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, January 24, 1961, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Hayes, Vice Chairman
Balderston
Bopp
Bryan
Fulton
King
Mr. Leedy
Mr.
Mills
Mr. Robertson
Mr. Shepardson
Mr.
Szymczak
Messrs. Treiber, Leach, Allen, Irons, and Mangels,
Alternate Members of the Federal Open Market
Committee
Messrs. Erickson, Johns, and Deming, Presidents of
the Federal Reserve Banks of Boston, St. Louis,
and Minneapolis, respectively
Mr. Young, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Thomas, Economist
Messrs. Brandt, Eastburn, Hostetler, Marget,
Noyes, and Tow, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Koch, Adviser, Division of Research and
Statistics, Board of Governors
Messrs. Garfield and Williams, Associate Advisers,
Division of Research and Statistics, Board of
Governors
Mr. Knipe, Consultant to the Chairman, Board of
Governors
Mr. Yager, Economist, Division of Research and
Statistics, Board of Governors
Mr. Petersen, Special Assistant, Office of the
Secretary, Board of Governors
1/24/61
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Mr. Wayne, First Vice President, Federal Reserve
Bank of Richmond
Messrs. Ellis, Mitchell, Parsons, Coldwell, and
Einzig, Vice Presidents of the Federal Reserve
Banks of Boston, Chicago, Minneapolis, Dallas,
and San Francisco, respectively
Mr. Garvy, Adviser, Federal Reserve Bank of New
York
Mr. Holmes, Manager, Securities Department,
Federal Reserve Bank of New York
Mr. Grossman, Economist, Federal Reserve Bank of
St. Louis
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
December 13, 1960, were approved unanimously.
Before this meeting there had been distributed to the members of
the Committee a report of open market operations covering the period
January 10 through January 23, 1961.
A copy has been placed in the files
of the Committee.
Supplementing the written report, Mr. Rouse commented as follows:
I should like to point out that because of the short inter
val since the last meeting of the Committee, we have not
prepared the usual detailed report covering this period. The
regular weekly report which was mailed to you on Friday covers
most of the period in detail and the summary report just placed
in your hands covers the highlights of the full period, and the
last three days in some detail. We expect to follow this same
procedure for the two-week period through the next meeting.
Since the last meeting, the money market has been
generally easy, although the bulge in float over the past week
end has created an abnormally easy situation for this statement
week. The level of reserves seems to have been reasonably
satisfactory, being above the averages for December.
Treasury bill
rates remained in the same general range as
in previous periods, although downward pressures developed at
times, particularly in recent days. The dealer market is
becoming aware of a resistance point around 2.20 per cent for
91-day bills and until yesterday there had not been sufficient
1/24/61
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buying, bank or otherwise, to push through that rate. The
strongest downward pressure developed yesterday before the
auction when last week's bills reached 2.18 per cent bid. The
bidding in the auction, which centered around 2.23 per cent,
was aggressive in that the rate was 1/8 per cent lower than a
week ago. At the close last night, last week's bills were
quoted 2.16 - 2.13. In view of this pressure, reflecting as
it did the very large amount of excess reserves accumulated
over the week end, the System Account sold $75.5 million of
Treasury bills and other short-term issues, as well as $33.5
million of Treasury bills to foreign accounts. Other System
action during the two-week period was confined to making
moderate amounts of repurchase agreements which subsequently
matured, and selling Treasury bills
to foreign accounts. The
Treasury's action in increasing the amounts offered in its
weekly bill
auctions by $100 million last week and by $200
million this week was also helpful in keeping the lid on the
Treasury bill
market.
The Committee will recall that some
weeks ago Mr. Thomas remarked that if free reserves were to
be maintained at $500-600 million, a decline in bill rates
below 2 per cent was inevitable. I think we all agreed with
this statement, barring variations in supply-demand factors,
psychological influences, and operations in other short-term
securities. We have been fortunate in these respects. How
ever, based on our projections the System Account will have
to enter the market as a buyer before the next meeting of
this Committee, putting additional pressure on the market
and almost assuring a decline in rates such as Mr. Thomas
mentioned. We can try to avoid such a decline by buying other
than three-month Treasury bills, but it may turn out that the
choice will have to be between a bill rate below 2 per cent
or lower levels of free reserves.
The reduction in the discount rate at the Deutsche
Bundesbank from 4 per cent to 3-1/2 per cent is encouraging
as an indication of further support to the United States
balance-of-payments position. Apparently as one result, the
British Treasury bill
was reduced to about 4.09 per cent
before the week end, so that the spread in favor of those
bills, with exchange risk covered, remains around 1 per cent
despite the decline in U. S. Treasury bills. The long-term
market for Government securities showed a mild spurt in
reaction to the German move, but this market continues to be
sluggish and cautious, in view of the same factors that have
affected it
for some time,
i.e., expectations for a business
pickup in the near future, uncertainties over the inter
national situation, and uncertainties as to the policies to be
pursued by the new Adminstration.
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The next Treasury financing operation will be the
refunding of the February 15 maturity of $6.9 billion 4-7/8
per cent certificates, of which the System owns about $3.6
billion. The initial question is whether the Treasury
should refund through the normal exchange operation or adopt
a cash refunding plan such as was last used in July 1960.
One of the main objectives of the cash refunding technique
is to enable the Treasury to curb speculative excesses in
connection with refundings.
There seems to be no need for
protective measures of this kind at the present time, and
it was evident last July that there were same serious
objections to the cash refunding technique on the ground
that it did not give regular holders of the short-term debt
a fair opportunity to roll over through an exchange.
However,
there is something to be said for using the cash method
occasionally just to keep the market alert to this possibility
and to keep the "rights" value out of short-term rates. At
the moment, the maturing February issue is traded without
any significant premium for "rights" value, indicating that
the market is waiting to see what the Treasury will do.
Although the market is not buoyant, the Treasury should not
encounter undue difficulty with this refunding.
In response to a question, Mr. Rouse said that dealer awards in
yesterday's Treasury bill
auction were about normal.
continued to be very high, however.
Dealer positions
In this connection, he called
attention to certain charts, attached to the report on open market
operations distributed before this meeting, which related to dealer
positions and money market rates.
Thereupon, upon motion duly made and
seconded, the open market transactions
during the period January 10, 1961, through
January 23, 1961, were approved, ratified,
and confirmed.
The economic review at this meeting consisted of a visual
auditory presentation,
in which Messrs.
Noyes, Marget, Williams, Garfield,
Koch, and Young participated.1/
The presentation, which highlighted
developments of the year 1960, contained sections on the balance of
payments,
changing demands for goods and services, the effects of
changing private and governmental demands on industrial activity and
prices, and financial developments.
The concluding portion of the
presentation was as follows:
The aim of this morning's presentation has been simply to
review the principal facts relating to economic developments
in 1960. We have not tried to fit these facts into any theory
of business cycles or of growth; nor have we attempted to
assess the prospective impact of fiscal, monetary, or other
Government policies on economic developments.
In concluding
the presentation, we shall not attempt an advance review of
1961 or any analysis of alternative policies with regard to
the problems which the country now faces.
Nevertheless, still
holding to the spirit of the presentation, we can make a few
observations which may be of some help in thinking about the
implications of the present situation for the future.
The situation at the beginning of 1961, it is evident, is
quite different from that at the beginning of 1960, different
enough to make it clear that changes during 1961 will differ
widely from those of 1960. In particular, the $15 billion
shift from rapid inventory accumulation at the beginning of
1960 to liquidation at the end of the year will not be repeated.
While liquidation may be faster for a time than the estimated
$4 billion rate of the fourth quarter, any further downward
pressure from this source will be relatively small. At some
point, moreover, inventory liquidation will stop and if past
experience is any guide this point should come sometime in the
not too distant future.
On the other hand, net exports are
now at a sharply advanced rate and may turn down sometime in
1961. It will be important that no accentuation of the
existing balance-of-payments problem result from this develop
ment. To avoid such a result will call for determined efforts
to restore full confidence in the dollar.
The course of final domestic demands suggested by recent
developments varies from continuing increases for State and
local governments similar to those in 1960 to declines, at
least early in the year, for plant and equipment. The actual
balance of all changes in domestic final demands of government,
1/
Messrs. Garfield and Williams withdrew from the meeting at the
conclusion of the economic presentation.
business, and consumers will largely determine how soon the
decline in activity will end, how soon thereafter recovery
will begin, and how far the recovery will go.
It will be recalled that in 1958 recovery began immedi
ately after the decline ended whereas in 1954 the end of the
decline was followed by about six months of little
change.
One feature of developments in 1954 was a continuing
decline in defense outlays to a new level lower than that
prevailing before the end of the Korean War in mid-1953.
Basic questions concerning the underlying strength of
demands in relation to available resources have been raised
by several developments.
A year ago, even though inventories
were being accumulated at a near-record rate, unemployment
did not fall to as low a level as in 1957 or 1953; the lowest
rate was just below 5 per cent as compared with less than
4 per cent in 1957 and less than 2-3/4 per cent in 1953.
Again, the downturn started sooner this time, and it
started before inventories had reached as high a level in
relation to sales as in 1957.
In the housing field, vacancies have been risingalthough the latest report shows no further increase--and
observers are wondering whether present demand conditions
will facilitate a recovery in housing starts as in 1958-59
and 1954-55.
Similarly, with plant capacity greater in relation to
demand than earlier in the postwar period, can plant and equip
ment outlays be expected to stop declining soon and advance
to higher levels than in the past? The answers to such
questions are not simple; recent capital outlays, for example,
have been much more for modernization than for plant expansion
and the level of outlays for improving techniques of production
and developing new products has reached a new high.
Study of any one of these problems reveals many inter
relationships and many connections with the past, some with
the past at least back to the war period. The present U. S.
balance-of-payments problem, for example, is a sequel to a
set of balance-of-payments problems successfully resolved
by our trading partners abroad, partly through the new
American policies embodied in the Marshall Plan and partly by
a decade and a half of rebuilding and stabilization undertaken
by the war-torn countries themselves.
The present easier
supply situation, with substantially reduced expectations of
inflation in this country, has also come about over a long
period. Recognizing that many uncertainties must be
dissolved as the future takes its shape, the staff presentation
today has focused on the facts of the present and the recent
past in order to throw some light on possible developments
over the year ahead.
It was understood that a copy of the text of the economic review
and the accompanying charts would be placed in the files of the Committee
and that copies would be sent to the members of the Committee and the
Reserve Bank Presidents not currently serving on the Committee.
Mr. Hayes then presented the following statement of his views on
the business outlook and credit policy:
Such additional business statistics as have become
available in the last two weeks point to a continuing decline
in activity, with no evidence that the bottom has yet been
reached.
Of particular concern is the further rise in seasonally
adjusted unemployment to nearly 7 per cent in December, and the
seasonal peak in joblessness in absolute terms still
lies ahead.
December developments included not only widely diffused declines
in employment and industrial production but also further weakening
in personal income and retail sales, besides a sharp drop in
new housing starts which may have been partly attributable to
unusually bad weather.
Among the few brighter spots now discernible are the con
tinued strong export surplus, indications of greater availability
of mortgage money, which might have a favorable effect on
housing trends, slight signs of improvement in steel production
and orders, and the fact that business confidence is apparently
holding reasonably high. There seems to be no evidence that the
business decline has been feeding on itself to an alarming
extent, with the principal downward pressure still
apparently
coming from inventory cutbacks.
As for credit developments, there is increasing evidence
that monetary ease is making a contribution to cushioning the
business decline and facilitating--though not sparking--a new
advance.
Commercial bank credit rose by a record amount in
December, reflecting strength in both loans and investments; and
the total rise in bank credit for the full year, attributable
mainly to heavy acquisition of Government securities by banks
during the second half, was far higher than in most recent years,
although far below the 1958 gain. Bank liquidity improved
considerably in December and for the full year--in New York as
well as outside of New York. While loan-deposit ratios are
still
relatively high by historical standards, they have
improved somewhat. The improvement may be greater than the
index indicates, for included in the loans are increased
holdings of relatively liquid dealer loans.
Total and nonborrowed reserves showed gratifying gains
from the early 1960 lows through the end of the year. In
contrast with the sluggish recovery of the money supply proper,
total nonbank liquid assets have risen at the annual rate of
3-1/2 per cent since the May trough--a rate almost equal to the
average annual increase of the last decade.
Despite the highly favorable foreign trade situation, the
balance-of-payments deficit and the outflow of gold have
continued at disturbingly high levels. While the London gold
price dropped sharply after the issuance of the Presidential
order prohibiting United States citizens from holding gold
abroad, it is clear that there is still
a good deal of
nervousness about the dollar in European financial markets.
Thus, we cannot indulge in any relaxation of our intense
concern over this sensitive area.
In the current setting, and for the next two weeks, it
would appear that the System would have little
choice but to
pursue the present policy of "keeping steady in the boat."
Bearing in mind the weak business picture, which calls for
monetary ease, but also the balance-of-payments problem--and
the important need to give the new Administration at least a
breathing space to clarify its position and program on this
and other major economic issues, I believe our open market
policy should continue to aim at providing the banking system
with ample reserves but not flooding it with reserves to the
extent that short-term rates would be pushed lower. In fact
I would think it of overriding importance, with respect to
immediate policy objectives, that short-term market rates, and
especially the three-month bill
rate, be maintained at or above
the general level prevailing in the last couple of weeks.
I
think it is very important also to hold the line on the discount
rate, especially as the German central bank has just demon
strated its desire to cooperate by cutting its own bank rate
in an effort to narrow the rate differential. During my recent
trip to Basle, many of the central bankers expressed the
fervent hope that this country would not undermine this spirit
of cooperation in the delicate payment situation by allowing
our own rates to drop at the same time.
I see no need to change the Committee's directive at this
time.
While the immediate policy problem for the next two weeks
does not seem too difficult, I hope that the Committee will
be giving careful attention to some of the broader questionslong term in their implications, but highly relevant to the
United States economy in 1961--concerning the role of the
central bank in influencing the entire interest rate structurebesides the availability of bank reserves--in carrying out its
broad responsibilities in promoting the sound growth of the
economy. Certainly, in an economy striving to realize its
potential in fuller measure, a good deal of attention must be
given to the cost and availability of long-term funds. At
the same time it seems quite possible that in the future we
may be faced more frequently with a situation in which
business fluctuations in this country are out of phase with
those in the principal countries abroad, and in which interest
rate differentials and attendant short-term capital flows are
a problem. All of this suggests that the Federal Reserve
System should demonstrate a willingness to be highly flexible
in the development and application of its techniques for
influencing credit flows and liquidity. There is always a
risk that Treasury debt management may be assigned the role
of stepping into a breach that the System has failed to fill,
with consequences that might aggravate future problems of
the System and the Treasury.
Decisions by the new Administration in the area of fiscal
policy will, of course, have an important bearing on our own
problems and policies. While the Government's approach in
this area seems commendably cautious, there is always a
possibility that new fiscal measures could create an exces
sively large deficit, with consequent difficulties in the
monetary sphere. I am sure we shall all follow with interest
the proposals for greater flexibility of fiscal policy through
variable tax rates, with the attendant possibility of a greater
measure of coordination between fiscal and monetary policies.
This is a time when readiness for experimentation seems
to be "in the air." I would hope that the System, without
abandoning any of its basic principles or objectives, could
demonstrate that its policies and practices have not become
frozen but can be adapted to meet changing needs.
Mr. Johns said that there appeared to be no significant dif
ferences between the state of business and economic activity in the
Eighth District and in the country as a whole.
Because of the
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1/24/61
diversification of business in the area, the District usually tended
to be not quite as sensitive to fluctuations and changes in economic
activity as the nation generally.
However, at least in the metropolitan
and other highly industrialized areas, this did not seem to be the case
at the present time.
In those parts of the District where agriculture
is the predominant influence, people appeared to be feeling rather good,
except, of course, for the automobile dealers.
good, and it
Last year's crops were
was far too early to make any kind of guess about this
year's crops.
On the other hand, even in the smaller communities where
industrial plants were located, there was a good deal of concern about
slack conditions and unemployment, which was reflected in retail
activities and otherwise.
In St. Louis, where automobile assemblies
had become more important in recent years, the unemployment situation
was bad and deteriorating.
In addition to the cutbacks more or less
prominently publicized as inventory adjustments, there had been some
temporary lay-offs, such as in Chrysler and Ford plants, for a week
at a time now and then.
In the Louisville area, activities at the
General Electric appliance park were still contracting.
No signs of
pickup in residential construction were discernible in the metropolitan
areas.
Mortgage money seemed to be somewhat more available, but as yet
there had been little change in rates.
At a meeting of the Louisville
Branch directors last week, the opinion was expressed that no substantial
pickup in residential construction in that area was reasonably to be
1/24/61
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expected.
Banking developments in the District resembled national
developments so closely as hardly to warrant any detailed comment.
With regard to the two-week period ahead, Mr. Johns said that,
all things considered, he continued to hold the view he had expressed
two weeks ago, namely, that the policy directive, which called for
encouraging some further expansion of bank credit, was correct.
In
this connection, he wished to emphasize, as he had done at the January 10
meeting, that he was advocating moderate expansion and not great
aggressiveness.
It was his view that the reserve projections supplied
in a memorandum from the staff dated January 23, 1961, might appropriately
be used as a guide.
The projections as to total reserves needed were
based on the maintenance of excess reserves of $700 million, and he
felt that there should be some modest increment in total reserves.
For this purpose, he would suggest as a reasonable target the figure of
$50 million mentioned by Mr. Bryan at the January 10 meeting.
Mr. Bryan said that there were almost no new figures to report
from the Sixth District.
As far as he could judge, however, nothing
significantly different was happening in the District than in the
nation.
As to the national picture, it was his conviction that although
the deterioration of the economic situation was not at all drastic,
nevertheless it was continuing and in all likelihood the situation
would get a bit worse before it
got better.
In such circumstances, he
felt that a moderate contracyclical policy was appropriate.
As Mr. Johns
-12had said, emphasis should be on the word "moderate"; the situation did
not seem to call for dramatic actions.
He was quite pleased with what
had happened, vis-a-vis the reserve and other figures, since the
January 10 meeting.
Mr. Bryan noted that in the staff memorandum of January 23,
previously referred to by Mr.
Johns, question had been raised as to
whether expansion of the money supply at an annual rate greater than
the 2 per cent rate that had occurred roughly over the past six months
might not be appropriate.
His answer would be that in a situation
where the System was following a contracyclical monetary policy, a
somewhat greater rate of expansion would be appropriate,
and that the
System should furnish the reserves necessary to permit such further
expansion, either through bank loans or investments.
In this connection,
the memorandum also raised a question as to whether, in view of the
new vault cash situation, the $500 million figure that previously had
seemed to be the minimum practicable figure for excess reserves
continued to provide an adequate benchmark.
His inclination would be
to think that the amount may have increased somewhat, but he did not
know by how much; perhaps it
would be only a few tens of millions of
dollars.
In summary, Mr. Bryan said, his inclination was to agree with Mr.
Johns that a modest increment to the projection of total reserves needed
should be provided.
Whether an increment of $50 million would be modest
1/23/61
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or not, he did not know, but he was inclined to settle for that figure
as a reasonable target.
Mr. Bopp reported that Third District conditions continued
relatively unchanged during the past two weeks.
In other words,
they
continued to be about as unsatisfactory as he had reported at the
January 10 meeting.
One mildly heartening factor was that steel mill
operations in the District were at a little
the country as a whole.
not high.
better rate than that for
Even so, however, the level certainly was
Department store sales continued to be fairly good, and the
unemployment situation, although bad, did not seem to be getting worse.
From the point of view of the domestic economy alone, Mr. Bopp
said, it
would appear appropriate to provide whatever monetary ease
was possible.
However,
in view of the balance-of-payments situation,
it seemed that there was little room to do much more than had already
been done.
He would not favor changing the directive or the discount
rate at this time, and in his opinion open market operations should
be conducted with a view to maintaining about the present degree of
ease in the market.
Mr. Fulton said that the picture in the Fourth District was
one of continued doldrums, even more so than in December.
The factor
that had contributed a further downward push seemed to be the abrupt
falling off of automobiles sales.
however, it
In some other sectors of activity,
seemed as though the downward drift might be leveling off.
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1/24/61
Proceeding to a more detailed review of District developments,
Mr. Fulton reported that there had been a seasonally adjusted increase
of 3.5 per cent in unemployment in the most recent month, but that
department store sales for this year, to date, were 12 per cent above
the same period a year ago.
Another possible "straw in the wind" was
that a large plant supplying twist drills to the manufacturing industry
claimed that the decline in its orders had halted over the past couple
of months.
Steel mill operations had increased slightly from the very
low rate of December, but the industry was still
However,
in the doldrums.
in primary metals, fabricated metals, and machine production,
excluding transportation equipment,
have been reached.
it
looked as though the bottom may
Also, although there had been no upturn as yet,
manufacturers of appliances appeared to feel the same way.
Price-cutting
was reported to be getting severe, however, and not much hope was seen
for an improvement of profits.
Construction, except for residential,
had been holding up quite well, largely in the public sector.
On the
other hand,
automobile companies had been cutting back their production
schedules.
They at first indicated they were going to produce about
450,000 units in January, but this was cut back to 434,000, and for
February it
produced.
was anticipated that only about 430,000 units would be
Inventories of over one million cars were proving to be
rather unwieldly.
Surprisingly, there did not seem to have been any
substantial cutback in plans for plant and equipment expenditures,
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even in the steel industry.
expenditures contemplated,
credit to improve its
it,
As an illustration of the type of
one smaller company had arranged for a
mill facilities in a manner that would enable
without any increase in the price of steel, to work profitably at
a 50 per cent operating rate.
The new facilities would also enable
the company to eliminate about 2,400 men from the work force, which
indicated why the District might be getting into a chronic condition
of underemployment.
Turning to interest rates, Mr. Fulton told of having been
informed that insurance companies in
the District and elsewhere had
been experiencing a considerable build-up of funds.
At some point
this situation should exert a downward pressure on yields.
In other
words, although one could not say how soon that might occur, the
ingredients were there for a downward push on longer-term rates
without any activity on the part of the System in
market other than those in which it
sectors of the
had been operating.
Mr. Fulton suggested a possible change in the policy directive,
noting that the last previous change,
in October 1960, merely added a
reference to international developments,
clause (b)
period.
and that the other part of
had not been changed substantially for a considerably longer
A change such as he had in mind would not require a further
change in policy at this time, but he felt
that it
would serve to
recognize better the present posture of monetary policy.
Specifically,
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1/24/61
his suggestion would be to eliminate the words "sustainable growth in
economic activity" in clause (b) and substitute "economic recovery."
He would not favor changing the discount rate at this time.
Mr. King said the suggestion that the System remain steady in
the boat seemed to him to be a good one.
This was a time, he felt,
to ponder any possible contribution that the System could make toward
maintaining confidence in the stability of the dollar.
Not only
people in this country, but people abroad with a vital interest in the
strength of the dollar, would be watching every action of the Federal
Reserve with great interest, and this led him to think that it
might
be possible to obtain a lot of mileage out of relatively modest actions.
Most people, he thought, did not believe that the ills
of any economy,
certainly the American economy, could be corrected by printing more
money, and any move,
even though small, that the System could make on
the other side should be beneficial from the standpoint of maintaining
confidence in the dollar.
or extreme.
However,
if
He would not suggest doing anything radical
the matter were approached from the standpoint
of a choice between lower free reserves or a lower bill
rate, he would
accept lower free reserves, even if they dropped to the vicinity of
$400-500 million.
He would hope that a relatively easy atmosphere
could be maintained in the credit market without having the bill
go lower, and his own preference would be to see the bill
somewhat if
that was at all possible.
rate
rate move up
In the circumstances,
he would
1/24/61
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be willing to conduct further operations in short-term securities,
other than bills, in the 15-month maturity area if that would offer any
possibilities.
In substance, if the System moved even slightly in the
direction indicated, he felt that perhpas it could get a lot of mileage
out of its actions in terms of confidence in the dollar; and with the
economy in a state of stagnation, he believed that serious consideration
should be given to trying to get whatever mileage was possible.
Mr. King went on to say that he realized the System was trying
to walk a narrow path, but that he wondered whether the path had been
as narrow as it should be.
He noted that some who had formerly criticized
System policy as being too tight were now criticizing it as being too
easy, which led him to wonder whether the System might not have swung
a little too far on the side of ease.
bias against high interest rates,
Although he had a built-in
per se,
in
the present circumstances
he was inclined to feel that any strengthening of rates probably would
do more to promote confidence than if
the System continued to play along
the lines that it had been following.
Mr. Shepardson commented that some of the figures that had been
reported, including those on unemployment, did not look too encouraging.
On the other hand, he wondered whether present attitudes might not
reflect seasonal influences to a considerable extent.
over the past several years,
this
it seemed to him that
time, with the exception of last
Thinking back
every year about
year, there had been considerable
1/24/61
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concern expressed.
Accordingly, he thought it
would be a mistake at
this point to attempt to push further toward ease.
The manner in which
savings were continuing to build up indicated that it was not a lack
of money but a lack of values or a lack of confidence that was causing
people to restrict their spending.
if
The money was there, apparently,
the people wanted to use their savings.
He did not think that any
thing would be accomplished by moving toward further ease,
and that
instead such a move would have an adverse effect on confidence in the
dollar.
Reflecting his concern about maintaining confidence, he hoped
that there might be some little
recovery in the bill
rate.
His
preference would be to maintain about the degree of ease that had
prevailed generally over the past period, and to let time and seasonal
factors work a little.
Aside from the usual seasonal factors to be
considered, this year there were also the uncertainties associated with
the change of Adminstrations, and the new Administration had not yet
had time to indicate what policies it would elect to follow from
among the many that had been suggested by various task forces.
In
summary, he would remain steady in the boat, and he would hope that,
if possible,
there might be some little
improvement in the bill
rate.
Mr. Robertson commented that everyone around the table was
equally concerned about maintaining confidence in the stability of the
dollar.
However,
some felt that primary importance should be attached
to the domestic economy, while others thought that primary importance
1/24/61
-19
should be attached to the international picture.
been well expressed by the statements of Messrs.
in combination.
His own views had
Johns and Bryan, taken
He believed that the best use of monetary policy at this
particular time, in the light of the state of economic activity, which
certainly showed no signs of moving upward, would be to provide a
moderately greater degree of ease, even if the bill
lower than 2 per cent.
rate should fall
The rate of 2 per cent had been mentioned as
kind of a floor for the purpose of determining the appropriate volume
of reserves.
However, he would not be too concerned if the bill rate
moved down; he doubted that the bill rate was the proper guideline
for the establishment of monetary policy.
Consequently, he would
move in the direction he had indicated.
Mr. Robertson said that he saw no need for a change in
directive, because he felt that it
the
contained ample latitude for the
kind of policy currently being followed or for the policy that would
be followed if his views were accepted.
He would not object to
eliminating the word "sustainable" from clause (b), but the
taking out of that one word might create difficulties of under
standing more than it
would accomplish anything.
With reference to the comments that had been made to the effect
that the System should keep itself in a posture of flexibility, Mr.
Robertson said he thought everyone around the table would agree that
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1/24/61
the System should be flexible.
This was a time of change, and the
System should show that it could gear its actions to the needs of the
day.
This did not mean, however, that the System should jump in
panicky fashion from one position to another merely to avoid the charge
of being doctrinaire.
Instead, flexibility should be based on views
and principles that had been thought out well.
This was more important
than avoiding any charges of being doctrinaire.
Mr. Mills said that, as he interpreted the economic review
presented to the Committee today, it placed primary emphasis on the
balance-of-payments problem of the United States.
This caused him to
refer to the point of view that he expressed to the Committee same six
weeks ago; namely, that it
is
not possible or practicable for the Open
Market Committee to attempt to conduct a monetary and credit policy
that will attempt to foster monetary expansion and growth in the economy
at the same time that action is necessary to protect the integrity of
the dollar in international markets.
reinforced his views.
Evidence since that meeting had
He believed that the ease that had been
injected into the position of the commercial banks through supplying
reserves had given visible proof that an abundance of reserves at a
time of receding business activity does not serve to promote economic
growth or expansion, or even the expansion of credit except as additions
are made to commercial bank protfolios of United States Government
securities.
Under present circumstances,
that seemed to him a rather
1/24/61
-21
weak reed upon which to lean, particularly if at the expense of
producing a climate damaging to the essential efforts that should be
made to preserve international respect in the integrity of the dollar.
As he viewed the shape of economic developments,
depression rather than recession.
they suggested
Such being the case, it
followed
that the injection of reserves was not going to turn the economy
immediately toward expansion.
Along that line, he recalled that one
of the charts used in today's presentation, which showed positive free
reserves and negative free reserves over a period of years, indicated
that after each of the periods when there was a sustained appearance
of positive free reserves there was a succeeding period of unwise
expansion of bank credit and an involvement of the Federal Reserve System
in the difficulty of restraining inflationary pressures.
He noted that
fact only in the light of experience and because of the possibility
that the tone of the discussion today and at previous meetings suggested
a temptation to repeat what might be the same fatal error.
He had
great sympathy for Mr. King's observations about international confidence
in the dollar, and he saw a necessity to move drastically to preserve
respect for the dollar.
Admittedly, there were grave risks in doing so,
involving the possibility of spreading the depressive influences in
this country to abroad.
However, since the dollar is the linchpin in
the scheme of international currencies, in his judgment protection of
the dollar was vital.
Personally, he believed that the System had
1/24/61
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allowed the time for action to drift, and that when any action was taken
it would lack the effects that should be expected from it.
This would
inevitably leave the System in a position of having to depend on
Providence rather than on conscious monetary action designed to deal
with the balance-of-payments problem.
Mr. Leach said that no significant change in the general
condition of Fifth District business during the past two weeks could
be discerned from the information available.
unemployment were somewhat more than seasonal.
Recent increases in insured
January clearance sales
appeared to be sustaining or improving the relatively good level of
business, seasonally adjusted, that most stores had in December.
District automobile dealers, however, generally reported disappointing
sales for the past few weeks.
Since the last meeting of the Committee,
a distinct ease had continued to characterize District banking as
weekly reporting member banks continued to increase their liquid invest
ments without borrowing.
With respect to policy, Mr. Leach said he thought this was
clearly no time to rock the boat.
considerations,
To him, national and international
which were fully discussed at the meeting two weeks
ago, called for a continuation of the same degree of ease that had
been the objective for several weeks.
It might be too much, he said,
to hope that short-term interest rates would continue at existing levels.
1/24/61
-23
However, he thought the Manager of the Account should be careful to
do what he could, within the terms of the Committee's instructions,
avoid any appreciable reduction in the ninety-day bill
rate.
to
By this,
he meant buying other short-term Governments when this was practicable
and not resolving doubts on the side of ease.
He doubted that a few
more reserves would materially improve the economy, and he believed a
sizeable reduction in the ninety-day bill
rate could prove harmful.
This did not mean that he would subordinate System policy to the bill
rate.
What he was advocating was continuation of the same degree of
ease, while keeping an eye on the bill rate, avoiding exessive ease,
and buying short-term securities other than bills when practicable.
Thus, it might be hoped that the bill rate would not go down, at least
very much.
Mr. Leedy said there had been no developments in the Tenth
District since the January 10 meeting that seemed to require a report.
It
appeared to him that the System bad two fundamental responsibilities,
neither of which it could escape.
First, the System had a responsibility
to make whatever contribution it could toward the recovery of the
domestic economy.
Second,
it
should not contribute to further
deterioration of the problem with respect to the balance of payments.
Although it
was difficult to reconcile these two things,
it
seemed to
him each of them was part of the System's total responsibility.
optimism that appeared to prevail at this particular time in the
The
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1/24/61
markets, and on the part of analysts, as to an early reversal of the
present trend was an element in the System's favor.
psychology tended to give the System a little
might otherwise be the case.
As he saw it,
This kind of
more elbow room than
a further easing of the
reserve position of the banks would contribute nothing at all.
There
fore, for the period ahead, he would suggest that the System simply
avoid tightening the reserve position of the banks materially.
If
some additional reserves were required, those operations should be
undertaken in the part of the longer-term area in which the Committee's
operating policies permitted operations to be conducted.
He would be
concerned about any further deterioration of the bill rate.
as the bill
As long
rate remained substantially in its present area and as
long as the Federal funds rate remained moderately below the discount
rate--and certainly it
had been far below in the past few days--a
nominal sliding down of free reserves would not disturb him.
In
summary, for the period until the next meeting he would prefer to
sit
quite steady in the boat and follow policies such as he had out
lined.
Mr. Allen reported that automobile manufacturers had privately
revised their sales estimates for 1961 down to 5,500,000 cars,
400,000 imports.
including
Accordingly, with inventories again over 1,000,000
production schedules were being further reduced, and January output was
now estimated at 430,000 units, the lowest January since 1952.
February
1/24/61
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and March were currently figured at 450,000 and 550,000, which would
make a total of 1,430,000 for the first
year ago.
quarter--29 per cent below a
However, with the high inventories, and even assuming that
the industry would be content to continue with them right up until
the expiration of labor contracts on August 31, sales would dictate
production schedules.
And, as he had said, sales predictions were
not encouraging.
Mr. Allen went on to say that unemployment compensation claims
in the Seventh District had been heavy in recent weeks.
The automotive
cutbacks had been largely responsible, but there was evidence that
production of most types of industrial machinery and equipment also
was being reduced.
However,
in the midst of a generally gloomy
picture there were a few signs of improvement in order trends.
of steel strapping, farm and construction machinery,
Producers
and appliances
indicated that orders had improved in recent weeks, as did die shops,
but these reports were too fragmentary to signify a general rise in
activity.
District department stores were having a good January, with
sales nicely above a year ago, and in the past four weeks Sears
Roebuck sales, seasonally adjusted, were the highest since the record
level of last April.
District banks reported further weakening,
seasonal,
in the demand for bank credit.
apparently more than
Total loans of reporting banks
declined $275 million, and business loans $50 million, in the first
two
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1/24/61
weeks of January.
There did not seem to be any reserve pressures.
The Chicago central reserve city banks were currently showing a basic
deficit position of around $50 million, but that was more than accounted
for by one dealer bank.
Other money market banks had been consistent
sellers of Federal funds in sizeable amounts.
Although their positions
had eased, the banks had shown no inclination to buy intermediate
Governments,
although they continued to increase their portfolios of
municipal bonds.
In the week ended January 18, reporting Chicago banks
purchased $70 million of Treasury bills but sold a larger amount of
one- to five-year Government issues.
After summarizing certain observations that were made at the
meeting of the directors of the Detroit Branch last week, Mr. Allen
said he agreed with the expressions that had been heard this morning
about the importance of confidence in money and financial matters, at
this time particularly.
His own view as to the best course to follow
in the interest of maintaining confidence was to sit steady in the
boat,
as some had expressed it.
Therefore,
he would not change the
directive, the discount rate, or the degree of ease at this time.
Mr.
Deming said that relative to a year ago Ninth District
economic indicators pointed to better gains than did those for the
nation.
The December-to-December change in District debits was plus
1-1/2 per cent in
contrast to minus 1 per cent for the nation; Minnesota
personal income was up 4.8 per cent against a 3.2 per cent gain nationally.
-27
1/24/61
In large part, the District's favorable picture reflected a good farm
year, with net farm cash income estimated at 10 per cent higher than
in 1959.
The stronger District gains in 1960, however, were partly illusory,
for they were measured from a relatively weak 1959 base.
It probably was
more accurate to say that in 1960 the Ninth District merely came back on
the same track on which the nation was running in both 1959 and 1960, and
that the immediate future prospects for the District were not significantly
better or worse than those for the nation.
District banking had shown substantial improvements in liquidity
in recent weeks, reflecting both diminished loan demand and rising deposit
totals.
Relative to earlier years, however, the liquidity measures did
not look so favorable.
Mr. Deming commented that in the past two months he had visited a
number of countries in Asia and Europe, and had talked with a number of
people.
He then reported briefly on some of his findings, as follows:
1. The question of the value of the dollar is of no
particular consequence in Asia, although the question of
our balance of payments is of considerable consequence
because the Asians fear that it may lead to some dimi
nution in aid. There has been some feeling of uncertainty
about the value of the dollar in Hong Kong, and perhaps
some in Bangkok and Bombay, but it does not at present
seem to be very serious.
2. There is considerable concern about our balance
of payments and about the value of the dollar in Europe,
although that concern has lessened recently. The Europeans,
however, are watching very closely to see what is done in
1/24/61
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this country, and the concern could grow quite rapidly if
they interpreted statements or policies in the United
States as indicating too much of an easy money approach
to our domestic difficulties.
3. The interest rate differentials between the
United States and other countries have led to very
substantial movements of funds, and these movements
have been intensified by the concerns noted above,
which have made other currencies and gold relatively
more attractive.
4. In summary, I would say that there is a rather
delicately balanced confidence in the dollar which is
the product of (a) the record of the dollar as a hard
and a reserve currency, plus the presence of a still
huge gold reserve, plus the recognition that we do not
need to devalue, and (b) the psychological or emotional
feeling that perhaps the above points are not completely
conclusive.
That delicate balance could be lost rather
quickly.
Mr. Deming noted that it
had been said that the System was facing
a policy dilemma because of the balance of payments and the course of the
domestic economy.
He does not see it
economy certainly was not buoyant,
quite that way, however.
but neither was it
The domestic
waterlogged.
The
System had put a fair amount of liquidity into the banking system, and the
banks did not seem to be suffering from lack of funds to make loans or
invest in
securities.
On the other hand, the System was faced by a rather
shaky confidence in the value of the dollar.
As he saw it,
the policy
choice, while perhaps not crystal clear, was reasonably well indicated.
Policy should be influenced more by the international monetary climate than
by the domestic economy.
Thus, Mr. Deming said, he was more concerned at present about
interest rates than about measures of reserves or the money supply; more
concerned about the effects of too easy a policy than too tight a policy.
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1/24/61
Ideally, he would like to see short rates up and long rates down, to see
ready availability of funds at somewhat higher rates than now prevailed,
and to see the rate on time deposits lifted.
However,
since he did not
see how these ideals could be attained very easily, he would settle for
about the current availability of funds and the hope of some rise in short
term rates, or at the least no decline in them.
To him, this meant
continuation of present policy, with no change in the discount rate, no
change in the directive, and emphasis on rate maintenance as a guide to
open market policy.
Mr. Mangels said that scattered and incomplete data for December
and January that had become available since the January 10 meeting did
not indicate much change in general business conditions in the Twelfth
District.
Department store sales since the first
about even with a year ago.
of the year had held
There had been some price reductions in copper,
and some curtailment of output.
In lumber, plywood prices had dropped from
$68 per thousand to $60 per thousand, which was equal to the postwar low
reached last summer.
This price was somewhat below the cost of production
at some of the smaller mills.
little
However,
steel production had improved a
to the highest level since last July, and the mills expected a
continued increase in demand.
Twelfth District mills, of course, do not
produce much steel for the automobile industry.
Unemployment claims in
the District as a whole increased in December, but there was a drop in
unemployment in California and particularly in Washington, where the rate
1/24/61
-30
fell from 6.8 per cent in November to 6.0 per cent in December.
Compared
with December 1959, unemployment in the District was about 49 per cent
higher.
District banks showed a loan decline of about $100 million in
the two weeks ended January 11; holdings of Government securities were
down about $80 million, and demand deposits dropped a little
$50 million.
less than
Time deposits increased rather substantially ($60 million),
reflecting mostly deposits by States and political subdivisions.
Savings
deposits declined $18 million, substantially less than the $250 million
decline that occurred during the comparable period of 1960.
The small
San Francisco bank computing interest on a daily accrual basis showed
an increase of 14 per cent in
savings deposits in the first 10 days of
the year, and a Los Angeles bank following the same procedure also showed
a substantial increase.
since the first
There had been no borrowings from the Reserve Bank
of the year.
District reporting banks had excess funds and
reported that they expected to sell five or six times the amount of Federal
funds that they would buy this week.
District banks were still
using excess
funds in the Federal funds market rather than investing those funds in
Government securities.
As to policy, Mr. Mangels commented that the System was still
facing
the dilemma presented by the domestic situation on the one hand and the
international situation on the other.
It was generally recognized, he
noted, that monetary policy alone could not resolve either problem.
Recently, a college professor was quoted as having said that when facing
1/24/61
-31
the horns of a dilemma, one possibility is
throw the animal to the ground.
to grab both horns and try to
Another possibility is
to analyze the
situation, determine whether it is better to grab one horn or the other,
and proceed on that basis.
On entering this meeting, Mr. Mangels said,
he had fairly well concluded that if
the System grabbed the domestic horn
and did everything that monetary policy could do, within recognized limi
tations and with the hope, of course, that debt management and fiscal policy
would do their part, a recovery in business activity could be stimulated.
If that occurred, the improvement would generate increased demands for
credit, which in turn would firm up interest rates and thus help the
international situation.
This line of thinking would suggest continuing
a policy of ease, with free reserves in the area of $600-700 million, not
too far, that is, from what had prevailed.
As to the bill rate, Mr. Mangels
referred to a paper of recent date in which the author suggested that a
policy designed to keep the bill rate from falling when the domestic
economy was on the verge of stagnation would be self-defeating; that such
a policy would only hamper economic recovery and growth; and that this
would induce an outflow of long-term capital.
Mr. Mangels went on to
say that he realized that the views he had held placed him in the minority
at this meeting and that, as he listened to the discussion today, he felt
that he might have been a little wrong in his judgment.
As far as the directive was concerned, Mr. Mangels said that he
thought language along the lines suggested by Mr. Fulton perhaps would be
1/24/61
-32
suitable to the present situation.
that it
As to the discount rate, he still felt
should not be reduced, but he wished the System were in a position
where a reduction could be made.
Some of the San Francisco directors felt
that it would be a good thing to reduce the rate, but in all the circum
stances he would not recommend such action at this time.
Mr. Irons said that Eleventh District developments during the
past couple of weeks were not significantly different from those he had
reported previously.
In general, they followed the national trend rather
closely, and he did not feel that they had particular significance from
the standpoint of the determination of monetary policy.
ever, that the banking situation was one of genuine ease.
He would say, how
Borrowings from
the Federal Reserve Bank were negligible, and sales of Federal funds had
been substantially in excess of purchases.
The loan decline in the first
few weeks of the current year was moderate, possibly less than seasonal,
and the banks had added to their holdings of Government securities.
Total
deposits had been moving upward, a slight decline in demand deposits being
more than offset by the increase in time deposits.
As to policy, Mr. Irons said it seemed to him that there had been
a very easy credit position over the past three weeks, and possibly before
that.
Free reserves had been quite high and Federal funds had been almost
constantly on the bargain counter, so it seemed that there was almost a
surfeit of reserves.
He concurred in the view that this was a situation
where there should be no overt or drastic action, and he did not believe
1/24/61
-33
that any change in the directive was necessary at the moment.
However,
he
felt that the policy of the past few weeks, or few months, had led the
System gradually into a position of more aggressive ease than was warranted
or justified, and he would like to see some of that ease recaptured.
Treasury bill
The
rate had been tending to hold in the lower part of a range
that the Committee had talked about earlier, but he would prefer to see
it
move in the upper levels of that range.
In other words, he would be
glad to see that rate show a slight upward tendency.
reduce the discount rate to bring it
He would not want to
in line with other short-term rates;
instead, he would like to see other market rates brought up into better
relationship with the discount rate.
This, he thought, could be done
through open market operations without taking overt or drastic action.
The
objective that he had in mind was that the Federal funds rate would firm
up within the range of 2.5 to 3 per cent, rather than 1 to 2 per cent, with
the bill rate moving into the 2.5 per cent area rather than softening below
2.20 per cent.
In his opinion, if more attention could be given to rate
aspects as a guide and less to maintaining $600 to $700 million of free
reserves, that would be a much better policy for the situation with which
the System was now confronted.
In summary, he would not want to change
the discount rate; instead he would like to see the bill rate move into
better relationship with the discount rate.
Accordingly, he would absorb
some of the ease that the System had put into the market.
Mr.
Erickson reported that statistics on department store sales,
automobile sales, and construction in the First District were still
1/24/61
-34
slightly better than the national figures.
However, the situation with
respect to production and employment continued to be discouraging.
the first
In
two weeks of 1961, District banks reported an expansion of
commercial and industrial loans,
compared with a reduction a year ago.
The gain was 7 per cent.
Mr. Erickson said he saw no reason to change the directive or
the discount rate.
In view of the balance-of-payments problem, he thought
the System should concentrate more,
to have a Treasury bill
in operations of the Desk, on trying
rate somewhere within the present range than on
trying to attain any certain free reserve figure.
If
it
was necessary to
put reserves into the market, he would not hesitate to conduct transactions
in short-term securities other than bills.
Mr.
policy.
Szymzak indicated that he would not recommend any change in
In his opinion, the policy that the System had been pursuing was
about the best that could be devised, because of the two horns of the
dilemma.
It must be recognized that the interest rate structure has a
relationship to the balance-of-payments situation.
To repeat, he felt
that what the System had been doing up to this time was about as right as
it
could have been under the circumstances.
The picture might become more
clear after the President's State of the Union Message had been delivered
next week and some idea could be obtained as to the thinking of the new
Administration.
Also, the situation might be clearer after the Committee
had heard from the Ad Hoc Subcommittee on its study of operating techniques
1/24/61
-35
and after the terms of the Treasury's February refunding had been announced.
In any event, however, the balance-of-payments situation was at the heart
of the problem, not only here but abroad.
Mr. Balderston said that Messrs. Mills, Deming, and Irons and
others who spoke in similar vein had expressed his own concern at the
moment.
It was his feeling that the System, for the time being, had
supplied as much in the way of reserves as the economy was willing to
use.
Consequently, at the moment he would pay more attention to short
term rates than to further ease.
In essence, his suggestion would be
the same as he had made two weeks ago, and the same as Mr. Irons had
made today.
He would supply such ease as the System supplied less
aggressively, with the hope that the Treasury bill
somewhat.
rate might rise
The Federal funds rate had been substantially below the
discount rate, he noted, and that rate was worth watching as an indi
cator of the degree of ease in the market.
He would not favor changing
the directive or the discount rate.
Chairman Martin commented, with reference to the expression
used by Mr. Mangels, that he did not think there was any real dilemma
about the choice of horns:
it
was necessary to grab both of them.
Continuing, he said he had come to the belief that there was every
indication that money was on the side of being too easy rather than the
reverse.
Also, from a personal survey he had made, he could not escape
the belief that some of this money was going into the stock market.
While
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1/24/61
mortgage rates might not be down as drastically as some would like, the
fact remained that money was available to the public.
After commenting
on a recent conversation with an insurance company executive which
pointed up the extent of the availability of funds, the Chairman noted
that reports from abroad, such as that of Mr. Deming, confirmed the
emphasis that was being placed on the balance-of-payments situation.
These reports all indicated that there was a delicate balance of confi
dence in the dollar.
Thus, there was a problem in respect to rates that
was different than heretofore.
In the circumstances,
he would certainly
go along with those who had expressed the view that the Treasury bill
rate was a matter of real importance at the present time.
while the bill
To sit by
rate slipped to, say, 1.5 per cent would in his opinion
be irresponsible.
Likewise, in his opinion a reduction of the discount
rate now would be an act of irresponsibility.
The discount rate should
be brought in line at some point, but this was not the time.
After expressing the view that in the present circumstances no
overt actions were called for, Chairman Martin said that the burden of
proof now rested on those who thought that money was tight, not on those
who thought it
was too easy.
every place in the economy.
As he saw it,
there was plenty of money
While rates might not be what one thought
they should be, nevertheless the money was there.
would make an adjustment.
In time, the rates
1/24/61
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The Chairman repeated that in his view serious consideration should
be given to the bill
rate; the problem should be thought through.
Question
had been raised whether the Committee should go into longer-term securities
or, if not, how the situation should be handled, but in any event one could
not just simply say that the System would supply reserves.
a little
The problem was
different than that.
Under normal circumstances,
Chairman Martin commented, he thought
that the Committee's operating procedures had been clear.
Generally
speaking, he felt that they were the right operating procedures.
he did not think that these were normal circumstances.
However,
One must be con
cerned about the short-term rate, about reserves, and about the arbitrage
that occurs in the market.
The Chairman said that he hoped the Desk would use its
at this time.
Further, if
it
appeared as though the bill
best judgment
rate was going
through 2 per cent, he thought that perhaps the Committee should have
telephone meetings.
The situation was too serious just to sit by and
let things develop in that way.
disorderly market situation.
In one sense, he suggested, this was a
It was not a disorderly market in the sense
in which that term was used in the Committee's operating policies, but
there were nevertheless some of the elements of a disorderly market
situation because of world interest rates and the world pull on funds.
While that pull might be temporary, the problem was serious and the
System should not let the situation get away from it.
1/24/61
-38
Chairman Martin suggested that the next meeting of the Federal
Open Market Committee be held on Tuesday, February 7,
and, there being
no indication of dissent,
it
be held on that date.
was also understood that the date of the next
It
was understood that the next meeting would
succeeding meeting would depend on developments.
The Chairman then said that it
should be no change in
in
the market.
was the clear consensus that there
the directive and no change in the degree of ease
He did not believe there was much that could be added to
what would appear in the minutes to help guide the Manager of the Account;
that is,
there was not much he could add to the comments that each
individual had made.
Chairman Martin inquired whether there were additional comments,
and Mr.
Hayes said he assumed that the Chairman meant to include in the
consensus the distinct concern about the level of the short-term rate
that most of those at this
meeting had expressed.
Chairman Martin replied that that was what he had been trying
to express in
his comments on the bill
rate.
He believed that most of
those around the table had expressed that concern.
Mr.
Bopp commented that, although he had not expressed himself
on the point earlier, he would go along with the expressions of concern
regarding the bill
rate.
Chairman Martin then indicated that,
comments,
in the absence of further
the directive would be approved on that general basis, and no
further comments were heard.
-39Thereupon, upon motion duly made and
seconded, it was voted unanimously 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 encouraging monetary expansion
for the purpose of fostering sustainable growth in economic
activity and employment, while taking into consideration
current international developments, and (c) to the practical
administration of the Account; provided that the aggregate
amount of securities held in the System Account (including
commitments for the purchase or sale of securities for the
Account) at the close of this date, other than special short
term certificates of indebtedness purchased from time to time
for the temporary accommodation of the Treasury, shall not be
increased or decreased by more than $1 billion;
(2) To purchase direct from the Treasury for the account
of the Federal Reserve Bank of New York (with discretion, in
cases where it seems desirable, to issue participations to one
or more Federal Reserve Banks) such amounts of special short
term certificates of indebtedness as may be necessary from time
to time for the temporary accommodation of the Treasury; provided
that the total amount of such certificates held at any one time
by the Federal Reserve Banks shall not exceed in the aggregate
$500 million.
At the suggestion of the Chairman, Mr. Hayes summarized the nature
of views that had been expressed to him and Mr. Coombs during their trip
to Europe earlier this month to attend a regular monthly meeting of the
Bank for International Settlements, following which Mr. Deming commented
on observations he had heard during his recent assignment in the Far East
1/24/61
-40
and in the course of his return trip through Europe.
that it
Mr. Hayes commented
had been brought home to him repeatedly that trips abroad by
System representatives, to the extent that they could reasonably be
arranged, were most helpful from the standpoint of all concerned.
The meeting then adjourned.
Secretary
Cite this document
Federal Reserve (1961, January 23). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19610124
@misc{wtfs_fomc_minutes_19610124,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1961},
month = {Jan},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19610124},
note = {Retrieved via When the Fed Speaks corpus}
}