage, if
he
understood Mr. Bryan's reasoning correctly, would suggest that the
System should be forewarned about permitting a further development
in that direction.
Mr. Mills said that the Committee had before it
a useful
demonstration of the effects of System policy and a reminder of
what it
had been told by studies in economic journals and observa
tions of the System's own research experts.
From the statement week
ended September 23 through the statement week ended November 18, the
level of negative free reserves had dropped measurably below $500
million.
At the same time, the rate for Federal funds had held at
4 per cent and there had been a distinct tightness in the money
market.
the level of negative free reserves
Along with the drop in
was the companion development of a tendency for the level of dis
counts at the Federal Reserve Banks to drop.
into outline the fact that it
is
That tended to bring
customary for member banks, as
additional reserves come into their possession, to take the first
step toward reducing their discounts.
counts,
As they reduce their dis
reserves are withdrawn from the market.
been a continuing tightness in
borrowed reserves.
It
The result had
the face of a lower level of net
seemed to him that it
would be entirely
appropriate to capitalize on this development and bring down the
11/24/59
-25
level of net borrowed reserves to a somewhat lower level, with the
anticipation that in doing so there would not have been a relaxation
of credit restraint to any degree that could be alarming to the most
serious advocates of extreme pressure and credit restrictiveness.
At
the same time, the result would be to bring the System to a neutral
position where the availability of credit would be poised.
The supply
of negative free reserves would be at a point where the System could
move promptly either in the direction of greater ease or, improbably,
in the direction of further tightness without having sacrificed any
strength of position.
Mr. Mills expressed the view that to move in the way he had
suggested was essential in that the availability of credit placed at
the disposal of the commercial banking system had now been brought
to a point where the commercial banks were restricted in making their
normal contribution creditwise to growth and stability.
He said that
he wished to offer again for the Committee's consideration, as he had
at the November 4 meeting, a change in the wording of the directive
so that clause (b) would read "to fostering sustainable economic
growth and expanding employment opportunities while guarding against
inflationary credit expansion."
The comments made by Mr. Leach were substantially as follows:
High levels of activity in major Fifth District in
dustries are continuing. New evidence of strength in
specific industries is incomplete but fairly persuasive.
11/24/59
-26-
The District furniture industry is in its strongest position
in recent years, with activity running from 15 to 20 per cent
higher than a year ago and production sold through February
and in some instances well into March.
In textiles, cotton
cloth output is booked almost solidly through the second
quarter of 1960, while synthetics are booking into the
second quarter.
Production should reach even higher levels
in the near future as bottlenecks are eliminated.
Sales
and profits in cigarette manufacturing, our most stable
industry, continue high. Coal production was up slightly
last month and gives indication of a strong pickup with the
resumption of steel production.
Farmers in the District, on the other hand, are con
tinuing to experience declines in income. Cash receipts
from marketings during the first
nine months of 1959 were
5 per cent below the same period of 1958, a somewhat greater
decline than for the country as a whole.
Furthermore,
frequent rains in the Carolinas and Virginia during the fall
delayed harvesting and reduced production of nearly all crops.
Since resolving doubts on the side of ease, which was
introduced into the consensus at the September 22 meeting,
represented the System's only policy adaptation to the lull
in economic activity related to the steel strike, I think
those words have a little
more meaning for the record than
might normally apply. With the strike over, at least
temporarily, and economic activity increasing, this would
appear to be a logical time to delete these words from the
consensus, where they have been, I take it,
since the
September 22 meeting. Aside from the other uncertainties
discussed, the current Treasury financing obviously calls
for continuing substantially the same degree of pressure
until the next meeting of the Committee, with no change
It
in the discount rate and no change in the directive.
would seem to me that the next meeting would be the time
to consider changing the directive, if there is a desire
between Treasury
to change it, because there will be a lull
In the meantime, I would favor maintaining
financings.
substantially the same degree of pressure, but I would like
to remove the resolving of doubts on the side of ease from
the consensus.
Mr.
Leedy reported that the steel strike had left
marked deterioration in
the Tenth District economy.
no signs of
Severe weather
11/24/59
-27
since the November
4 meeting had hampered some of the late harvesting
of crops, particularly in sugar beet areas.
was in good condition.
However, winter wheat
Insured unemployment continued to be below
the national level in each of the States of the district.
been a slackening in
There had
commercial and industrial loans since midyear,
although there was a substantial increase in nonguaranteed agricultural
loans to an all-time high.
Mr. Leedy then commented on a situation in
to the tax assessment date at the end of November.
Oklahoma relating
He explained that
the large oil and other companies withdraw sizable balances from Tulsa
and Oklahoma City banks,
and that those banks have worked out over the
years arrangements with their correspondents in
other areas to build
up balances with them to offset the loss of funds.
In anticipation
of that, the Oklahoma banks build up large balances in advance with
the banks accommodating them.
On average,
it would appear that they
maintain with correspondent banks about 25 per cent of the volume of
their reserve balances with the Federal Reserve Bank.
time, however,
At the present
they were maintaining balances roughly 30 per cent in
excess of their balances with the Reserve Bank.
The whole thing, of
course, would be washed out after the end of the month but it tended
to give a distorted picture as far as district banking statistics
were concerned.
Turning to policy, Mr. Leedy said it
seemed to him that the
System should not anticipate seasonal needs but should respond to
-28them as they might arise.
In his view, the System should neither
reduce nor increase the pressure on reserves; instead, he would
maintain the pressure at about the same level as maintained in
recent weeks.
He subscribed to the view that the Account Manage
ment should be given considerable leeway and that among the things
it
should take into account were both the level of net borrowed
reserves and short-term interest rates.
He would make no change in
the directive or in the discount rate.
Mr. Allen made the following statement with respect to Seventh
District developments and with regard to monetary and credit policy:
Since the last meeting our Bank has participated in
four of what can be termed business outlook conferences,
two in Washington and two in the Seventh District. The
opinions expressed were almost unanimous in pointing to
a vigorous upturn during the first
half of 1960. Few
believed that a turn in the trend of business could come
until the latter part of the year and some contended that
the entire year would see rising activity.
Steel production has increased more rapidly than
anticipated. The estimates which I quoted here, that
output would reach 32 per cent of capacity the first week
and 7 per cent the second week, appeared optimistic to
some, but actually the rate reached 46 per cent the first
week and probably 79 per cent the second week. Our sources
of information expect the industry to produce and ship 20
million tons of finished steel during the 80-day injunction
period, but they expect consumers to use up a like amount,
with no net addition to inventory. Assuming that the strike
is not resumed, they expect ingot production in 1960 of 130
million tons compared with 117 million tons in record 1955.
They say that ore supplies will be sufficient to achieve
that projection. Shipments of finished steel are expected
to total 94 million tons compared to 85 million in 1955.
That estimate projects a 9 million addition to inventory
in the first half and a one million addition in the second
half, which would mean consumption of 84 million tons
during the year.
11/24/59
-29-
The most important impact of the steel strike, current
or prospective, has been on the auto industry. But here too
production apparently will pick up more rapidly than was
expected.
Our Detroit friends say that by the third week in
December the steel and parts pipelines will be full and the
assembly plans really rolling.
They project November pro
duction of 250,000 cars, December 450,000, and 600,000
700,000 each for January, February, and March.
Achievement
of that projection will mean overtime operations starting in
mid-December.
A large national retailer of general merchandise tells
us that sales were excellent through mid-November, despite
the fact that some stores in steel-producing centers were
off 50 per cent from last year.
This firm now expects sales
in the first
half of 1960 to exceed the record sales of the
first
half of 1959 by 8 to 9 per cent.
They expect prices
of the merchandise they sell to move up about one per cent.
Commercial and industrial loans of our weekly reporting
member banks have declined for five consecutive weeks, un
doubtedly an effect of the steel strike and contrary to the
rise in business loans shown by all reporting banks in the
country. Thus, although other earning assets of Seventh
District reporting banks moved upward somewhat--mortgage
loans, consumer loans, Government security holdings, and
loans on securities--reserve pressures on most of our
central reserve and reserve city banks have moderated in
recent weeks.
In addition to the slack in business loans,
these banks have gained some demand deposits.
Time deposits
have shown little
change, in contrast to the decline at all
weekly reporting banks.
The basic deficit position of Chicago central reserve
Two large
city banks is heavily concentrated at one bank.
Chicago banks have sold Federal funds in unusually large
Outside Chicago we have
amounts during the past two weeks.
relatively few reserve city borrowers, but both the amount
of country bank borrowing and the number of country borrowers
Adverse weather has delayed
rose sharply in early November.
harvest and sale of some crops and the amount of credit tied
up in feeder cattle continues to increase, especially in
Iowa.
During the past three weeks, as I have given thought to
I have on occasion felt that perhaps we should
policy,
our
ease up a bit. And if I thought that the level of business
activity which we have at this particular moment would
continue for a time without change, then I would favor less
But in the light of the prospects set forth in
restraint.
11/24/59
-30
the Board staff's review, supported by what others here
and I myself have reported, I am unable to recommend a
move toward ease. Rather, I favor continuance as nearly
as possible of the degree of retraint
which has existed
during the past three weeks, and I see no need to suggest
to the Desk that errors, if any, be resolved on one side
or the other. I would ask that they try to keep things
as they are. I would not change the discount rate or
the directive.
Mr.
Deming said that for the past several months various
economic indicators had been signalling a lag in the rate of growth
in
the Ninth District compared with that of the United States as a
whole.
This divergence in
further in
trend appeared to have broadened somewhat
recent weeks as the cumulative effects of the summer
drought and strikes became more pronounced.
of increase from year-earlier trends in
For example,
the rate
bank debits and department
store sales had slowed down to a greater extent than for the nation.
District bank deposits, which earlier in the year were exhibiting
faster growth than in
the nation.
the United States as a whole, now were lagging
Nevertheless, bank debits, retail sales, and bank
deposits, and, for that matter, almost all other economic indicators
continued to show modest advances from a year earlier.
The most
notable exception was cash farm income which, in the third quarter,
was off 17 per cent from the third quarter of 1958 compared with a
drop of only 7 per cent for the nation as a whole.
of course,
Mr.
Farm income is,
an important factor in the Ninth District.
Deming said that changes in country bank figures in
October contrasted sharply with the usual pattern.
For the first
11/24/59
-31
time since monthly reports were initiated twelve years ago,
country
bank loans did not rise, and the deposit rise was the second smallest
over this period of time.
On the other hand,
city banks exhibiting
contraseasonal changes showed them in the opposite direction from
country banks.
Ordinarily their loans would be falling but they
showed practically no change.
Mr.
tion.
Deming then turned to an analysis of the iron ore situa
He said that in
the postwar period, excluding recession years,
ore shipments had ranged from 75 to 95 million tons.
Last year
shipments were 51 million tons, and this year they totaled 34.5
million tons up to the time of the steel strike.
How much it
would
be possible to get out during the period before the lakes closed was
still
a matter of conjecture,
lion tons in 1952.
1956.
Therefore,
but the record for November was 9 mil
For December,
the record was 1.5 million tons in
11 million tons would look to be as much as could
be expected for November and December under the most favorable
conditions,
and the outside limit to shipments this year would appear
to be about 7 million tons.
loading ships,
rail
shipments,
Considering the weather and slowness in
the outlook might be closer to 4 million tons.
As to
the record for an entire season was 4.3 million tons,
and there were not enough cars to haul much more than this amount.
One seemed to come out with the possibility that somewhere around
8 to 10 million tons might be shipped during the poststrike period.
11/2/59
-32
Added to the 34.5 million tons shipped up to the time of the strike,
this would mean a total of 42 to 45 million tons as against a low of
75 million tons for normal years.
Taking into account foreign
imports and the use of steel scrap, this might not add up to an ore
shortage.
On the other hand, the steel producers could run into
some difficulty before the mines opened up in the spring.
Mr.
Deming expressed the view that Mr. Mills' suggested amend
ment of the policy directive perhaps came closer to stating what the
Committee was doing at the present time than did the existing direc
tive.
However,
he was not prepared to support the proposed change
at this point because he was not prepared at this moment to mark a
change in
policy.
While he would not want to eliminate the idea of
having doubts resolved on the side of ease, he would like to be
prepared to move in
either direction as developments occurred.
The
betting seemed to be about even as to the direction in which the
Committee would want to move after the low visibility cleared up.
Like Mr.
Bryan, he was concerned about the lack of money supply
growth; this and various other factors made him unwilling to increase
the degree of restraint.
In summary,
Manager a great deal of leeway,
while he would give the Account
he would not increase the level of
restraint and he would continue to resolve doubts on the side of ease.
Mr.
Mangels reported that Twelfth District economic activity
continued at a good level.
October employment figures showed a slight
11/24/59
-33
decline in employment and a slight increase in unemployment, due
primarily to the continued layoff of aircraft workers.
In the
State of Washington alone the number of persons employed at aircraft
firms was 14,000 below the level at the first
there were encouraging factors.
of January.
However,
The Boeing plant had been awarded
the prime contract for a manned satellite unit and also was offering
jet airfreighters for delivery in 1961 which would carry 100 tons
of cargo at 3 cents per ton mile and would carry a 50-ton cargo
nonstop across the United States in 5 hours.
a backlog of orders for the airfreighter.
it
Boeing hoped to obtain
As to the steel situation,
appeared that for the week ending last Saturday production was at
80 per cent of capacity although Kaiser, the company with a two-week
start, was still at 71 per cent.
Lumber output in October and early
November continued at about the September level.
prices at $64
However,
plywood
were as low as the lowest level reached in 1958, a
figure that was getting close to the break-even point for the mills.
For the nine-month period through September, farm cash receipts were
within .5 per cent of the comparable 1958 period, and cattle on feed
as of the first of October were about 30 per cent higher than a year
ago.
There has been a large crop of wheat and the Commodity Credit
Corporation at Portland reported about 75 million bushels under its
ownership,
almost double the amount in
reduced outlets.
1957 and 1958, because of
Due to the problem of contamination, it
had been
necessary to destroy some 3 million pounds of cranberries in
11/24/59
-34
Washington and Oregon.
The Alaska salmon pack in 1959 totaled 1.8
million cases, the lowest since 1900.
Construction contracts con
tinued to decline in September, primarily because of a 16 per cent
drop in residential construction.
While this was attributed mostly
to the tightness of the mortgage market, there also seemed to be a
weakening of demand,
struction.
particularly for the multi-unit type of con
Department store sales continued somewhat higher than a
year ago, with the gain better in
the Twelfth District than for the
nation as a whole.
Turning to the banking picture, Mr.
loans were up $175 million in
11.
Mangels said that bank
the three-week period ended November
There was some increase in demand deposits but time deposits
were down $115 million, due primarily to the distribution of Christmas
savings club checks.
last week,
District banks were net buyers of Federal funds
and this week purchases were expected to be twice the
amount of sales.
Borrowing at the Reserve Bank was quite nominal.
Bankers expected many holders of Series F and G bonds to exchange
into the 4-3/4 per cent notes; some concern was expressed that an
increase in
the amount of notes outstanding would have a bad effect
on the market and perhaps cause some weakness.
Mr. Mangels said that he agreed with the policy views
expressed by Mr.
Hayes.
During the forthcoming period, he felt
11/24/59
-35
that the Manager should be given considerable leeway.
favor any particular change in
He would not
policy, but he would be liberal in
supplying funds for seasonal needs.
In the past three weeks net
borrowed reserves had averaged some $20 - $25 million less than in
the preceding three-week period, but he sensed that the degree of
tightness in the market had intensified.
On only two days did the
Open Market Account buy outright, although the volume of repurchase
agreements was substantial.
be greater if
than if
it
The effect of System operations would
the System was buying outright, Mr. Mangels believed,
made repurchase agreements.
He would not change the
discount rate, and for the moment he felt that the directive should
continue in
Mr.
its
present form.
Irons said that the situation in the Eleventh District
had not shown much change in
the past three or four weeks, in
for a longer period than that.
if
any, real effect in
Apparently the steel strike had little,
the district.
improvement; for example,
in
There had been some seasonal
employment,
unemployment,
store trade, and crude oil production and refining.
a 10-day allowable in
several months.
December,
fact
the first
department
There would be
break from nine days for
He got the impression from contacts with people in
the oil industry that the attitude was somewhat changed.
appeared to be reconciled to, if
They
not satisfied with, allowables in
the range of nine to eleven days, whereas two or three years ago
11/24/59
-36
oil men figured that par for the course was somewhere between
and 17 days.
14
Construction contracts were drifting downward, while
agricultural conditions were favorable.
The cotton crop was large
and wheat was in good condition, although the district had been
experiencing the unseasonable weather mentioned by Mr. Leedy.
On the banking side, Mr. Irons said there had been a slight
improvement in bank loans over the past three weeks,
ing some seasonal lending.
In general, however,
too much over the past few months.
possible reflect
loans had not changed
Bank investments were down.
It
was hard to get a picture for the district as a whole concerning the
liquidity position of the banks, and the situation almost had to be
The real liquidity squeeze was at the Dallas
presented by cities.
banks; their position was quite tight.
While those banks had not
been borrowing heavily at the discount window, they were using
Federal funds in
substantial amounts.
As a whole, Mr.
Irons said, the picture for the district
was one of steadiness at high levels of economic activity.
Although
there was some uncertainty as to what might come out of the steel
strike in
the long run, in
outlook prevailed.
If
general confidence as to the business
a tight defense budget should go through,
there might be some difficulties in relation to the impact on the
aircraft industry, but fortunately the district does not depend on
that industry.
-37
11/24/59
Mr.
Irons said he subscribed to Mr. Hayes'
regard to policy.
views with
He would give considerable leeway to the
Manager of the Account and would try to maintain the same degree
of pressure on reserves that had been maintained over the past
three weeks, meeting part of the seasonal requirements by means
of open market operations.
The effect would be some increase in
discounting as the banks moved in
make no change at this time in
to the seasonal period.
the discount rate or in
He would
the directive.
Mr. Erickson said that the New England manufacturing index
for September remained at the same level as in August, one per cent
below the June high.
Engineering News Record reported that engineering
type contracts were up 2
year.
per cent in October from the same month last
In the four weeks ended November 14, department store sales
were 4 per cent over a year ago, thus continuing to be less impressive
than the national figures which showed an increase of 6 per cent.
The October survey of mutual savings banks showed that deposits were
down from September,
which represented the first
decrease since October 1957.
month-to-month
Deposits were 5.3 per cent ahead of
October last year, whereas the year-to-year comparison had previously
been showing increases close to 6 per cent.
No doubt the "magic 5's'
were a large factor contributing to the situation in October.
There
had been only moderate use of the discount window and district banks
were substantial sellers of Federal funds.
11/24/59
-38
Mr. Erickson said he would favor no change in
rate or in the directive at this time.
the discount
For reasons enumerated pre
viously at this meeting, he would favor giving the Manager of the
Account broad latitude in
order to maintain the same degree of
restraint as during the past three weeks.
Mr.
Szymczak said he agreed with those who had expressed
concurrence in the views stated by Mr. Hayes.
He felt that at some
point the System might have to supply more reserves than it
been supplying,
would be.
had
but at present he did not know where that point
As suggested by Messrs.
Bryan, Mills, and Deming, the
System might have to add to the reserves of the banking system and
it
should get in position to do so if
Treasury financing,
necessary.
In view of the
he would avoid changing anything at the present
time, but the time might come when the System would have to do
something.
In this connection, he noted that the early part of a
new year generally tends to be rather dull as far as economic
activity is
concerned.
Chairman Martin said he shared some of the apprehension that
had been expressed about the money supply and the relationship of
credit to growth, but he did not believe this was the time to correct
it.
It
was,
however,
something to which the System should be alive.
The Chairman then said that clearly the consensus of this
meeting favored maintaining the status quo, with maximum flexibility
in the hands of the Manager of the Account to maintain the status
11/24/59
quo.
-39
He doubted whether the Committee could do anything much
different than that.
As he understood it,
Chairman Martin said,
the majority
of the Committee favored no change in the discount rate or in the
policy directive at this time.
Mr. Mills, he noted, had suggested
a change in the directive and presumably would want to have this
suggestion recorded in
the minutes along with his vote on the
directive.
Mr. Mills replied in the affirmative.
The Chairman then inquired whether there were any other
comments and, none being heard, he said that the directive would
be approved in its
present form with the record showing Mr.
Mills'
dissent,
Thereupon, upon motion duly made
and seconded, the Committee voted, with
Mr. Mills voting "no", to direct the
Federal Reserve Bank of New York until
otherwise directed by the Committee:
(1) To make such purchases, sales, or exchanges
(including 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 employ
ment opportunities, and (c) to the practical administration
-40
11/24/59
of the Account; provided that the aggregate amount of
securities held in the System Account (including com
mitments for the purchase or sale of securities for
the Account) at the close of this date, other than
special short-term certificates of indebtedness pur
chased 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 indebted
ness 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.
Chairman Martin then referred to the next item on the agenda
for this meeting, which contemplated further discussion of procedure
in
connection with the collection of statistics from Government
securities dealers.
He suggested that this item be tabled.
If
agreeable to the Committee, he said, Mr. Young would be willing to
undertake to go forward and try to work out something that could be
presented in the form of a recommendation at the next meeting of the
Committee.
No objection was indicated to this suggestion.
It
was agreed that the next meeting of the Federal Open Market
Committee would be held on Tuesday, December 15, 1959, at 10 a.m.
Mr.
Johns,
Hayes said it
that the latter's
techniques.
occurred to him, after listening to Mr.
comments pointed up a problem of open market
As he understood it, Mr. Johns had suggested, in
effect,
11/24/59
-41
that policy be allowed to develop within the three-week period,
depending on how credit demand might develop.
He (Mr.
Hayes) had
sympathy with this aim, but the problem was one of how to accomplish
it
within a three-week period.
It
seemed to imply a greater ability
than the Desk now possessed to measure what was happening to the
credit supply and in
credit demands within such a short period.
The
Account Manager had to rely largely on such things as the feel of
the market, interest rates, and discount window activity as rough
indicators of what was happening to credit demand in any three-week
period.
The question raised by Mr.
at this juncture he found it
Johns presented a challenge but
somewhat frustrating.
The meeting then adjourned.
Secretary's Note: Immediately following this meet
ing, Chairman Martin called a meeting of the members of
the Board and the Presidents who had attended the Open
Market meeting at which Messrs. Riefler, Sherman, and
Rouse also were present.
He referred to consideration
that the Board had been giving to the possibility of
implementing the legislation passed during 1959 relating
to member bank reserve requirements, by means of per
mitting the counting of a portion of vault cash as part
of required reserves.
Chairman Martin emphasized that
the Board had not acted on this question and that he
did not know whether the Board would decide that such
action should be taken in the near future. He inquired,
however, as to any comments the Presidents might have,
specifically, whether any of them envisaged a disturb
ing impact in the money market that would accentuate the
difficulty of open market operations if some such move
A number of the
were made prior to the year end.
Presidents indicated that they would favor some move
toward permitting a small part of vault cash to be
11/24/59
-42
counted as required reserves, while one or two others
commented that, on balance, they would concur in such
a move, but without enthusiasm.
Chairman Martin re
iterated that no decision had been made in this con
nection and that he did not know what, if any, action
the Board would take.
Secretary
Cite this document
Federal Reserve (1959, November 23). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19591124
@misc{wtfs_fomc_minutes_19591124,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1959},
month = {Nov},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19591124},
note = {Retrieved via When the Fed Speaks corpus}
}