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, July 11,
PRESENT:
1961, at 10:00 a.m.
Mr. Martin, Chairman
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Hayes, Vice Chairman
Allen
Balderston
King
Mills
Robertson
Shepardson
Swan
Wayne
Johns, Alternate for Mr. Irons
Messrs. Ellis and Fulton, Alternate Members of the
Federal Open Market Committee
Messrs. Bopp, Bryan, and Clay, Presidents of the
Federal Reserve Banks of Philadelphia,
Atlanta, and Kansas City, respectively
Mr.
Mr.
Mr.
Mr.
Young, Secretary
Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Mr. Thomas, Economist
Messrs. Coldwell, Einzig, Garvy, Mitchell,
and Ratchford, Associate Economists
Mr. Molony, Assistant to the Board of Governors
Mr. Koch, Adviser, Division of Research and
Statistics, Board of Governors
Mr. Knipe, Consultant to the Chairman, Board of
Governors
Mr. Yager, Economist, Government Finance Section,
Division of Research and Statistics, Board of
Governors
Mr. Petersen, Special Assistant, Office of the
Secretary, Board of Governors
Messrs. Eastburn, Hostetler, Jones, Parsons, and
Tow, Vice Presidents of the Federal Reserve
Banks of Philadelphia, Cleveland, St. Louis,
Minneapolis, and Kansas City, respectively
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Mr. Marsh, Assistant Vice President, Federal
Reserve Bank of New York
Mr. Eisenmenger, Acting Director of Research,
Federal Reserve Bank of Boston
Mr. Stone, Manager, Securities Department,
Federal Reserve Bank of New York
Mr. Brandt, Assistant Cashier, Federal Reserve
Bank of Atlanta
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
June 6, 1961, were approved.
Before this meeting there had been distributed to the members
of the Committee a report of open market operations covering the period
June 20 through July 5, 1961, and a supplemental report covering the
period July 6 through July 10, 1961.
Copies of these reports have been
placed in the files of the Federal Open Market Committee.
Supplementing the written reports, Mr. Marsh commented as follows:
Money market conditions have remained reasonably stable
and comfortable over the past three weeks with Federal funds
rates averaging around 1 per cent with fewer extreme swings
than in some previous periods. Rates on 91-day Treasury
bills moved between 2.20 and 2.35 per cent. Open market
operations consisted principally of supplying reserves to
meet reserve drains around the month end and the July 4
holiday.
At the start of the period, it
seemed that we
might have some difficulty in putting enough reserves into
the market during the statement week ended July 5 to keep
money conditions easy without putting undue downward pressure
on the bill
rate. However, the drain of reserves due to
market factors was not as great as had been anticipated,
and the market supplied ample Treasury bills to help us
meet most of the buying need at reasonably stable rates.
Dealers have held fairly substantial positions in Treasury
bills acquired in recent auctions, and the prospects for
heavy Treasury financing during July apparently induced
dealers and others to sell readily.
To supplement the purchases of bills and spread the
effect of these operations throughout the maturity range,
faily sizable amounts of other issues were purchased from
June 29 through July 3. A good supply of longer issues was
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available on June 29, but the supply dwindled sharply there
after. We made considerable efforts to uncover additional
offerings but these efforts produced only a minimum of
securities with the result that prices of intermediate- and
longer-term issues rose sharply on Friday, June 30, by as
much as 1/2 point, with a further rise of 10/32 on Monday.
Our projections indicate a need for absorbing a sub
stantial amount of reserves in the next statement week and
we have already provided for a redemption of $121 million
of bills this Thursday, July 13. It may be feasible to
redeem another $121 million of our holdings of bills maturing
(This redemption would
July 15 to absorb additional reserves.
actually take place on Monday, July 17.)
But we will still
have more selling to do, possibly including short-term issues
other than bills to spread the impact of the sales at a time
when the Treasury is involved in its current financing.
Looking further ahead, there will be no reason to make any
purchases until the week ending August 2 when projected
average free reserves decline to around $200 million.
The atmosphere in the longer-term market has not changed
greatly in the past three weeks, as ideas about the future
trends of business and interest rates are still
quite mixed.
In the absence of need to supply reserves or deal with
short-term rates, the System had no occasion to go into the
longer-term market during most of June, which apparently
confirmed the feeling of many observers that the System had
no intention of pushing longer-term rates down.
Growing
expectations of an offering in the intermediate range in
the Treasury's August 1 refunding added a further note of
caution.
On the other hand, pressure from the corporate
bond market relaxed as the calendar of forthcoming new
issues was reduced to moderate proportions and some of
the older accounts began to be cleaned up. Activity in
intermediate- and longer-term Government issues was at a
minimum, however.
I want to comment further on our operations in longer
term issues as I think the Committee will be interested in
our recent experience. But I should first like to say a
bit about the Treasury's current financing plans for July.
The first
operation, an auction today of one-year bills to
roll over the $1.5 billion July 15 maturity, should proceed
without undue difficulty despite the addition of $500
million bills, making a total of $2 billion to be auctioned
The market expected the
without tax and loan credit.
Treasury to pick up this additional cash and is taking
the auction in stride, anticipating an average rate in the
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auction between 2.95 per cent and 3 per cent, which is in line
with current market rates. Dealer awards of 6-month bills
in the auction yesterday were somewhat larger than the usual
($218 million) which may affect today's auction. The next
move will be the refunding of the $9.9 billion August 1
maturity of which the System holds $4.8 billion. This refunding
will probably be announced Thursday, July 13, but the Treasury
has not yet decided whether to make this refunding on a cash
or exchange basis, whether and how to include the $2.2 billion
September 15 maturity (all held by the public), and whether to
offer an issue with a maturity longer than, say, 15 months.
The market seems to feel there would be a good bank interest
in an issue around 5 to 7 years and if such an offering should
be included, a decision will have to be made whether the System
should put part of its holdings into the longer issue.
The third Treasury operation will be to raise about $3.5
million of new cash around July 27. The market expects this
will be done through an auction of March 1962 tax anticipation
bills,
with payment through tax and loan account credit.
Just
how this will work out will depend on the state of the Treasury's
balances after the preceding refunding operation; that is,
whether there is any substantial attrition to be covered.
Getting back to our recent operations in longer-term issues,
I mentioned that our efforts to buy these maturities in the last
part of June produced very few offerings after the first
attempt.
We even tried to buy more of the very longest maturities than
before, since the Treasury is no longer in a position to con
tinue with its purchases in that area. You may wonder how it
is that offerings have not been readily available and how the
recent long-term market situation differs from earlier conditions
when we were able to buy more substantial amounts.
To give the
Committee an idea how the amounts of long-term offerings have
dried up, we have compared the offerings received on some of the
large purchase days back in April and May with those on June 29,
June 30, and July 3.
It is not easy to specify exactly why
these recent experiences were so different because of the many
factors involved--not only investor and dealer attitudes but
also the way in which we had been operating in the market.
How
ever, among the reasons for the heavier offerings earlier was
the somewhat more robust outlook in the business situation,
which led to a desire to shorten maturities in advance of a rise
in interest rates. Also, some profit-taking occurred as prices
moved higher after the System's entrance into the bond market.
Furthermore, there was a large amount of swapping by investors
who were switching into the heavy volume of new corporate and
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municipal issues.
An additional factor was that most Treasury
purchases of long-term issues were against sales of short-term
securities. As the market recognized this pattern, dealers were
able to propose swaps to investors and thus develop a source of
longer issues that would not have been available on an outright
basis. Finally, substantial dealer holdings in the earlier
period enabled dealers to make offerings out of their positions.
More recently, dealer holdings have been low. Moreover,
some investors may in effect be "frozen in" to their positions
since further sales might involve losses they are unwilling to
take. Also, some doubts have begun to accumulate in the market
as to the strength of the recovery and there is apparently
somewhat less pressure to "get out" of the bond market. Also,
during recent weeks, with the System and the Treasury generally
out of the market, some dealers may have gotten out of the
habit of showing offerings to the Desk.
In this connection, Mr. Marsh cited some figures on the
volume of offerings in intermediate and longer-term issues received
on selected days in April and May, and compared these with the
volume of offerings of intermediate- and longer-term issues received
on five selected days in June and July.
Generally, the figures showed
that in the earlier period offerings ranged between $140 million
and $240 million, while in the later period offerings ranged between
$11 million and $55 million.
Mr. Mills said that, since Mr. Marsh had opened up the problem
of System open market operations outside the short-term area, this
seemed a logical time to explore the subject against the background
of the memorandum submitted to the Committee by the New York Bank
under date of July 7, 1961, which proposed a broadening of the criteria
for operations in the intermediate- and longer-term areas of the
market.
The suggested additional criterion was that operations
outside the short-term area should be undertaken on those occasions
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when congestion appeared to be developing in the capital markets
or when market expectations as to the future course of rates seemed
to be having clearly exaggerated effects, with the objective of
facilitating the flow of capital into productive investment activities.
On February 7, 1961, when authorization was granted to operate
outside the very short-term sector, Mr. Mills said, the reason given
was that the effect of such purchases would be to nudge the long
term rate structure downward,
as a result stimulate financial borrowings
in the longer-term capital market, and therefore permit capital expansion.
From what could be observed of the operations since that time, he felt
a real question could be raised as to whether that purpose had been
accomplished.
What appeared to have happened was that Government
security market operators had been handicapped and confused by the
unpredictability of what the System was attempting to do, and this
had not been helpful to the general tone of the market.
Since February
7 there had been a general change in the business climate, with greater
strength in evidence, and in consequence there had been a strong demand
for longer-term capital funds.
This had tended to offset the influence
of System operations in the longer-term sectors of the market; the
movement of interest rates had tended to be upward rather than down.
This could account in part for the lack of effectiveness of the System's
attempts to bring the longer-term rate structure down.
result, in his judgment,
But the whole
showed quite conclusively that the "bills only"
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policy was the correct and appropriate policy for the System to
follow in withdrawing and supplying reserves.
If the Committee
engaged in the longer-term sectors of the market and confined its
purpose to supplying and withdrawing reserves,
limited in the magnitude of its operations.
it was automatically
The New York Bank had
now, as he read the July 7 memorandum, set aside the reasoning
that originally prompted the operations outside the short-term
area, which he gathered was tacit acknowledgment that the results
of operations in pursuance of the original purpose had been
disappointing.
Instead, the Bank now suggested that engagements
in longer-term securities should be for the purpose of facilitating
the flow of funds through the capital markets.
Such a proposal, Mr. Mills suggested, deserved special scrutiny.
If
one looked at the matter in terms of the amounts involved and
took, for example, the condition report of the Federal Reserve Banks
as of July 5,
1961, the figures showed that during the preceding year
the System Open Market Account portfolio was increased by a total of
$847 million, of which only $443 million represented maturities of
one year or longer.
Against the amount which the System had acquired,
in the six months through June 30, 1961, there had been new issues
of corporate securities of $6,330 million and new issues of State and
local government securities of $4,434 million.
This raised the question
whether a mere $443 million released into the longer-term capital
market by the purchase of securities for the Account could have had
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any impact of importance.
it
It would seem to him more likely that
could not have accomplished any very constructive purpose.
Moreover,
if
one traced through the kind of operations in which
the System had engaged and bore in mind that the System had limited
opportunities to supply and withdraw reserves,
it
was apparent
that to purchase longer-term securities for the Account the System
would have to provide funds to buy such securities by selling Treasury
bills out of the Account portfolio, and the purchasers of those
bills would have to supply themselves with the funds to purchase
them.
He did not know whether those funds would have found other
media of investment.
However, on the assumption that they might
have been invested in longer-term securities of some kind, the
effect of the System's sales of the bills nullified to a degree the
effect of its purchases of longer-term Government securities.
Since this was a subject that he judged would be taken into
full account when policy was determined, he felt it
might properly
be borne in mind in advance of those discussions.
Chairman Martin agreed that the matter should have full
discussion.
He disagreed, however, with Mr. Mills' view that the
operations in the longer-term area had been proven to be a failure.
The Committee,
he felt, ought to balance dispassionately the case on
both sides, for this was a complex and complicated problem.
He had
visited in New York several times trying to get the sense of the
securities market, and he found the problem more difficult, probably,
than anything he had yet tried to evaluate.
The point that had to be
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considered was that the policy of "bills only," "bills preferably,"
or whatever one wanted to call it
had been the principal stumbling
block over a period of time in attaining an understanding of System
operations.
Whatever the reasons,
the System had failed in his
judgment in explaining to the public the basis of its operations.
In the circumstances,
he considered it extremely important for
everyone to bear in mind what was involved and not to jump to conclusions.
In regard to the additional criterion for operations in longer
term securities set forth in the July 7 memorandum from the New York
Bank, the Chairman said he was not prepared to accept it,
at this time.
However,
at least
as to the operations in Government securities
in the longer-term area since February 20, he felt
it
was possible
to make just as good a case that they had been successful as that
they had been a failure, depending on one's evaluation of their impact
on the Government securities market.
unknown factor.
That, he thought was still
an
It was necessary, as he saw it, for everyone to try
to evaluate the matter in terms of the problem of explaining System
operations to the public and in terms of the legitimacy of the charge
of a doctrinaire attitude on the part of the System.
As he had said,
he would not want to accept at this time the suggested additional
criterion.
However, he noted that the flow of funds into the capital
markets in the second quarter of this year was at a record level.
It
would seem difficult to say that this had occurred in spite of Federal
Reserve policy rather than on account of it.
In short, there was no
7/11/61
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open-and-shut answer.
However,
it
was vital to resolve the problem-
not hastily but carefully-- and to do so in the perspective of the
role of the System in the market.
The Chairman commented that his remarks had been intended to
be of an introductory nature.
Unless the Committee wanted to pursue
the topic further at this time, he would suggest that it
might be
best to wait until the go-around and afford everyone an opportunity
to express his views.
After brief discussion it
was decided to proceed in the manner
suggested.
Thereupon, upon motion duly made and
seconded, the open market transactions
during the period June 20 through July 10,
1961, were approved, ratified, and confirmed.
Mr. Koch presented substantially the following statement with
regard to economic developments:
Since the chart show presented at the last meeting of the
Committee covered economic developments over a rather extended
period of time, I shall concentrate my remarks this morning on
the current picture. There is general acceptance now of the idea
that the recovery phase of the current economic cycle probably
So far it has
started in February, or at the latest in March.
been V-shaped, as in 1958, rather than saucer-shaped as in 1954.
As a matter of fact, by June the pre-recession highs of mid-1960
had been reattained or even surpassed in the case of most major
over-all measures of economic activity.
The seasonally adjusted annual rate of the gross national
product expressed in current dollars, for example, rose from
quarter of this year
a low of about $500 billion in the first
to an estimated $513 billion in the second quarter. This was
$8 billion above the previous peak reached in the second quarter
of last year. Most of this rise, however, was accounted for by
The recent rise reflected a turnaround from
higher prices.
substantial inventory liquidation to small inventory accumulation,
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11
and an increase in consumer spending on all types of goods as
well as services. Exports, although remaining high, are no
longer giving added impetus to the economy. Government spending,
both Federal as well as State and local, is still rising, but
at a somewhat slower pace than earlier, thus contributing less
to a higher gross national product. Exports and Government
spending rose sharply during the recession, helping to keep
it from deepening.
It is still a bit early in July to have very good figures
on June developments.
Our industrial production index probably
rose another two points, following three point rises in each
of the two preceding months. It now appears to be 110 per cent
of the 1957 average as compared with the recent low of 102 in
February and with a pre-recession level of 110 in the middle of
last year. The rate of increase in industrial production thus
far in the current recovery has not been quite as rapid as in
the comparable phase of 1958, although considerably faster than
in 1954.
Production growth in June was widespread, including consumer
as well as industrial goods and finished products as well as
materials. Steel production decreased, but only about seasonally,
to just under 70 per cent of estimated capacity. Trade reports
indicate a further decline of about seasonal proportions this
New orders for durable goods have increased further to
month.
the highest level in a year and a half. Backlogs have been
increasing.
Recent price developments appear fairly satisfactory.
The general average of wholesale prices has continued to drift
down. The consumer price index has shown almost no change since
last October. With the rise in the prices of services more
moderate than earlier and with food prices likely to decrease
nearer the year end, prospects are good that the consumer price
index will show relatively little change over the balance of
the year.
Turning to the labor market, both employment and unemploy
ment increased in June, as is typical for this time of year.
The rise in employment, however, was considerably sharper than
usual. With the large influx of teen-agers entering the labor
market at the end of the school year, the seasonally adjusted
unemployment rate continued at 6.8 per cent, around which it has
fluctuated over the past half year or so. The current unemployment
rate is below that prevailing during the comparable phase of the
1958 recovery although above that in 1954.
Looking ahead, there is still considerable disagreement
as to the probable speed and extent of the current expansion.
Questions focus mainly on the likely vigor and strength of
future consumer demand and on the stickiness of the unemployment
rate.
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7/11/61
As for the strategic consumer, his recent purchases of
goods, although improved, have continued below earlier highs
although personal income has been above last year's level
since April.
Department store sales rose sharply, total
Automobile sales, which had
retail
sales slightly in June.
increased in May, showed little
further change in June.
Consumer demand for housing continues to be a fairly neutral
factor in the economic situation, whereas in 1958 and 1954
it was a factor of great strength.
Developments in the recovery to date continue to provide
some basis for hope that expansion will be solid and sustainable.
Thus far it has been quite broadly based, not dependent, as
some past recoveries have been, on sharp growth in limited
Speculative developments have been
sectors of the economy.
Early ebullience in the
kept in check reasonably well.
sensitive commodity markets and in the common stock market
has recently subsided somewhat. There have actually been some
price declines in finished goods markets, and wage settlements
abstracts,
All this
year have been quite moderate.
thus far this
political
international
the
of
worsening
of course, from a
situation, highlighted as it is currently by the threat of a
over the status of Berlin.
new crisis
Mr.
Thomas presented substantially the following statement on
credit developments:
Bank credit increased further by a significant amount
As in May, the increase reflected to a considerable
in June.
extent acquisition by city banks of Government securities at
times of new cash offerings, followed by little reduction in
such holdings. Loans did not increase as much as they
loans and invest
The increase in total
usually do in June.
ments has been associated with expansion in Treasury deposits
Private demand deposits, seasonally adjusted,
at banks.
half of May to the last
showed no net increase from the last
half of June, and, in fact, have shown no increase on balance
part of March.
As a result the money supply
since the latter
peak.
is one of the indicators that has not returned to its
with
this,
combined
expand
and
continued
to
Time deposits
deposits to a
increased Treasury deposits, brought total
high level.
Long- and medium-term interest rates rose further in
June and are now near or above the highest levels of the
Short-term rates, however, continued to
past 12 months.
fluctuate within the relatively narrow range that has
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prevailed since the latter part of 1960.
The rise in longer
term rates evidently reflects the continued substantial
volume of borrowing by corporations and by State and local
governments through public offerings of securities and
through private placements.
The stock market has subsided
considerably from the exuberance of last spring, with both
prices and volume of trading at somewhat lower levels.
What does this brief summary of the financial situation
signify for Federal Reserve policy? In the first place, it
appears that monetary expansion--the main objective of
current policy--has not been achieved, if the concept of
monetary expansion is limited to private demand deposits
and currency. The money supply has increased by barely
2 per cent in the past year, with no further growth since
March.
Yet member bank reserves have expanded by nearly
4 per cent and there has been expansion in bank credit at
what might be considered a satisfactory rate. In fact,
total loans and investments of commercial banks have
increased by over $13 billion, or about 7 per cent, in the
past year.
The difference, of course, lies in the growth in time
deposits, which has exceeded 15 per cent in the past year.
Since February, considered to be the low point of the
recession, although private demand deposits have increased
only slightly more than seasonally, time deposits at member
banks have increased by over 6 per cent--an annual rate of
In that period reserves were made available
18 per cent.
in an amount sufficient to provide the basis for a 5 per cent
annual rate increase in demand and time deposits, and total
bank credit increased correspondingly. The public, however,
has chosen to place more of its cash in time deposits. At
the same time, shares in savings and loan associations have
increased almost as much as time deposits. Although nonbank
holdings of short-term U.S. Government securities have
change,
declined and those of savings bonds have shown little
the public's total holdings of liquid assets are about 5 per
cent larger than a year ago.
To obtain a faster rate of monetary expansion, there are
place reserves must be
In the first
a number of requisites.
available. If customer loan demand is strong enough, banks
In
might be willing to borrow some of the needed reserves.
the absence of a strong loan demand, reserves have to be
supplied at the initiative of the System in amounts adequate
to keep excess reserves somewhat larger than country banks
ordinarily want to hold--apparently about $500 million. Only
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when they have redundant reserves will banks add to their
holdings of Government securities or actively seek other
investments or loans.
The next requisite--and one less susceptible of
control--is the desire of the public to build up cash in
the form of demand deposits or currency, rather than to
hold time deposits or Government securities or other forms
of savings.
The traditional means of influencing these
desires is through interest rates. Unless there is a grow
ing need for cash working balances, insertion of additional
money into the economy will tend to push down interest
rates until economic activity and borrowing demands are
stimulated.
Question may, therefore, be raised as to whether
the System policy of endeavoring to hold up short-term
interest rates has worked against its expressed objective
of encouraging expansion of bank credit and the money supply.
The next question, of course, is whether lower interest
rates would have induced funds to flow abroad, which is the
reason for the qualifying phrase in the policy directive and
for the policy that has been followed.
What are the prospects for credit demands that might
encourage expansion in bank loans and investments without
a decline in interest rates? Analysis of prospective corporate
sources and uses of funds suggests that business borrowing
This
may continue relatively moderate in the months ahead.
conclusion is based upon the substantial recent and current
volume of new capital issues, the indicated moderate increase
in expenditures for plant and equipment and possibly also
for inventories, the existing high level of depreciation
allowances, and the likelihood of some increase in profits
indication
and retained earnings. There is as yet little
of an increase in consumer credit or of much expansion in
Thus loan demand at banks might continue
mortgage financing.
to be relatively moderate even with substantial economic
recovery.
Principal sources of credit demands in the months ahead
will be governmental borrowing. State and local government
offerings of securities have been large and seem likely to
continue so. The Federal Government will likely have net
borrowing needs of close to $9 billion in the latter half
of this year, compared with about $3.5 billion in the same
months of 1960 and about $7 billion each in the corresponding
periods of 1959 and 1958. However, the 1958 figures were
distorted. Although the Federal Government had a bigger deficit
in 1958, it was able to finance part of it by drawing on the
very large cash balance held at the end of June.
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In the 1958 period, which is comparable from a cyclical
standpoint to the present, over half of the net increase in
the public debt was absorbed by business corporations and
most of the remainder by the banking system--largely by banks
outside leading cities. Bank loans increased only moderately
until late in the year. Throughout 1958, however, there was
an unusually rapid increase in the money supply, as well as
in time deposits, which furnished much of the cash basis for
the recovery that began in that year and continued into 1959.
Reserves that served as a basis for the 1958 expansion were
abundantly supplied early in the year through reductions in
reserve requirements.
Repetition of the 1958 experience, with its sharp decline
in interest rates to very low levels early in the year and
the sharp increase around midyear, is not necessary or desirable.
Yet a continuation of credit expansion at perhaps a faster pace
than in recent months is essential. The task of System policy
will be to maintain a supply of reserves adequate to support
further monetary expansion in order to encourage the processes
of recovery.
An estimate of the volume of reserves that might
be needed for this purpose has been presented to you in the
staff memorandum dated July 7, 1961. The estimate was based on
a projected increase in private demand and time deposits at a 5
per cent annual rate.
In the current week and the two weeks following, required
reserves will decline as Treasury balances are sharply reduced,
unless the funds flow into private deposits in greater than
seasonal amounts. The projected figures allow for a fairly
substantial increase in such deposits. If System operations
should absorb all the reserves released by the decline in
Treasury deposits, as well as those that will be supplied by
float and other factors next week, then private deposit growth
would not be encouraged.
Also, purchases needed in the last
week of the month to cover very large reserve needs at that
time would be enlarged by any sales made before that time.
On balance, over the next four months additions to
the System portfolio of close to $400 million are likely to
be needed to support the projected program. Gross purchases
made at different times during the period might equal $2
billion, while gross sales made at other times might exceed
$1.5 billion.
It is essential that adequate reserves be available
at all times to encourage banks to purchase Government
securities in the absence of sufficient loan demands.
This would require that excess reserves of close to $600
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million be available; this would mean free reserves of
around $550 million. If there are clear indications that
credit expansion is proceeding at a rate more rapid than
is necessary or desirable, then a lower level of free reserves
could be permitted. The figures of required reserves pro
jected on the tables presented should be a minimum goal for
at least the period covered; if required reserves do not
reach this level, then free reserves should be kept abundant.
Mr. Young presented the following statement on international
financial developments:
The United States balance of payments in the second
quarter (excluding German debt repayment of nearly $600
million) appears to have turned more adverse, but the
increase in the over-all deficit was not large. Main
factors in the change, such as a moderately reduced trade
balance and a continuing net outflow on capital account,
may reflect temporary influences largely, so that earlier
official expectations for the year of a relatively small
over-all deficit may still be realized.
International markets have been reflecting profound
concern about the future of sterling. The discount on
forward sterling has recently exceeded 4 per cent, making
the yield on covered U.K. short-term investment in U.S.
Treasury bills nearly 2 per cent higher than in British
Treasury bills. British Consols now yield about 6-1/2 per
cent and the War loan 6-3/4 per cent. British stock prices
have been declining for about eight weeks.
British balance-of-payments data show that the surplus
on trade and private services account in the first quarter
fell short of normal government external payments and
private long-term capital outflow by nearly three-quarters
of a billion dollars. Last year a large deficit on these
combined accounts was covered by a short-term capital
inflow, but this year, despite continuing high interest
rates in the London market, the short-term capital flow
has been outward.
Demand pressures on British productive resources are
heavy, particularly on skilled labor and on construction
capacity, and wage costs have been showing further
rise relative to productivity. In view of the limited
capability for export expansion when domestic demand is run
ning so strong, British officialdom is said to be giving
-17serious thought to a comprehensive corrective program, which
would have the following objectives: cutting back on domestic
demand via fiscal measures; curbing further rise in construction
activity; restraining further rise in wage rates and costs;
raising the all-around competitiveness of British industry; and
reducing or postponing government expenditures domestically and
overseas. To reinforce this program, a tight monetary policy
would be maintained.
An important counterpart of the large British balance-of
payments deficit is the large German balance-of-payments surplus.
Whether the latter is being corrected is still
in doubt, but
German developments are being influenced by the following sets
of forces:
(a) the modest revaluation of the Deutsche mark;
(b) a significant reduction in short-term interest rates and
some lowering of long-term rates; (c) attainment and maintenance
of some fiscal surplus; (d) tolerance of wage increases about
double productivity increases; and (e) a decision to let the
exuberant boom run its course. These forces are resulting in
a relative inflation in Germany vis-a-vis the balance of
industrial Europe. As one German official suggests, judgment
as to a corrective process in motion must be tentative and
reserved, so that about all one can say now is that the develop
ments are in the "right" direction. Meanwhile, the current flow
of German economic data is suggestive that internal pressures
are relaxing somewhat.
Regarding balance-of-payments developments in the rest
of
Europe, note should be taken of the substantial improvement in
French monetary reserves in the past six months. For several
major industrial countries abroad, including Japan, expansive
tendencies in export trade have become less marked, perhaps
pointing to some loss in upward momentum in the external trade
of these countries.
Recent Canadian exchange rate depreciation is rationalized
officially as a measure to curtail both merchandise imports and
capital inflow while new domestic policies to stimulate recovery
and activate growth forces are given time to come into opera
tion and become effective. Regardless of motivation, the action
did inject new uncertainties into international markets as to
This consequence has resulted
existing exchange rate alignments.
in considerable international criticism of Canada's action and
prompted various demands that Canada soon establish a fixed rate
of exchage, The fact that the depreciation in the Canadian
exchange rate is the result of active government intervention
distinguishes it from a depreciation resulting from market
forces and exposes the Canadians to criticism for competitive
devaluation.
7/11/61
-18
Mr. Hayes presented the following statement of his views on the
business outlook and credit policy:
The business expansion continues to broaden, although its
pace in June was somewhat slower than in April and May and a
seasonal slowdown may lie ahead. Government spending is sure
to be a source of strength in the second half of the year.
While inventory liquidation has probably ended, the rise in
inventories in the second half is unlikely to be very sharp in
view of stable and even declining prices, ample capacity, and
improved inventory management. The big question remains to
what extent consumer spending and plant and equipment outlays,
together with government spending, will fill
the place of
inventory change as the principal stimulus to expansion of the
gross national product in the months ahead.
As yet consumers
show no signs of willingness to embark on a spending spree by
increasing their indebtedness and reducing liquid asset holdings.
The serious unemployment situation will continue to be a dampen
ing influence, and both unemployment and unused capacity will
remain high at the end of the year.
The short-term price outlook is encouraging, in view of the
strength of foreign competition, a leveling off of food prices,
and the good chance that unit labor costs may decline furtherunless the new auto contract due early in September reverses
this tendency.
The level of total commercial bank loans, which held up
quite strongly during the recent recession, has since weakened
somewhat. This, together with a moderate pick-up in Government
security holdings, has resulted in some improvement in bank
Nevertheless, loan-deposit
liquidity, especially in New York.
ratios remain quite high by past standards, and although they
have had free reserves for over a year, the banks have not built
up a very substantial liquidity buffer. Many banks, particularly
the larger ones, are uneasy concerning their ability to meet the
loan demands that are bound to arise as the economy moves upward.
In spite of the easy money market in recent weeks, loan rates
have been firm and the banks are not aggressively soliciting loans.
With the Treasury on the verge of announcing large refunding
and cash financing programs, it is clear that there should be no
change in our basic policy, which in any case continues to be
fully justified by the state of the domestic economy. I can
see no need for a change in the discount rate or the directive.
In the international sphere the situation remains touchy.
While most of the market nervousness centers on sterling, the
7/11/61
-19
atmosphere of distrust of exchange rates could later have
adverse effects on the dollar, especially if we fail to make
greater progress than we have to date with the over-all balance
of payments. Hence, while domestic conditions clearly call for
maintenance of ample monetary ease, with doubts resolved on the
side of ease, we must continue to give close attention to the
danger of excessive pressure on short-term rates. Thus, from
the standpoint of international considerations, maximum flexibility
with respect to maturity ranges is still essential for open
market operations.
Beyond this, I think we should recognize that purchases of
intermediate- and long-term securities by the System Account
and the Government investment accounts have performed an impor
tant function in helping to loosen up the flow of credit into
corporate and State and local Government securities.
A record
volume of such offerings in the second quarter was accommodated
with only moderate upward pressure on rates.
Now, however, the
Government investment accounts are for all practical purposes
out of the market, while it remains as important as ever that
long-term capital should flow smoothly to nourish the recovery
in business. As set forth in the memorandum on this subject
which the members of the Committee have already received, I
believe it is incumbent on us to exert an influence on capital
markets similar to that exerted by the Treasury before its
virtual withdrawal from the market, and to adopt a rather more
positive approach to the question of how and to what extent to
use the special authorization. Sizable open market purchases
will in any case be called for over the next six months. Not
only should the special authorization be used to inject needed
reserves without putting pressure on the bill rate, or to offset
sales of short-term securities designed to moderate pressure on
that rate, but it should also be used when congestion appears to
be developing in the capital markets or when market expectations
as to the future course of rates seem to be having exaggerated
market effects. I would hope that there would be no reluctance
to use the long maturities as well as those of intermediate
term. The size of these operations would of course be held well
within the limits of the market's capabilities, and there should
be no attempt to hold long-term rates at or below some precon
ceived level. Offsetting sales of short-term issues could be
used, as and when this seemed desirable, to neutralize the
reserve effect of such purchases of intermediate- and longer
term issues.
There should be no doubt in the public mind that the
System is making a genuine effort in the area of longer-term
operations; and the market should be educated to recognize that
7/11/61
-20
the System envisages this as a normal procedure to be used in
greater or less degree as future circumstances require, and to
understand the objectives toward which the System is aiming in
these operations, including the objective of moderating excessive
swings in interest rates and other conditions affecting the
availability of funds.
Unless we move forcefully in this direc
tion, we shall play into the hands of those critics of the
System who maintain that our efforts to promote recovery and
expansion have been at best sporadic and half-hearted. There is
no doubt in my mind that criticism of this kind, unless effec
tively answered, could lead to serious long-term damage to the
System.
I trust that this Committee will recognize the danger
and will move to head it off along the lines which I have
proposed.
Mr. Hayes said he would like to add a few remarks at
this point in response to Mr. Mills' earlier comments.
(Mr.
Hayes')
In his
judgment, the operations in longer-term securities had
not been a failure or a disappointment.
spoken only of the "nudging" aspect,
international aspect.
However,
Mr. Mills, he noted, had
as distinguished from the
from the international aspect alone,
these operations had been distinctly successful in preventing
excessive pressure from being exerted on the short-term rate.
As to the domestic aspect, while it
was difficult to prove, he firmly
believed--and thought it was probable--that these operations, along
with the purchases by the Treasury for Government investment accounts
had facilitated portfolio adjustments undertaken by investors placing
funds in new issues, thus stimulating the flow of funds into useful
and productive efforts.
He wished to stress again, in regard to
Mr. Mills' comments, his opinion that the fact the long-term rate
moved up was not a sign of failure.
It had moved up less, probably,
than it would have in the absence of the operations in longer-term
-21
7/11/61
securities.
going on.
In brief, a useful and valuable operation had been
He was a little concerned only in the respect that the
Committee itself had not been quite clear enough and positive enough
about the value of the operation. The Committee, he felt, had been
tending to take too apologetic an attitude.
Mr. Johns said that although the facts pertaining to the
recent behavior of the money supply had already been well exposed
and were well known to everyone at this meeting, it seemed to him
worthy of emphasis that since March, that is, in the past three
months, the money supply had been virtually unchanged.
This was in
contrast to an increase at an annual rate of about 4-1/2 per cent
from November through March.
It might also be contrasted with an
increase at an annual rate of about 5 per cent in the early stages
of the 1954 and 1958 recoveries. Further, during the three-month
period since March the money supply, as narrowly defined, plus time
deposits had risen at an annual rate of only 5.2 per cent, compared
with an increase at an annual rate of 9.1 per cent from November
through March.
The lack of growth in the money supply during the
past three months seemed to him inappropriate for two reasons.
First,
it did not reflect appropriate policy at this stage of recovery.
Second, it was not consistent with the Committee's directive, in effect
throughout the period, which called for open market operations with a
view to encouraging expansion of bank credit and the money supply.
He was inclined to believe, Mr. Johns continued, that with about
7 per cent of the labor force unemployed and output of major materials
7/11/61
-22-
running at about 78 per cent of capacity, it would be difficult
to explain holding the money supply constant on the basis of any
fear that the fires of inflation might be relighted.
It was his
view, therefore, that vigorous steps should be taken, without further
delay, to encourage a substantial increase in the money supply.
could be done only by adding to bank reserves,
This
yet total reserves
of member banks, adjusted for seasonal fluctuations, were about the
same in June and early July as they were last winter.
If
the
Committee really meant what it said in the policy directive, namely,
that it
wanted monetary expansion,
it
must supply the reserves
without which such expansion could not occur.
He would also suggest
that this required more concentration on the objective of monetary
expansion and less preoccupation with attempting to smooth out short
run fluctuations.
If,
however, the Committee was unwilling to supply
the reserves necessary to obtain monetary expansion, then he would
suggest that the directive be altered to say what the Committee
was actually willing to do.
As to the means by which the objective
now stated in the directive might be attained, he would suggest
referring to the staff memorandum on member bank reserves that had
been distributed prior to this meeting.
As he read the memorandum,
and the tables submitted therewith, the content and approach were
somewhat different from previous issues of this memorandum.
According
to the text accompanying the tables and the footnote to table 3, there
had been built into the projection of required reserves an allowance
of $15 million a week for expansion of demand deposits adjusted and
7/11/61
-23
time deposits at an annual rate of 5 per cent.
While this was
commendable, he doubted that it was adequate.
He would prefer
that the expansion factor be larger by some $10 or $15 million a
week.
Mr. Bryan stated that the Sixth District continued to exhibit
a pattern of economic developments quite similar to that of the nation.
Substantial gains had been scored in nonfarm and manufacturing employ
ment, department store sales were up for June, and bank debits were
sharply up.
Construction contract awards were also sharply up, and
construction employment was up after a long decline.
Average weekly
hours worked and manufacturing payrolls were up, but the loans and
investments of member banks were slightly down.
One of the bright spots in the District picture was the
agricultural situation.
Farm income was increasing and apparently
would continue to increase substantially for the rest of the year,
a development attributable chiefly to livestock and citrus marketings.
In crop production there was a good cotton situation, with an increase
in the cotton allotment and the support level raised.
The tobacco
allotment had likewise been increased.
Turning to the national economic scene, Mr. Bryan said it
appeared to present a satisfactory recovery, outscoring at this stage
in production, employment, and income two of the three last recoveries.
He still judged it impossible to determine whether the recovery had
the makings of a super boom or simply a more moderate expansion.
-24
7/11/61
As Mr. Bryan saw the proper posture of monetary policy, a free
reserve position of $500 to $600 million on the average would be
appropriate for the next three weeks.
He noted, of course, what he
judged to be the easy reserve position of the banking system; and
the comfortable bank liquidity position.
Accordingly, he saw no
point in an all-out forcing of additional free reserves into the
banking system at this time.
In fact, he believed the Committee
must be alert to the possibility that it might need, in the not
too distant future, to reduce the level of free reserves, and
not endlessly to maintain them at a preconceived level in the face
of total reserves and required reserves that might well go up
rapidly.
Mr. Bryan then commented that the money supply, narrowly defined
as demand deposits adjusted and currency, appeared to be about 2 per
cent higher than it was a year ago.
misleading for policy purposes.
He believed this figure to be
Time and savings deposits, he pointed
out, had increased to a level 14.9 per cent above May 1960.
While
he would not contend that the total of these deposits should be
included in the active money supply, he did believe it entirely clear
that at present some substantial portion of such deposits must be
included in thinking about the money supply; and if such a mental
adjustment was made,
a sustained recovery.
he believed the money supply was adequate to
Even a narrowly defined money supply, demand
deposits adjusted and currency, was likely in his opinion to show
7/11/61
-25
in the near future a tendency to increase via the route of bank
supported Government borrowings.
After stating that he saw no reason to change the discount rate
at this time, Mr. Bryan said that he shared the complimentary expressions
of Mr. Johns regarding the staff projections of reserve needs.
He was
glad that a cumulative amount of reserves had been included to allow for
a growth of reserves and, at this time, an amount reasonably calculated
to assist the recovery.
Mr. Bopp reported that business recovery was apparent in the
Third District, but only spottily.
Production was increasing, as
indicated by the fact that consumption of electric power had been
rising, especially in durable goods industries.
Steel output had held
up well in recent weeks, while it was declining nationally, and in May
the District made up a good part of its lag behind the United States in
construction activity.
Yet consumer demand had not reacted strongly.
Department store sales improved in June but were still
levels, and unemployment was still widespread.
under year-ago
In two-thirds of the
District's labor market areas, the unemployment rate was higher than
the national percentage.
Neither did banking figures reflect a strong
business upswing; business loans, after seasonal adjustment,
declined in June.
actually
Banks were relatively comfortable in their reserve
positions and had borrowed little from the Reserve Bank.
Philadelphia
banks, however, had continued to borrow Federal funds and to run a
deficit in their basic reserve positions.
-26Even aside from the heavy Treasury calendar ahead, Mr.
Bopp said, observation of the economy indicated clearly to him
that policy should continue to promote monetary ease.
gratifying that interest rates had risen as little
It was
as they had,
and be hoped that funds would be plentiful enough to slow down
any further upward tendencies in the immediate future.
It would
be desirable, in his opinion, for policy to foster a resumption of
expansion in the money supply, and if
this required higher levels
of free reserves, he would not be disturbed.
Mr.
Bopp said that he would recommend no change in the
directive or the discount rate, and that he would favor renewal
of the special authorization to operate in all sectors of the
Government securities market, for more extended purposes.
Mr.
Fulton reported that Fourth District business activity
was quite favorable in the past three weeks.
for the first
Although the record
half of 1961 did not measure up to the same period
in 1960, nearly all measures of business and financial activity
except steel production showed some improvement in June.
A part
of the generally favorable trend was due to seasonal influences,
and in the past couple of weeks there seemed to have been some
leveling off; that is,
a lack of continuation of the upward surge
that had been noted earlier.
However, this might be due to the
vacation periods that come in July and August in the heavy industries.
7/11/61
-27
Insured unemployment continued to decline, Mr. Fulton said,
and two major cities, Cincinnati and Dayton, had been removed from
the substantial labor surplus category.
In this respect, the
improvement in the District appeared to have been better than
the national average.
Building permits rose sharply in June in
the Cleveland area, due primarily to a large permit issued for a
veterans'
hospital, but the situation slipped back a little
Cincinnati.
in
Sales of new cars advanced substantially in June,
although such sales were still
under the year-ago figure.
While
department store sales were rising, for the year as a whole they
were about 2 per cent below last year.
A number of bankers with
whom he had talked seemed to think that people simply were not
buying as they would like to buy.
Money was being saved, apparently
to be brought out when the atmosphere changed and people were more
confident that their jobs were secure.
The output of electric power, which earlier had been
increasing, had now leveled off, Mr. Fulton said, indicating
that the production of industries using such power was leveling
off.
In the machine tool industry, new orders in May and June were
below the average for the first
quarter of the year.
Total orders
for the year as a whole were expected to be about the same as in
1960, with no definite uptrend anticipated until the first
of 1962.
quarter
-28
7/11/61
Mr. Fulton went on to say that there was no evidence of any
substantial accumulation of inventories.
At the present time, buying
seemed to be on a hand-to-mouth basis, or to build up to operating
levels where inventories had been maintained below such levels.
There
was nothing to indicate accumulation of inventories as a safeguard
against price rises.
In the steel industry, foreign pipe and that
type of commodity was still
coming in
in quantity and was very
competitive with the production of domestic mills.
Galvanized sheets
and roofing were in heavy demand, while sheets and strips, used
widely in the auto industry, were in fair demand.
The steel industry,
however, was deeply concerned about the profit squeeze.
While more
goods were being turned out, profits were not commensurate with the
increased activity.
and it
was felt
There would be another wage increase in October,
quite generally in
the industry that a price rise
would have to go along with the wage increase.
Mr. Fulton commented that loans at Fourth District weekly
reporting banks had been up in each of the past four weeks,
the
rise being the largest for a like period in more than a year.
Savings
deposits were at an all-time high and were increasing.
Summarizing, Mr. Fulton said he felt that the recovery was
progressing, but without the ebullience that had marked some previous
recoveries.
The profit squeeze was a problem of major importance
and could inhibit industries from going ahead with expansion programs.
-29
7/11/61
As to policy, Mr, Fulton felt that free reserves should be
maintained at a level between $500-$600 million, that reserves
should be made freely available,
resolved on the side of ease.
and that any doubts should be
He would not recommend changing the
discount rate or the policy directive,
and he would continue the
authorization to operate in longer-term securities.
He would not
want to withdraw that authority from the tools available to the
Manager of the Account.
Mr. King said he was inclined to agree with Mr. Bryan's
analysis of the money supply problem.
Like Mr. Bryan, he felt that
various factors other than the money supply, narrowly defined, must
be considered.
Under present circumstances and considering the
atmosphere in the business community,
he did not believe that
monetizing more of the debt would produce prosperity.
After noting that he would not recommend a change in the
discount rate or the directive at this time, Mr. King commented that
he had just returned from a European trip of about four weeks
during which he visited seven countries.
boom appeared to be still
In general, the business
going on, although there were beginning to
be signs in some countries that the boom might be leveling off some
what.
He had returned with the definite impression, Mr. King said,
that the European central banks believed the maintenance of the
U. S. Treasury bill rate during the past year or so had been a
most constructive factor.
When he went to Europe, he was beginning
-30
7/11/61
to waver a little on that score, but he returned with the impres
sion that there was not too much room for decline in the bill rate.
In a concluding comment, Mr. King said that his thinking
about going into operations in longer-term securities had been
based largely on attempting to maintain the bill rate, with other
possible objectives, on the domestic side, more doubtful of accomplish
ment and of less importance.
should, he thought, still
Maintenance of the short-term rate
be the primary guide in the weeks ahead so
far as such operations were concerned.
Mr. Shepardson expressed the view that monetary policy had
been appropriate.
As reported by the Account Management, and as
indicated by the Federal funds rate, there had been a reasonable
degree of ease and ample availability of funds.
The fact that loans
had not risen more was perhaps not too disturbing when the volume
of activity in the capital markets was considered.
He did not know
exactly how much of the funds obtained in the capital market might
have been used to reduce bank debt.
To the extent that they had,
however, he felt that was a wholesome and constructive development,
for it indicated that businesses were putting themselves in a
better position.
With regard to the suggested discrepancy between the language
of the directive and the behavior of the money supply, Mr. Shepardson
said he would align himself with the view expressed by Mr. Bryan that
account must be taken of the expansion that had occurred outside the
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7/11/61
money supply, narrowly defined. For that reason, and in light of the
pending Treasury operations, he considered it desirable and appropriate
to continue the policy that had been followed recently.
Mr, Robertson said that he would align himself almost completely
with the views of Mr. Johns, subject to the qualifications subsequently
introduced by Mr. Bryan.
The combined approach of Messrs. Johns and
Bryan seemed to him good.
In his judgment, Mr. Robertson said, open market operations
since the June 20 meeting had not been sufficiently aggressive to
comply with the consensus of views expressed at that meeting, and
certainly not sufficient to carry out the directive, which specified
that operations should be conducted with a view "to encouraging expansion
of bank credit and the money supply so as to contribute to strengthening
the forces of recovery."
As he saw it, this was certainly a time to be adding to the
money supply in order to promote economic growth at a faster rate in
view of the absence of inflationary movements.
Yet, with exceptions
so rare as to indicate they were accidental, operations during the
past six months had in his view been so far on the cautious side as to
preclude an adequate expansion of the money supply.
In his opinion,
the Committee should strive for a higher level of free reserves
ranging from $550 to $600 million, between now and the next meeting.
Mr. Robertson then said that in view of what he understood
to have been the Committee's decision to disengage from operations in
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7/11/61
longer-term securities "as rapidly as possible without unduly
impairing the structure of the market", he was astonished at the
acquisitions in the long-term area ten days or so ago.
While it
was true that securities had to be acquired in order to provide
reserves in a substantial measure, the appropriate volume of
reserves could have been added through the purchase of bills
without unduly depressing the yield.
If the objective of the
"nudge"operation was to hold up the short-term rate, there was no
need for the "nudge"operation during the period in question.
If
the objective, on the other hand, was to push down long-term rates,
the quantity of acquisitions in the long-term area was insufficient
to affect any rates other than the rate on long-term Governments.
Consequently, it seemed to him that the acquisition in the long
term area must have been for purposes of "show"rather than "effect",
and that they were hardly in keeping with what he understood to
be the Committee's decision to disengage from the operation as
rapidly as possible.
Already, Mr. Robertson continued, there had developed a
definite thinness in the market for long-term Government securities.
If official purchases were continued, picking up the "bargain
offerings" in the market and depressing Government yields relative to
other securities, prospective private buyers of Governments would
be discouraged.
Some might divert funds permanently to other
markets, and some might postpone acquisitions of Governments until
7/11/61
-33
a later date in the hope of a sufficient advance in yields to
more than compensate for any loss of return in the interim.
Such tendencies would be reinforced by the prospect of a forth
coming general cyclical advance in market rates.
Mr. Robertson noted that during several weeks in April
and May official purchases had accounted for as much as 50 per cent
or more of dealer sales of long-term Governments, and retail purchases
had often dropped to one-fourth or less of the total.
During the
recent period when the System acquired intermediate- and longer-term
securities, other buying was negligible.
If this trend of partici
pation should continue, beyond some point private buying actions
would lose their influence upon market rate determination (although
private selling actions were not likely to do so) and official
purchasing action even when accomplished within the quoted consensus
of dealer prices, would become the effective determinant of the
prices posted by the dealers.
That is, whenever securities could
not be moved to official buyers at existing prices, dealers would
be likely to proceed to adjust offering prices downward until some
official buying interest could be elicited.
This development, while
not yet firm "pegging," would enormously complicate Treasury attempts
to lengthen the maturities of public financings and might lead to a
reliance upon official bids for "cues" as to current market price
levels in disregard of the changing balance of private supplies and
demands.
The continuation of official buying could widen the gap
7/11/61
-34
between prevailing market yields and those yield levels which would
be sustainable on the basis of private buying interests alone.
The
wider this gap became, the more market turbulence would be in prospect
if and when the "nudge" operation was finally halted or overwhelmed.
Quick cessation of official purchases in intermediate- and
long-term securities was, Mr. Robertson believed, the only sure way
to avoid possible concentration of sales (even short selling) by
dealers, other professionals, and large sophisticated investors
endeavoring to transact all possible business at supported price
levels in anticipation of later sharp rate advances.
Comments were
heard to the effect that sustained blocks of such holdings were
overhanging the market.
An attempt to continue official purchases
when such sale efforts materialized would undoubtedly lead to a
focusing of market prices around the bids of the official buyers
for as long as they were maintained.
Avoidance of official pur
chases would allow the traditional restraint of price declines to
curb the liquidation program of these and other holders of Govern
ments.
In short, it was his belief, Mr. Robertson said, that the
special "nudge"operation should be terminated now.
It had already
brought about a thinness in the market for intermediate- and long
term Government securities which would make much more difficult
the task of the Treasury to finance in the intermediate and long end
7/11/61
-35
of the market because of the most impossible job of determining
objectively a rate at which to offer such securities.
Such an
obstacle should not be placed in the way of the Administration
(with or without its consent and encouragement) in its effort to
get the maturity schedule of the public debt into a more manageable
position.
After stating that he would not recommend changing either
the discount rate or the directive at this time, Mr. Robertson
returned to the subject of operations in longer-term securities and
expressed himself as surprised at the July 7 memorandum from the
Federal Reserve Bank of New York which suggested a new criterion for
such operations.
While this proposal seemed to be based almost
entirely on the idea of maintaining maximum flexibility, he had a
feeling that this was mere camouflage.
It appeared to him to be
more a matter of playing a game than providing reserves according
to the needs of the economy.
Mr. Mills said he wished to join those who had expressed
agreement with the comments of Mr. Bryan regarding the money supply
problem.
He shared what he sensed to be the concern of Mr. Bryan
about the inflationary danger that was implicit in maintaining a
constant high level of positive free reserves over a long period
of time.
It disturbed him that some members of the Committee had
fallen into the habit of devoting attention almost exclusively to the
money supply, as conventionally defined, for he believed the Committee
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7/11/61
would be much better advised to focus its attention on the expansion
of bank credit.
Within the past year bank credit had expanded by
some $13 billion, which, to the extent that the actions of the Federal
Reserve System had contributed to it,
was a major accomplishment.
Not too long ago, he recalled, considerable concern had been expressed
within Committee circles about the magnitude of the near-money
substitutes that were then contained in the financial system in forms
such as time deposits, savings and loan shares, and mutual savings
bank deposits.
Now, however, the comments had turned in the opposite
direction, with apparent abandonment of concern about injections of
liquidity into the financial system.
These could have explosive
qualities at such future time as accelerating recovery might ignite
them.
As to the money supply, per se, Mr. Mills said he wished
to repeat the sentiments he had expressed previously to the effect
that in the present climate of economic activity Treasury financing
through the commercial banking system offered itself
as the appropriate
vehicle for expanding the money supply, through the opportunity it
afforded to supply reserves on the occasions of Treasury cash financing
and through the tax and loan account procedure.
Mr. Mills said he could see no reason to change the discount
rate at this time.
While he would renew the special authorization
covering operations in longer-term securities, again, as at the June 20
meeting, he would implement the authorization by abstaining from
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7/11/61
operations outside the bill
market.
sector of the Government securities
For the period immediately ahead,
he could see no
objection to a level of free reserves ranging from $500 million
to $575 million, or thereabouts,
provided the Desk was careful
to observe the reactions of the Government securities market and
of the commercial banking system to the availability of so substantial
a base of reserves on which credit expansion could proceed.
Again,
as he had said at the June 20 meeting, he felt the Committee had
committed an error, from which it
was difficult to recede,
in
having the policy directive include reference to the money supply.
It was the question of bank credit expansion on which the Committee
should focus,
occurring.
in his opinion, and bank credit expansion had been
In his judgment the Committee could be exposed to
criticism later if the money supply had not risen.
It would have
been forgotten that there had been a major expansion of bank credit,
which had served the purpose of stimulating the economy under present
conditions.
Mr. Wayne reported that business activity in the Fifth
District during recent weeks was perhaps somewhat less vigorous than
appeared to be the case in the nation as a whole.
Employment
showed increasing gains through May but manufacturing man-hours were
smaller than in previous months.
year's highs.
Both figures remained below last
Production increases were noted in same sectors, but
lumber output had slackened recently in the face of weak demand.
In
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general, manufacturing industries were firm or improved.
The pace
of construction work remained high and the favorable volume of contract
awards portended strength for the near future.
Bituminous coal
production and loadings had been up sharply, but the troublesome
longer-run problem remained unsolved.
Retail sales,
those of automobiles in particular, had been strong.
including
The agricultural
outlook was fairly good, except in certain areas that had been
affected by heavy rains.
Mr. Wayne noted that the textile industry, which provides
over a quarter of the District's manufacturing Jobs,
facing more than the usual number of problems.
of demand were still
of woven goods.
currently was
Significant areas
weak, particularly the demand for certain lines
Prices were down substantially, yet rising costs were
virtually assured as the result of higher support prices and the
prospective minimum wage increase.
In short, demand would have to
increase considerably before the additional costs were recovered.
In the long run it seemed that the mills were likely to turn more and
more to automation, with less and less employment provided.
District banks continued to be in a comfortable position,
Mr. Wayne said.
Borrowings from the Reserve Bank increased moderately
in the first week of the most recent period but then declined, so
that borrowings approached the low levels typical of the past winter
and spring.
While District banks were net buyers of Federal funds
for most of the period, their purchases were less than in May.
-39
7/11/61
Business loans and most other loan categories showed seasonal gains,
and grass loans increased in the manner typical of this period of
the year.
The banks reduced their total investments about seasonally,
but holdings of short-term Governments increased substantially.
Mr. Wayne expressed the view that the Desk should be com
mended for a good job during the past three weeks in consistently
maintaining an appropriate degree of ease despite wide swings in the
forces affecting reserves.
at any time.
There appeared to have been no tightness
While free reserves rose sharply and the Federal funds
rate fell on occasion, the Desk correctly appraised these movements
as temporary and there was no sloppiness.
The bill rate had been
quite stable, and the rate on Federal funds was continually well
below the discount rate.
Such conditions, he felt, were appropriate
at a time when there was not yet assurance that the recovery would
continue and expand.
In his opinion, the situation called for con
tinued ease.
Mr. Wayne said he would like to associate himself with the
view of Mr. Mills that any move in the next three weeks toward
realizing the goal of the directive should concentrate on the
expansion of bank credit rather than the money supply, narrowly
defined.
It would be necessary to work through expansion of
investments,
and the Treasury operations would afford an opportunity.
He would favor the maintenance of free reserves at a level that would
help banks participate,
and if free reserves went above $550 or
$600 million he would not be disturbed.
-40
7/11/61
Mr. Wayne said that he would not recommend changing the
directive or the discount rate at this time.
As to the special
authorization covering operations in longer-term securities, he
was not aware that the Committee had concluded to disengage from
such operations.
While he was not prepared at this time to accept
the New York Reserve Bank's proposed new criterion relating to
transactions in longer maturities, neither was he prepared to label the
special operation a failure or to abandon the program on which the
Committee had embarked in February.
He was not persuaded that the
Committee should now or at some date in the near future return to the
so-called "bills only" policy unless better supporting arguments were
available thanhad come to his attention or unless the Committee
was prepared to withstand an onslaught of criticism directed against
the System.
Mr. Clay commented that in the current period Treasury
financing activities apparently would dominate the financial scene
so far as monetary policy is
concerned, which suggested that Committee
operations should be geared to the maintenance of an "even keel."
This did not preclude, however, continuance of the general direction
of monetary operations that had been the Committee's objective in
"encouraging expansion of bank credit and the money supply,"
Rather,
it meant that there should be no significant change in that policy.
In the course of its operations over the past three weeks, Mr. Clay
noted, the Open Market Account had acquired securities having various
7/11/61
-41
maturities longer than one year, and it seemed to him desirable that
the Manager have discretion with respect to this type of operation in
the period immediately ahead.
So far as the state of the economy was concerned, apart from
Treasury financing considerations, it seemed to Mr.
Clay that the
Committee should continue its expansionary policy with a view to
stimulating economic activity and growth.
out, was not encumbered in
its
The Committee, he pointed
current operations by a conflict between
its price stability objective and the objective of fostering a higher
level of economic activity, by reason of the favorable price develop
ments that were occurring in the commodity markets.
Continuing, Mr. Clay remarked that the expansion of bank
credit in June would have been more encouraging if
it
had represented
private credit demands to a greater extent rather than Treasury financing.
Nevertheless,
as Treasury tax and loan accounts ran down, bank reserves
should be maintained
credit.
in sufficient volume to foster the growth of
Since banks had not reduced their rates on loans significantly
over the recent period of contraction, it seemed all the more desirable
that credit availability be maintained and improved.
No change appeared to him to be called for in either the
directive or in the discount rate, and he felt that the authorization
covering operations in longer-term securities should be renewed.
the latter
respect,
Mr.
In
Clay added that he had not been aware of any
decision on the part of the Committee to disengage from operations
in
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7/11/61
longer-term securities.
In his opinion, there had been no proof
of failure; nor would he expect that, considering the conditions
and the period of time in which the special operations had been
conducted, there would be proof of great success.
However, the
Committee had been successful, certainly, in the area of preventing
excessive pressure on short-term rates, which he regarded as one
of the necessary reasons for which the operations in longer-term
securities were undertaken.
From the opinions he had heard at
Committee meetings, members of the Committee did not appear to have
changed their minds significantly from the positions they took when
the special authorization was first granted.
In his view, the
Committee should use all of the instruments available to it for
attainment of the objectives of monetary policy.
It should continue
to engage in operations in the longer-term area long enough to obtain
some real indication of results one way or the other.
Mr. Allen said that his comments could be summarized in the
words 'more of the same."
That was the situation in the Seventh
District, where economic activity continued to rise gradually and
employment was improving.
Most businessmen were optimistic, as
evidenced by the statements of business leaders published by the
First National Bank of Chicago on July 1.
The spokesmen for steel,
electrical machinery and appliances, merchandising, construction
machinery, petroleum, and automobiles all expected improvement in
the second half of the year.
In covering credit and interest rates,
7/11/61
-43
the Chairman of the First National Bank of Chicago (also President
of the Federal Advisory Council) foresaw growing demands for funds,
private and government alike, with a gradual shift in Federal
Reserve policy from the relative ease of recent months, and a rise
in the interest rate structure with pressure greatest at the short
end.
He did not expect any change in the prime rate during the next
six months, because "the rise in short-term commercial borrowings
from banks probably will lag the business recovery as it has in the
three previous postwar cycles."
Mr. Allen noted that ten cities in the Seventh District,
Chicago and Detroit among them, had recently been moved by the U. S.
Department of Labor to a lower category of unemployment.
In the farm
areas, crop conditions were generally good to excellent throughout the
District.
Both corn and soybeans looked very good.
Automobile production was 560,000 units in June.
Present
schedules called for only 400,000 in July, 200,000 in August, and
475,000 in September--a total of 1,075,000 in the third quarter--but
production for the fourth quarter was estimated at 1,700,000.
New
model introductions were scheduled to begin in mid-September and to
be completed by October 1. The possibility of a strike was, of course,
important;
if a strike should begin on August 31, the industry probably
would not have more than 550,000 1961 models and 100,000 1962 models to
sell at that time.
7/11/61
-44
With respect to banking and credit, Mr. Allen said he could
think of little
meeting.
to add to the staff review distributed prior to this
The expected pickup in private credit demands was still not
much in evidence, and he saw little reason to expect strong demands for
bank credit for several weeks yet.
Seventh District banks, the money
market banks in particular, had considerable leeway to accomodate loan
demand when it did develop.
In the last statement week the Chicago
central reserve city banks showed a surplus basic reserve position of
over $100 million, most unusual historically.
As to monetary policy for the next three weeks, Mr. Allen
felt again that "more of the same" was in order.
Conditions generally
seemed to him to point to such a course, and the Treasury financings
provided another reason.
He would favor continuing the current degree
of ease, from the standpoints of both statistics and atmosphere, so
far as that was possible, and he would not change either the directive
or the discount rate.
At the same time, he thought the Committee
must be vigilant and prepared to move.
The fires of inflation might
be only embers, as many seemed to say, and it was to be hoped they
were right.
However, some pretty dry timber was being piled close
by, and there were fire bugs around as always, so the System might
have to use its equipment, for what it was worth, before long.
In conclusion, Mr. Allen said he would not favor continuing
the special authorization to operate in longer-term securities because
in his view that operation had proven as ineffectual as it was indefensible
7/11/61
-45
and represented an undesirable and unwarranted authorization to inter
fere with the free operation of the market.
Mr. Swan said that in the Twelfth District somewhat less than
vigorous recovery appeared to be continuing, against the background of
a high and persistent level of unemployment and excess capacity.
In
the District, as in the nation, a cautious attitude on the part of con
sumers seemed to be reflected in the steady rise of savings deposits at
banks and share accounts in savings and loan associations.
Incidentally,
the rate of 4-1/2 per cent being paid by savings and loan associations in
California was firm for the second half of the current year.
Mr.
Swan went on to say that the Committee seemed to be con
fronted on the one hand by a still
moderate business situation and
moderate demands for bank credit, and on the other hand by a relatively
heavy Treasury financing program.
In his opinion, both of these
factors led to the position that the present policy of ease should be
continued, with any doubts very firmly resolved on the side of ease.
To him this would mean a bill
rate of around 2-1/4 per cent and free
reserves in the range of $500-$600 million.
However,
in view of the
wide swings anticipated in the period ahead, with market factors
supplying reserves the next two weeks and a turnaround in the week
ending August 2--and in line with Mr.
Robertson's analysis at the
June 20 meeting of the effect of such swings in market forces,
particularly float, on reserves--for the next two weeks he would not
try to offset entirely the additions to reserves supplied through
market forces.
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7/11/61
Mr.
Swan said that he would not recommend any change in the
discount rate or the directive and that he would favor continuing the
special authorization covering operations in longer-term securities.
He would not be prepared at this point to accept the new criterion
suggested by the New York Bank, but neither would he want to disengage
from operations in the longer-term area.
Committee went into these operations it
possibility of swap transactions.
He recalled that when the
had some discussion of the
Although he was not sure just
how far the Committee intended to go in
that regard, there was explicit
recognition of the possibility of such transactions.
As to the matter
of disengagement, he did not see how this could be considered without
opening up again the whole question of the Committee's statements of
operating policies.
Mr. Ellis commented that in New England there had been some
recovery and some expansion.
As to manufacturing, which was still in
the stage of recovery, the index was up further in May after seasonal
adjustment,
and there was evidence of further increases in manufacturing
activity in June.
Construction contract awards in May were 2 per cent
above last year, but the employment figures were below last year.
For
three successive months through May there had been monthly increases,
but this was just recovery because the figures were still
ago levels.
below year
Initial unemployment insurance claims had gone down further,
to the lower points of 1959 and 1960, which indicated that the unemploy
ment situation was beginning to look much better.
ment, however, was still above last year.
Total insured unemplo
On the expansionary side of
7/11/61
-47
the picture, department store sales had continued to rise and were
exceeding the 1960 figures.
On the other hand, resort business was
off to a slow start, traceable largely to adverse weather conditions.
Mr. Ellis said that business loan demand did not show the
usual strength in June,
this being traceable largely to the category
of loans to sales finance companies.
Deposits dropped during the past
three weeks, and the cumulative gain in demand deposits was now down
to 3 per cent since the start of the current year.
District banks
were net sellers of Government securities in June and were net buyers
of Federal funds on balance.
In contrast to the national picture, loan
deposit ratios rose in June.
Mr. Ellis expressed the view that monetary policy had been
about correct, both in terms of policy and procedure.
The banks had
adequate lending capacity to support credit expansion as needed, but
they were not excessively liquid.
Therefore, it would not be diffi
cult to make an effective shift in policy at a later date if somebody
should blow on the embers of inflation.
In light of the successful functioning of the private capital
markets, Mr. Ellis said he would judge that interest rates were not
out of balance with domestic needs and that they were not, of themselves,
causing upsetting capital flows internationally.
He would avoid concen
trating exclusively on expansion of the money supply as an objective of
monetary policy, especially if time deposits were excluded from considera
tion.
7/11/61
-48
The concern that occupied his thoughts currently, Mr. Ellis
said, was that the Government securities market might be upset by
misunderstandings about Federal Reserve participation in the longer
term area.
Such a situation could develop if the market were led to
believe that the Open Market Committee had undertaken an abrupt dis
engagement from transactions in longer-term securities.
This would be
particularly unfortunate in view of the imminent Treasury financing.
Mr. Ellis said he would agree with Mr. Wayne concerning the
conduct of open market operations during the next three weeks.
As
Mr. Thomas had pointed out, projected changes in required reserves,
Government deposits, and other operating factors might bring about
a heavy supply of reserves in the next two weeks.
Therefore, the
job facing the Manager was to absorb some reserves in this period.
Reference had been made to running off maturities, but action aside
from that might be needed.
absorb all of the reserves.
It would not be necessary, of course, to
Perhaps it was time to look more carefully
at the impact on the market in terms of the tone of the market and
interest rates, rather than to pay too close attention to free reserve
levels, in judging the effect of System operations.
Mr. Ellis pointed out that there was a question as to the
extent of the Committee's present concern with short-term rates.
At previous meetings the Committee had been concerned that the bill
rate not drop too far, but perhaps that thinking was a little out of
date in terms of the changing international situation.
Both for
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7/11/61
international and domestic purposes, the Committee might perhaps
accept a somewhat lower bill rate.
If
that was true, perhaps what
ever purchases the Desk needed to make in the next few weeks would
not necessarily have to be confined to short bills.
by Mr. Rouse at the June 20 meeting, and by Mr.
As indicated
Marsh today, at
some time the Committee should consider the possibility of selling
some of the securities in the Account portfolio other than bills.
Such sales should not be undertaken in the same maturity areas as
those in which the Treasury was conducting its financing.
to maintain contact with the market and to show that it
However,
could operate
on both sides, the Committee should at least consider this possibility
as a tool available to the Desk.
Mr. Ellis expressed the view that this was not the time to
change the discount rate or the directive.
While he would favor
continuing the special authorization relating to operations in longer
term securities, he had not yet had time to study the third criterion
suggested by the New York Reserve Bank to such extent as to reach a
conclusion.
Mr. Balderston said it
seemed to him that a failure to supply
the reserves for an adequate increase in the money supply would create
a drag on the speed and the amount of recovery.
The analysis presented
by Mr. Thomas consoled him somewhat, but only in part, for he recalled
that the active money supply was now at about its historic relationship
to gross national product.
In the earlier cycles since the war, the
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7/11/61
relationship was above the historic norm. He remembered also that the
banks had increased the incentive to accumulate cash in the form of
time deposits; the rates now offered were quite different from those
offered in
1954.
Accordingly,
the fact that the money supply had risen
at only half the annual rate that was true in
the 1954 and 1958 recoveries
seemed to him a matter of some concern, despite the consolation that
could be obtained from thinking in terms of near-money substitutes.
Consequently,
in
terms of free reserves he would favor a target of
about $600 million for the next few weeks.
Continuing, Mr. Balderston said that since the June 20 meeting
he had begun worrying about the speed and degree of disengagement, so
called, from operations in longer-term securities.
Therefore, he would
like to present to the Committee a paper that he had put together because
of this concern and the misunderstanding that he thought might be occasioned,
Evidently, he shared some of the concern that had prompted the July 7
memorandum from the New York Bank,
although he disagreed almost com
pletely with the additional criterion suggested in that paper.
Mr.
Balderston then read the following memorandum:
At this juncture it is important that such differences
as may arise between the Federal Reserve System and its
critics should focus upon questions of principle, and not
of procedure. The most vital issue is to prevent the
economic health of the country from being undermined by
those who would make the money supply either too generous
or too scanty in relation to the needs of the economy.
This is the high ground on which the real battle over the
integrity of the dollar should be fought, and the public
will only be confused by sophisticated differences over
7/11/61
-51
specific monetary and debt management procedures.
This preface is intended merely to make the point
that the Federal Reserve can adhere to sound monetary
policies whether its open market operations are conducted
in the short end of the market, or in the long. There
is no theoretical reason why a portion of the present
Federal Reserve portfolio should net be illiquid, and the
theoretical case against buying long-term bonds, if and
when the System is buying something anyhow, seems to me
inconclusive.
From the point of view of monetary policy
it can be argued that the acquisition of long-term bonds
stimulates the flow of investment funds more directly than
does the acquisition of short-term Governments, even if
one accepts the argument that arbitrage makes quite small
the lag between the infusion of added funds at the short
end and the impact upon the flow of long-term investment funds.
The market-place arguments against operating in the long
end are more impressive, because of the risk that the
breadth, depth, and resiliency of the Government securities
market may be impaired, but nonetheless the movement abroad
of short-term funds and the resultant gold outflow caused
this Committee to experiment. The question to which I
address myself centers in the word "disengagement,"
specifically its degree and amount.
In short, whether the central bank's open market
operations are in the short or long end does not appear
to me vital to the pursuance of sound policy; rather it is
a matter of convenience and of impact upon the health of
the Government securities market.
Convenience, in turn, is affected by the state of the
It may be desirable to keep pressure
market at a given time.
off bill
buying in order not to press downward the U. S.
(This is one part of the special open market
bill rate.
operation that so far has seemed to me successful.)
At
various stages of the business cycle it may be convenient
to the Account to buy short-, medium-, or long-term bonds.
My conclusion that the matter is essentially one involving
procedure, not principle or policy, brings me then to the
question: what is the appropriate procedure for the present
time?
Three factors seem relevant:
(1) Last February the Federal Reserve System announced
that it was going to deal in other than short-term securities,
and proceeded to implement this new procedure by buying
chiefly intermediate Governments for its own account and
chiefly long-term Governments for the account of the Treasury.
By both its announcement and its actions, the System has
-52sought to make clear to
the oft-repeated charge
self into a doctrinaire
(2) The Treasury
the markets and to its critics that
that the central bank had boxed it
position was unfounded.
is about to engage in large refunding
operations and during the fall must raise about $6 billion,
and probably more, of additional cash. Consequently, there
are frequent and extended periods between now and the end of
this year when the Federal Reserve will need to facilitate
Treasury operations by maintaining an "even keel" in the
Government bond market and in the money market. Such a period
is now upon us.
(3) By fall, the commercial banks will need reserves to
meet the seasonal demand for loans which will last until
Christmas. Whether the usual fall loan demand will be
accentuated by the rebuilding of inventories or diminished by
a heavy flow of funds from internal sources and from security
flotations is uncertain. Whichever proves to be the case, the
Federal Reserve will be buying Government securities heavily
during the fall months.
Since the state of the economy will apparently call for
the continued infusion of reserves between now and the end of
the year, it is my present belief that open market operations
should continue to be conducted in long-term Governments as
well as in short. Having embarked upon this change of proced
ure in February, there would seem to be no valid reason for
complete withdrawal from purchases of intermediate- and long
term bonds while monetary policy remains as easy as at present.
It should be recognized, of course, that economic conditions
may at any time call for a diminution of buying at the longer
end, but at the moment weight should be given to the in
compatibility of a Federal Reserve withdrawal from longer
term operations while its policy remains one of active ease.
An abrupt withdrawal would cause sophisticated observers to
conclude that even without formal announcement, the System
had decided that what others have dubbed an experiment was a
failure and was being abandoned. Thus, in effect, the System
would lose whatever gain was achieved in public understanding
that the System's attitude toward bills preferably was not
doctrinaire and that it had not "closed itself into a box."
too early to make a
Moreover, although it is still
complete appraisal of the special project, if in fact this can
ever be done with precision, certain tentative observations
may be made:
(1) It is noteworthy that the bill rate has remained
within such a narrow range so long. Helping to achieve this
objective has been an increased supply of bills by the Treas
ury, and a somewhat restrained supply of reserves by the System.
7/11/61
-53
It is not yet demonstrated that System buying of
(2)
intermediates and longs must inevitably lead to "pegging."
In fact the procedure used so far inclines me to the belief
that "pegging," far from being the inevitable result, will
in fact be avoided if the practice is continued of buying
only offerings below the market. British experience, too,
would support the idea that when the bond level is falling as
a result of economic forces, the participation of the central
bank need not result in "pegging," but assist in making the
decline somewhat more gradual. Witness the present downward
drift of British bond prices to the low level reflected by the
price of consols at less than 40.
(3) Now that the buying on behalf of the Treasury at
the long end has diminished greatly, it would seem appropriate
to me for the Federal Reserve to buy for its own portfolio
amounts that will not be considered puny and insignificant
even if they are less sizable than the quantities bought for
the Treasury during April and May. The appropriate guide
here would be the needs of the economy and the condition
of the market. In short, the Desk's procedure should be
guided by convenience.
Chairman Martin said he thought it was clear that the
discussion at this meeting had revealed surprisingly little disagree
ment on policy for the forthcoming period.
The comments were in
terms of no change in the directive or the discount rate, and in
terms of a free reserve level around $500-$600 million.
With reference to a recent conversation in which questions
were raised with respect to the money supply, the Chairman remarked
that the more he worked with this concept the more convinced he
became that there were no clear-cut answers.
It was dangerous,
he
suggested, for a person to profess that he did have the answers.
With regard to System operations in longer-term securities,
Chairman Martin expressed agreement with those who had presented the
view that there was not enough evidence to conclude in any sweeping
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7/11/61
way that the special operations had been justified or not justified.
He was inclined to think that perhaps the area of truth might be some
where in the middle ground.
At this point, he said, no one should be
asked to pass judgment on the July 7 memorandum from the New York
Reserve Bank, to which he added that the papers presented by Mr.
Balderston and Mr. Robertson also represented contributions on the
subject that everyone would have to study.
At the same time, he
did not feel that as categorical a position as had been expressed by
either Mr. Robertson or Mr. Allen could be supported on the basis of
the record.
In the view of Messrs. Allen and Robertson, the special
operations had been a failure.
It could be said, admittedly, that a
lot of things might have happened anyway if the operations in longer
term securities had not been conducted.
Nevertheless, the bill rate
did not go below 2 per cent and in the second quarter of this year
the flow of capital funds was at a record level.
Chairman Martin commented that some of his predilections in
favor of "bills preferably" had been shattered by some of the contacts
he had made in the market in his effort to get the right answer.
In
summary, thus far he had found three schools of thought in the street.
One group, including some persons formerly associated with the Federal
Reserve System, had strong and vigorous views in opposition to the
special operations, and they might be right.
On the other hand, there
was another group of people who had tended to change their position
with the passage of time.
Also, some people who had given a great deal
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7/11/61
of thought to the matter felt that perhaps this country ought to turn
to the Bank of England's type of market.
As a practical matter, the Chairman said, it
should be realized
that a number of people, including some who thought about the matter
considerably, had convinced themselves that the "bills preferably"
policy had been a failure, and was wrong, and that the only solution
was to make purchases in the long end of the market.
skeptical.
Of this he was
However, he did feel that in the past year or so the
System had failed to explain its
point of view satisfactorily to
many people who were willing to be convinced.
It was necessary to
recognize the job that had to be done in this respect.
The Chairman said further that if the Committee should decide
to rescind the special authorization, some conditioning would have to
be done in terms of the market and the public.
not believe the matter was at that stage.
Personally, he did
On the one hand, he would
not want to embark on a program such as suggested by the proposed
additional criterion of the New York Bank, for he felt that that would
be going too far.
On the other hand, in the summer of 1961, in the
midst of Treasury financing, he felt it would be disastrous to close
the book on the special authorization on the basis of the record.
Committee, he felt, ought to weigh the matter carefully.
The
It had taken
a good many years for the Committee to come to its decision of February 7,
1961.
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In the period since the summer of 1959, Chairman Martin said,
he felt that the System had lost ground in explaining its role to
the public.
In the summer of 1959 he had had no problem. What was
then being sought through suggested purchases of longer-term securities
was easier money, and on that he was not going to give an inch.
However,
at a time like the present, when a policy of monetary ease was in
effect and when discussion at a Committee meeting included a number
of views that there should be further ease, it became more difficult
to espouse the theory that "bills preferably" was something on which
the System ought to stand or die.
As long as the System was pursuing
a policy of monetary ease, he felt it was desirable to use whatever
tools were effective toward that end.
Whether and how the operations
in longer-term securities might impair the Government securities market
was still, in his opinion, an unknown factor.
The Chairman went on to comment that in May of this year he
returned from a trip abroad and while in New York talked to a sub
stantial number of people who were competent observers of the Government
securities market.
While he would not want to make a judgment on the
basis of a poll of that sort, he had been amazed by the fact that there
had been so many different points of view and differing attitudes.
At
present, he was not prepared to accept a thesis that the work to date
had been a failure and that the System ought to paddle back to shore
as rapidly as it could.
The matter had not gone that far.
Having
embarked on something of this sort, he thought the System had a
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responsibility to the public not to get itself involved in a conflict
over issues that were unclear.
The judgment of the two members of the
Committee who were against the special authorization from the start
might turn out to be correct, but in his judgment those views had not
been proven up to the present time.
This was a matter, he felt, that
those in the System must continue to work on and evaluate,
By the
time of the next meeting, there would have been a chance for everyone
to study all of the papers that had been presented.
In the meantime,
he felt that the special authorization should be renewed.
The word "disengagement" had gotten into the picture, the
Chairman noted, and it was necessary to recognize that phase of the
problem.
Unfortunately, this was an area where misunderstandings had
been rife from the start.
There had been erroneous impressions re
garding his own attitude, it had been heard that "pegging" was right
around the corner, and it had been heard that the System was prepared
to tighten the money market.
The fact that all of these things were
said must be recognized; they were not what one would like, but they
were realities.
Therefore, his plea today was for everyone to be
careful in discussions within the System, or without, not to take
too positive a position.
He was not asking anyone to change his views.
However, the problem of public opinion was a difficult one.
He had
heard it said only recently there would have been virtually no recession
if it were not for the failure of the Federal Reserve System to buy
long-term securities.
That was, of course, a distortion of fact, but
the view was not confined to any one person.
The System should be able
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to explain its actions, its modus operandi, and its rationale better
than it had done to date, because it was his honest conviction that
System policy had been quite good.
Chairman Martin expressed the view, in this connection,
that
the observations at this meeting about the money supply and the role
of time deposits had been helpful.
Personally, he was not alarmed by
the lack of vigorous increase in the money supply.
He believed that
the supply of money was adequate and that the Committee was doing the
job.
The Chairman concluded his remarks by saying that he had wanted
to put the problem of operations in longer-term securities in the
perspective in which he saw it
today and to urge renewal of the special
authorization, with, of course, two dissenting votes and with the
understanding that there appeared to be no reason to suggest a stepping
up of activity in the longer-term area.
As he had said, he would not
be prepared to accept the suggested additional criterion.
However,
until there was a great deal more evidence than now available, until
the economy was on sounder footing, and in a period when the System was
pursuing a policy of monetary ease, he would want to eliminate any
suggestion that the System was confining its activities to one sector
of the market.
Rather, it
should be clear that transactions in all
maturities, so far as they might contribute to the attainment of the
Committee's policy objectives, were in order.
Also, although there were some differences of opinion, the
problem of the short-term rate must be borne in mind, the Chairman
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said.
In the course of his recent trip, for example, Mr. King had
reinforced his thinking that the short-term rate should be maintained.
That objective had thus far been successfully achieved; maintenance of
the short-term rate had diminished the outflow of capital and thus had
made a real contribution to the balance-of-payments situation.
basis of the record, this could not be successfully refuted.
On the
He
(Chairman Martin) had talked to a number of central bankers and had
found them unanimous on the point.
There was no one who disagreed.
In further discussion, Mr. Hayes said the main reason for
preparing and distributing the July 7 memorandum was that he had
thought there was not sufficient clarity in the Committee's instructions
to the Desk and that the Desk had been given almost an impossible job
in deciding how much to do in the longer-term area.
The Desk was
faced by the fact that the major stress had been placed on undertaking
such operations when there was a need for putting reserves in the
market and on maintaining the short-term rate.
Further, although he
agreed that the Committee had never taken action to disengage, the
Desk was aware of the sporadic comments with regard to disengagement.
In the face of those facts, the Desk had reason to be as inactive
as it was in June.
It was not necessary to add to reserves and the
bill rate had held up well.
Mr. Hayes went on to say that he thought there were reasons
for showing a continuing interest in doing what the System could to
promote domestic recovery and expansion.
Although the wording of the
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suggested third criterion might be subject to criticism and could be
recast in somewhat different language, the purpose was to have some
rationale to which the Committee could point in explaining to the
market and to the public why the Committee was using the special
authorization, if it was going to continue to use it.
If the Committee
did not believe there was any reason other than to hold up the short
term rate, there would be periods when the Desk would do little or
nothing in the market and this might have bad effects from the stand
point of developing proper market attitudes and of public understanding
of System operating objectives and policies.
In reply, Chairman Martin said that while he had a great deal
of sympathy with the problems of the Desk, sometimes he felt that the
Desk did not have quite enough sympathy for the problems of the Committee.
The whole matter, he said, must be looked at in perspective.
authorization was an evolving authorization.
The special
It began as an authori
zation to purchase securities with maturities up to ten years, but this
was subsequently adjusted to permit operations in all maturities.
Further, for a substantial period the Treasury was making large purchases
of long-term securities for its investment accounts.
The Treasury pur
chases, although they were offsetting to an extent and did not add to
reserves in the same manner as System purchases, became a part of the
pattern.
The Account Manager had a rationale in his mind which included
the Treasury operations, but now the Treasury had run out of money, so
the rationale had to be changed.
This was, then, the problem now facing
the Committee, and it could not be overlooked.
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Mr, Hayes replied by commenting that he would contend that a
month or so ago the Open Market Committee did not contemplate going into
the long end of the market in any relatively large way simply because
the Treasury ran out of money.
Nevertheless,
the fact that the Treasury
did run out of money created a real problem and tended to place more
burden on the System to contribute what it could to the recovery process.
The Chairman, he thought, had quite rightly put some emphasis on the
Treasury aspect of the whole operation.
When he (Mr. Hayes) spoke of
an additional criterion, this could be rephrased to say under the cir
cumstances that if the Treasury was not contributing as it had to the
The Committee should face
recovery process the System should do more.
this problem realistically, as something it
with, and make some decision.
was willing to grapple
Otherwise, the Desk was in a dilemma.
Chairman Martin agreed that the Desk should have as much
clarification as possible.
No one, he said, was more sympathetic than
himself with the problems of the Desk; no one, he felt, had interfered
less with the Desk.
However, the Desk had to assume some sense of
direction, and not only at the point when it
itself.
wanted to accommodate
The Manager, he noted, did not agree with the use and implications
of the word "nudge."
He (Chairman Martin) did not supply it, but
nevertheless it had gotten into the picture.
All of these things were
important, and it was necessary that the Committee recognize them.
The Chairman then repeated his suggestion that the special
authorization be renewed until the next meeting of the Committee.
The
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Desk, he said, should understand that it had discretion in this area.
No one was asking the Desk to go into the longer-term market on any
broad scale; rather, it should maintain the status quo for the time
being.
As suggested earlier during the meeting, it was important not
to have the market misinterpret what the System was doing:
not to have
the market understand that the System was becoming more active in the
longer-term area in the midst of Treasury financing and not to have the
market think that the System was disengaging completely from operations
in that area.
He believed the Desk could operate within such a frame
work, assuming that this represented the majority position within the
Committee.
There were two dissenting votes, he noted, and perhaps
there were others who also would like to dissent.
Mr. Mills said that he wished to express a qualification.
had recommended that the special authorization be renewed.
He
As at the
June 20 meeting, however, his view on implementation would be that for
the present the Desk should abstain from operations outside the bill
market.
Chairman Martin stated that the qualification expressed by
Governor Mills would be recorded in the minutes.
He then inquired
whether there were others who would like to enter qualifications, and
no comments were heard.
In response to a question by Chairman Martin, Mr.
that he understood the basis of procedure quite well.
Marsh said
The Desk would
continue to have its difficulties, when it got into special situations,
in deciding exactly what it could do.
However, the Management of the
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Account would face up to the problem, and he hoped it
could come out
as well as in the past.
Mr.
that Mr.
Shepardson asked for verification of his understanding
Mills'
qualification was an individual qualification and not
the instruction to the Desk, and the Chairman confirmed the accuracy
of this understanding.
Thereupon, 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:
To make such purchases, sales, or exchanges (including
(1)
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 expansion of bank
credit and the money supply so as to contribute to strengthen
ing of the forces of recovery, while giving consideration to
international factors, 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.
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Thereupon, the Committee authorized
the Federal Reserve Bank of New York,
between this date and the next meeting of
the Committee, within the terms and limita
tions of the directive issued at this meeting,
to acquire intermediate- and/or longer-term
U. S. Government securities of any maturity,
or to change the holdings of such securities,
in an amount not to exceed $500 million.
Votes for this action: Messrs. Martin,
Hayes, Balderston, King, Mills, Shepardson,
Swan, Wayne, and Johns. Votes against this
action: Messrs. Allen and Robertson.
Chairman Martin noted that pursuant to the understanding at
the June 20 meeting there had subsequently been distributed to the
members of the Committee and the Presidents not currently serving on
the Committee draft replies to 13 questions, based on the record of
policy actions of the Open Market Committee for 1960, which were
submitted to him at the hearing of the Joint Economic Committee on
June 2, 1961, with regard to the Board's Annual Report for 1960.
The Chairman said that all of the comments received following distri
bution of the draft replies had been taken into consideration, that
revised answers to 12 of the 13 questions had been prepared, and that if
agreeable to the Committee they would be sent to the Chairman of the
Joint Economic Committee.
Similarly, the answer to the remaining
question would be sent as promptly as possible.
No objection being indicated, it was understood that the
procedure suggested by the Chairman would be followed and that copies
7/11/61
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of the answers, as transmitted to the Joint Economic Committee, would
be sent to the members of the Open Market Committee and the other
Presidents for their information.
Secretary's Note: The replies to the first
twelve questions were transmitted to the
Chairman of the Joint Economic Committee on
July 11, 1961, and the reply to the thirteenth
question was transmitted on July 21, 1961,
along with the answer to a question that had
been asked of Chairman Martin and Vice Chair
man Hayes by Chairman Patman concerning the
quickness of effects of reserve requirement
changes and open market operations.
Chairman Martin then referred to the letter from Chairman
Patman of the Joint Economic Committee dated June l4, 1961, confirming
the oral request made by Mr. Patman at the hearings before the Joint
Committee on June 1 and 2, 1961, that the minutes of the Open Market
Committee for 1960 and certain other Committee material for that year be
made available for examination by the Joint Committee.
The Chairman
noted that subsequent to the discussion of this letter at the June 20
meeting there had been distributed to the members of the Open Market
Committee drafts of two possible replies.
One, based on suggestions
by Mr. Deming, might be used if the Open Market Committee should decide
to comply with Mr. Patman's request for the minutes.
The other,
suggested by Mr. Irons, might be used if the Committee decided not to
comply.
After indicating that the draft based on Mr. Deming's
suggestions was along the lines of the type of reply that he (Chairman
Martin) had had in mind at the time of the June 20 meeting, the
Chairman called for comments from the members of the Committee.
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7/11/61
In the ensuing discussion, Mr.
Clay said that he had
endeavored to draft a possible reply which would explain a decision
not to comply with the request for the minutes, but that he had been
unsuccessful in formulating a draft he considered satisfactory.
The
draft submitted by Mr. Irons came closer than anything he had been
able to draft himself.
However, he was now inclined to believe that
a reply along the lines of Mr. Deming's draft probably would be pre
ferable.
Pursuant to a suggestion by Mr. Mills, Chairman Martin then
placed the matter before the Committee in terms of whether any serious
objection would be seen to a reply along the lines proposed by Mr. Deming.
The resulting comments indicated that no member of the Committee would
object strongly to this type of reply.
There were, however,
suggestions for minor changes in the draft, and it
some
was understood that
at least some of the members of the Committee would like to have an
opportunity to study the proposed letter at greater length.
One of the
questions raised concerned the desirability of including in the letter
reference to the reasons for treating the minutes confidentially, there
being a view expressed such references might be superfluous on the
ground that the Joint Committee would be presumed to handle the minutes
on a confidential basis.
However, it was the consensus that there was
something to be said for stating as a matter of record and for the
information of the Joint Committee the reasons why the Open Market
Committee had considered it
important to preserve the confidential status
of its minutes, particularly those for as recent a year as 1960.
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7/11/61
At the conclusion of this discussion it was agreed that the
reply made to Congressman Patman's letter of June 14 should be along
the lines of the draft proposed by Mr. Deming, that in addition to the
changes specifically mentioned at this meeting an opportunity would be
provided for members of the Committee to submit further suggestions,
and that the letter would then be sent in a final form satisfactory
to Chairman Martin without further clearance with the Committee.
In the course of the foregoing discussion, several members of
the Committee raised for consideration the question of the advisability
of publishing the minutes of the Committee for some appropriate past
period,
it
being suggested that the minutes would constitute valuable
research material for scholarly purposes and that there would be some
advantage in making the minutes available to all persons who might
have an interest in studying them.
The view also was expressed that the
Committee should give further consideration to the possibility of pub
lishing the record of policy actions of the Committee on a basis more
frequently than once each year, after some suitable time lag.
It was
agreed, however, that these questions should have the benefit of mature
deliberation on the part of the Committee before any decision was
reached.
Secretary's Note: Pursuant to the procedure
agreed upon by the Open Market Committee,
the following letter was sent over Chairman
Martin's signature to Chairman Patman of the
Joint Economic Committee on July 21, 1961:
7/11/61
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The Federal Open Market Committee has carefully considered
the requests for copies of its minutes and certain other mate
rials for the year 1960, made of Mr. Rouse and me during the
Joint Economic Committee Hearings of June 1 and 2, 1961. You
and I have discussed these requests by telephone, and they
were referred to in your letter of June 14, 1961. It is the
view of the Federal Open Market Committee that it should act
as follows on your Committee's requests:
1. A memorandum outlining the considerations taken into
account on the last occasion when the Committee instituted a
policy of restraint is enclosed. In this connection, I should
point out, as do the answers I have already submitted to the
list of questions you raised at the Hearings, that the deter
mination of monetary policy is a continuous process, and thus
it is difficult to pinpoint the moment of a change. To repeat
a comment I made on this subject more than five years ago,
"Monetary policy...must be tailored to fit the
shape of a future visible only in dim outline.
Occasions are rare when the meaning of developing
events is so clear that those who bear the respon
sibility can say, 'As of today, our policy should be
changed from ease to restraint'--or from restraint to
ease, as the case may be. What is true of a change in
policy is also true of a shift in policy emphasis: it
is rarely decided upon in a single day. More typically, as
is evidenced by open market operations, the outline of a
shift in policy emphasis, like the outline of the future,
emerges gradually from a succession of market develop
ments and administrative decisions. It is a poor subject
for the photo-flash camera to capture as a clearly defined
still life, or for a news story to etch in spectacular
outline. Getting a perfect garment for the future may
require several fittings."
Therefore, factors considered and analyses undertaken by the
Committee during the meeting immediately preceding and dur
ing other meetings farther back in time might not seem
strikingly different from those at the meeting that may be
selected as marking the beginning of a policy of restraint,
2. Copies of the wires referred to in your letter as
being from the Board to Mr. Hayes and Mr. Rouse are enclosed.
These wires, prepared at the offices of the Board of
Governors and sent to all Reserve Bank Presidents as well as
Board members, contain a detailed summary of the 11:00 a.m.
daily conference call which, you will recall, was fully
described by Mr. Rouse in his statement that he read at the
7/11/61
-69-
hearing on June 1 and submitted for the record.
Most of the
information contained in each wire is a rundown of develop
ments in the money and securities markets during the first
hour of trading that morning. The last part of the wire
indicates what the Account proposes to do that day, given
the situation as seen at 11:00 a.m.
3. Regarding the notes and interpretative memoranda
referred to in your letter:
(a) There is very little
in the way of note
taking beyond that done by the secretarial staff of
the Committee and by a staff member of the New York
Bank to record what actually transpires at the meetings.
Any notes taken at the meetings by Committee members
are usually no more than scribbled abbreviations for
the purpose of keeping for the moment a running memory
aid of the discussion as it proceeds, and such notes
are not customarily retained. The minutes are pre
pared promptly by the secretarial staff and drafts
thereof are usually in the hands of the Committee
members and Mr. Rouse, as Manager of the System Open
Market Account, within a week to 10 days. The Sec
retary of the Committee also furnishes Mr. Rouse by
the morning of the day following a meeting a brief
unedited synopsis of each member's policy recommenda
tions and of the consensus of the Committee. The notes
taken by the staff member of the New York Reserve Bank
are recast in the form of an internal memorandum for
working purposes, and this memorandum and the synopsis
are available to Mr. Rouse as an aide memoir pending
receipt of the preliminary draft of minutes and the
final minutes. Since these are merely staff working
papers and their content is fully covered in the
minutes, it seems needless to furnish them separately.
(b) As to interpretative memoranda, these may be
taken to include the economic summary prepared by the
Board's staff, projections of reserve figures and
factors, and the detailed record of open market opera
tions undertaken since the previous meeting, all of
which are furnished to Committee members prior to the
meeting. Copies of these are enclosed, although their
substance is covered to some extent in the minutes.
Also, there is enclosed the pertinent opening
paragraph of a memorandum dated August 2, 1960, and
sent by Mr. Rouse to the members of the Federal Open
Market Committee and the Federal Reserve Bank Presi
dents not then serving on the Committee, expressing
his understanding of the consensus of the Committee
at its July 6, 1960 meeting relative to possible open
market operations in short-term securities in addition
-70to Treasury bills. This is included because it might
be considered to be interpretative of a Committee dis
cussion.
4. Verbatim records of the meetings of the Federal Open
Market Committee are not made. The minutes, however, present
a faithful and comprehensive record of the Committee's pro
ceedings.
The Open Market Committee is prepared to make these
minutes of its meetings held in 1960 available to the Joint
Economic Committee on the understanding that they will be
treated as confidential. It should be noted, however, that
some members of the Committee feel that normally it might be
more appropriate for a request for the minutes to come from
the Banking and Currency Committee of the House or of the
Senate. With regard to the request that the minutes be
handled as confidential, the Committee believes that it would
not be in the public interest to have such minutes for 1960
made public in whole or in part at this time, and its reasons
for this position are as follows:
(a) There are references in the minutes to informa
tion obtained on a confidential basis. This information,
and its sources, should be kept confidential, certainly
for a substantial time period.
(b) From time to time there are references in the
minutes to long-term prospects and possible monetary
policy action should these eventuate. To guard against
a reduction in the effectiveness of Committee actions
or potential actions, there should be some considerable
elapse of time before the minutes of any given meeting
are given public access.
(c) The minutes contain a full account of the pro
ceedings at the meetings, including the participants'
statements. However, a person will frequently compress
his remarks by omitting matters of background perspective
that are fully understood by others present at the meet
ing, but which might lead to misinterpretation on the
part of one merely reading the minutes without the
advantage of having been present.
(d) The minutes contain statements by individual
members which are often made to raise points of discus
sion or to probe the possibilities of different courses
of action in implementing System policies. These state
ments do not necessarily represent a firm view of the
individual member and, in fact, the member may raise a
particular matter merely to obtain discussion and
clarification of the issues involved. Needless to say,
individual views expressed early in a meeting may well
be modified by subsequent discussion during the meeting.
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7/11/61
Therefore, the participants should feel free to raise
questions and express their views--either tentative or
firm--with the knowledge that their comments will not
be released within a short period of time after the
meetings. This freedom of discussion and the exchanges
of viewpoints prior to the final decision are essential
features of the process of decision-making.
It is largely for the foregoing reasons that the Open
Market Committee believes that the public interest would not be
served if the minutes for 1960 were to become public documents
at this time, either in whole or in part. The Committee is
particularly of this view, in the light of the comprehensive
Record of Policy Actions made available some months ago in
the 47th Annual Report of the Board of Governors of the
Federal Reserve System.
The official records of the Federal Open Market Committee
are maintained in the Board's offices, where the original copy
of the minutes for 1960 is available for examination by repre
sentatives of your Committee. However, with the thought that
it would be more convenient, the duplicate original signed
copy of the 1960 minutes is being delivered herewith to the
custody of your Committee for its perusal. It will be appre
ciated if this duplicate original is returned to us for safe
keeping as soon as it has served its purpose.
There had been included on the agenda for this meeting discussion
of a memorandum dated June 15, 1961, from the Steering Group of the
Government Securities Market Study in which authority was requested to
explore with nonbank dealers individually the possibility of a standardized
system of financial reporting.
However, it being understood that the
matter was not particularly urgent, it was agreed to defer consideration
of this memorandum until another meeting of the Committee.
It was agreed that the next meeting of the Federal Open Market
Committee would be held on Tuesday, August 1, 1961.
The meeting then adjourned.
Secretary
Cite this document
Federal Reserve (1961, July 10). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19610711
@misc{wtfs_fomc_minutes_19610711,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1961},
month = {Jul},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19610711},
note = {Retrieved via When the Fed Speaks corpus}
}