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, October 24, 1961, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Hayes,
ViceChairman, presiding
Allen
Balderston
Irons
King
Mills
itchell
Robertson
Mr. Shepardson
Mr. Swan
Mr. Ellis,
Alternate for Mr.
Wayne
Messrs. Fulton, Johns, and Deming, 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. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Thomas, Economist
Messrs. Baughman, Coldwell, Einzig, Noyes, and
Hatchford, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Messrs. Holland and Koch, Advisers, Division of
Research and Statistics, Board of Governors
Mr. Furth, Adviser, Division of International
Finance, 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. Heflin, First Vice President, Federal Reserve
Bank of Richmond
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Mr. Hickman, Senior Vice President, Federal
Reserve Bank of Cleveland
Messrs. Eastburn, Lewis, Strothman, and Tow,
Vice Presidents of the Federal Reserve
Banks of Philadelphia, St. Louis,
Minneapolis, and Kansas City, respectively
Mr. Eisenmenger, Acting Director of Research,
Federal Reserve Bank of Boston
Mr. Link, Assistant Vice President, Federal
Reserve Bank of New York
Mr. Holmes, Manager, Securities Department,
Federal Reserve Bank of New York
Mr. Brandt, Assistant Cashier, Federal Reserve
Bank of Atlanta
There had been distributed to the Committee preliminary and
revised drafts of minutes of the meeting of the Committee held on
October 3, 1961.
Upon inquiry by Vice Chairman Hayes as to whether there were
any comments or suggestions regarding the minutes, Mr. Robertson
stated that in light of a point to which his attention had been called
by Mr. King,
he would like to request, in connection with his comments
appearing on page 13 of the revised draft, that the next-to-last* sen
tence be changed as follows:
He would agree-with-Mr.-King SUGGEST that the Committee
should not continue to guide its policy by the level of the
bill rate--too much emphasis had been put on the bill rate.
No objection to Mr. Robertson's request was indicated, and it
was understood that the change would be made.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, the minutes
* Last sentence beginning on page 13 of typed copy.
10/24/61
of the meeting of the Federal Open Market
Committee held on October 3, 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
October 3 through October 18, 1961, and a supplemental report covering
the period October 19 through October 23, 1961.
Copies of both reports
have been placed in the files of the Committee.
In supplementation of the written reports, Mr. Rouse made the
following comments:
The conduct of open market operations during the period
since the last meeting has been complicated by unforeseen
adjustments in reserve statistics. Not only has the reserve
outlook ahead been highly uncertain, but in addition there
have been some large downward adjustments of free reserves
for statement weeks that had already passed. The resulting
lower level of free reserves, however, was not reflected in
any significant firming of money market conditions. Federal
funds generally traded around the 2-1/4 per cent level and
rates on three-month Treasury bills continued to move in
the general 2.25 - 2.35 per cent range in which they have
fluctuated since late August. Although dealers held over
$1.8 billion of bills in trading accounts as of Friday night,
more than half were bills due in over 90 days and on average
they have been able to carry the bills at a profit. With
bill rates tending to follow movements in the Federal funds
rate, there would appear to be little likelihood of any increase
in bill rates as long as the Committee continues to maintain the
present degree of ease--particularly in view of the purchases
required to meet the large-scale need for reserves over the next
two weeks. However, temporary firming of the Federal funds rate
to the 2-3/4 - 3 per cent level would probably help shake bills
loose from dealers' portfolios and minimize the effect of our
rates.
purchases on bill
The Treasury plans to announce the terms of its November
A major question is whether the $7
refinancing next week.
billion of maturing securities, nearly all of which are pub
licly owned, will be refinanced on a cash basis or whether the
10/24/61
Treasury will give holders pre-emptive rights to exchange
into one or more new issues,
It seems likely that the
Treasury will try to achieve some debt extension whichever
method is employed, particularly since it appears that banks
have recently tended to move out the maturity scale slightly
in quest of higher earnings. Also, there has been some
small buying interest in Treasury bonds on swaps out of
corporates as the narrowed rate spread between Treasury and
corporate issues has made the former relatively more attractive.
A difficulty with the cash method is that the Treasury must
specify the size of each issue it will offer, and with the
market's appetite for maturities beyond the short-term area
uncertain as to amount, this is not an easy problem.
On
the other hand, if the Treasury chooses to give "rights" to
holders of the maturing issue, it will have to face the
problem of attrition. If attrition should be normal, the
Treasury in all likelihood would have to come to market
with a special cash operation.
I should mention that the
System does not hold any of the maturing issue.
Thereupon, upon motion duly made
and seconded, the open market trans
actions during the period October 3
through October 23, 1961, were approved,
ratified, and confirmed.
Mr. Noyes presented the following statement with respect to
economic developments;
A careful analysis of the whole range of economic
intelligence available at this juncture seems to yield
something of a dichotomy. hith very few exceptions
businessmen and business economists report disappointment
with the behavior of the economy in the third quarter,
and skepticism about the strength of the expansion ahead.
At least on the surface, there is considerable statisti
cal evidence that seems to support this less optimistic
appraisal of the situation, Even before the work stoppage
at General Motors and Hurricane Carla last month, the pro
duction index was showing a curtailed rate of increase.
It is difficult to estimate just how much of the weakness
in industrial output in September should be attributed to
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these transitory factors and the anticipation of the tie-up
at Ford which materialized in October. A few components of
the index continued their vigorous expansion, but most seemed
to reflect a falling off in the rapid rate of increase which
had characterized the advance in spring and early summer.
Unemployment was not significantly reduced--remaining just
under the 7 per cent rate in September, for the tenth consecu
tive month.
The statistics on retail trade are perhaps the least satis
factory of all the current measures of economic activity. But
even after allowing for a considerable bias on the downside,
retail sales can hardly be described as buoyant. At department
stores we find that, while activity has picked up a little
in
recent weeks, it is still
at about the July level, on a season
ally adjusted basis.
The increase in personal income also moderated considerably
in August and September. Actually, income declined from July
to August, but after deducting the National Service Life Insur
ance dividend in July, the increase, at seasonally adjusted
annual rates, was $800 million in each of the last two months.
This was considerably less than the month-to-month increases
earlier in the year, and even less, for example, than the
September to October advance a year ago.
Perhaps most important of all, wholesale prices of indus
trial products--that is, the prices that manufacturers receive
for their products--have shown no significant upward movement
during the entire recovery period and are now still more than
1/2 of 1 per cent below the March level.
If we stopped at this point, the less optimistic appraisal
of the outlook which seems to have become so prevalent in the
business community would seem to be justified-and one might
well ask why there is any reason to question it.
There are, it seems to me, two kinds of reasons.
First,
if we look at the third quarter as a whole, in terms of the
GNP accounts, we find that the economy was operating at levels
The $10
which few believed we could achieve six months ago.
billion increase involved in the $526 billion third quarter
estimate, while less than the $15 billion jump from the first
quarter to the second, is large by any other standard. More
over, this increase was accomplished in the face of a smaller
increase in Government purchases of goods and services than
was expected and a substantial cut in net exports.
Thus,
personal consumption expenditures actually increased more in
the third quarter than the second, contrary to general
expectations.
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The second set of reasons for questioning the somewhat
pessimistic view which has developed is admittedly more tenu
ous and prospective.
It stems from such facts as the scattered
evidence of some improvement in the production index in October
(despite the Ford strike), the rise in the seasonally adjusted
rate of housing starts (despite a big drop in FHA financed
activity), and the moderate, but continuing rise in manufacturers'
new orders for durable goods. It is supported by the knowledge
that the less than expected rise in Government spending in the
third quarter probably means more for the current quarter and
those ahead. It is further buttressed by the observation of
those who seem best qualified to thread their way through the
maze created by early model changeovers, strikes, and introduced
and unintroduced middle lines, that sales of 1962 model automo
biles are going pretty well. There is also probably some truth
in the oft-repeated observations that unseasonably warm weather
and the unsettled situation in the auto industry have retarded
soft goods sales this fall, and that cool weather and the re
sumption of full-time employment at auto plants will shortly
give a lift
to retail activity in many areas. The recent be
havior of bank credit and the money supply seem to me to support
a more optimistic appraisal of the outlook.
This leads to the conclusion that if we set aside the
troublesome developments, of which Mr. Furth will remind us in
a moment, with respect to the balance of payments, one might
describe the present situation as one beset with no more un
certainty than is necessary if we are to avoid over-rapid expan
sion and an upward spiral of costs and prices.
It does not
seem to me that the signs of weakness that have appeared thus
far are sufficient to suggest any easing in monetary policy,
even if we were free of the constraints imposed by international
factors.
On the other hand, the widespread uncertainty among busi
nessmen with respect to the outlook, the stability of wholesale
prices at reduced levels, and the hesitation in the advance in
output at factories and mines all suggest that overt tightening
would be ill-timed, even if a major Treasury refunding operation
were not just ahead.
In citing evidence of diverse trends in the economy, I
hope I have not seemed uncertain or indecisive. In fact, domes
tic economic conditions today give a much clearer guide to policy
than is often the case. The balance in favor of an actual and
apparent continuation of the present posture seems to me to be
overwhelming.
10/24/61
Mr.
Thomas presented the following statement with respect
to credit developments:
In recent weeks, it has appeared that the System was
having more success than previously in its double, often
conflicting, aims of fostering monetary expansion essential
for economic recovery and at the same time avoiding a de
cline in short-term interest rates. Total bank credit
expanded more in September and also in the third quarter
than in corresponding periods of any previous year (at least
in the last 12). The money supply showed the first substan
tial increase in several months, while time deposits continued
to increase. These developments have been aided by substan
tial new cash offerings of Treasury securities, which have
been acquired in large part by the banks. Federal Reserve
operations have made reserves available for this credit and
monetary expansion.
Treasury bill rates have been relatively firm, with
yields in very short-term issues a little above the low
level and those in longer bills close to the high levels
of this year's relatively narrow range. Yields on medium
term Government securities have tended to decline, while
those on longer-term issues have held fairly steady,
despite a Treasury advance refunding exchange into that
area. New issues of both corporate and municipal securities
have continued in moderate volume, with the combined total
close to levels of the past two years. Yields on outstand
ing issues have edged downward. Yields at which new
corporate issues have been offered have been relatively low.
The spread between yields on corporate and on U. S. bonds
has narrowed, imparting strength to Treasury issues.
The record bank credit expansion in September reflected
to a large extent increases in bank holdings of Government
securities and in loans to dealers in Government securities.
Banks and dealers have not only underwritten new Treasury
issues, but have also tended to increase their portfolios.
Dealers' holdings of bills have been maintained at particularly
high levels. Bank holdings of other securities also increased
by an unusually large amount in September. Loans to business
and to sales finance companies showed the usual tax period
increase by amounts comparable with or in excess of other years,
despite some grumbling among banks about the disappointing
Real estate loans by banks have shown an
loan demand.
10/24/61
-8-
accelerated rise in recent months, though still
quite small
relative to the continued substantial mortgage lending by
savings and loan associations and relative to the increase
in savings deposits at banks.
Partial data for banks in leading cities as of
October 18 indicate a continuation of credit expansion at a
moderate rate during the three weeks since the last report
date in September.
Banks reduced their holdings of Treasury
bills, after acquiring substantial holdings of tax bills in
the last week of September, but they added to their holdings of
notes, reflecting Treasury financing.
Loans to dealers in
Government securities increased further. Business loans in
creased moderately, while loans to sales finance companies
declined, as seems to be customary in October.
Demand deposits and currency increased much more than
seasonally in September.
Further increases occurred at city
banks in the first
three weeks of October, though daily
average figures for the first
half of the month, for which
final data are not yet available, may show a small seasonally
adjusted decline in the money supply. That decline and some
of the September increase may be due to faulty seasonal
adjustments; the net result is still
a substantial increase.
The money supply is now about 2 per cent larger than a year
ago, but is still
little
if any above the peak reached in
the summer of 1959.
Turnover of demand deposits at banks outside financial
centers has also increased nearly 2 per cent in the past
year, while in financial centers, where deposit growth has
been smaller, increases in the rate of turnover have been
much larger. The combined increase in transactions--turnover
and volume of deposits--outside financial centers corresponds
closely to the growth of 4 per cent in GNP during the past year.
U. S. Government deposits at banks, which increased sub
stantially in September, have been drawn down in October.
fairly large, but Treasury cash needs are also
They are still
heavy. Some new cash borrowing may be needed in November, in
addition to the large refunding operation.
Time deposits at commercial banks have continued to in
The
crease at a rate of about 1 per cent or more a month.
total growth in the past year has been over a sixth. This in
crease has occurred in savings deposits and at small banks, as
well as in the much publicized negotiable time certificates of
deposit. Apparently inflows of funds to nonbank savings insti
tutions have continued at a heavy rate, though not as much as
Savings thus continue large.
commercial bank time deposits.
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Nonbank holdings of short-term Governments have not
increased in the past year, although the amount of such
securities outstanding has been considerably enlarged.
Banks have absorbed more than the total addition. The
public has been satisfied to hold its liquid assets in
deposit form.
Total liquid assets held by nonbank owners--business and
consumers, and including currency, demand deposits, time de
posits, savings deposits and shares, and short-term Government
securities--have continued to expand. In the third quarter of
the year the total of such holdings was 6 per cent larger than
a year ago, compared with the GNP increase of 4 per cent.
Since the first quarter of this year, however, GNP has increased
5 per cent and liquid asset holdings less than 4 per cent. The
ratio of liquid assets to GNP is still
somewhat lower than it
was in 1958. The ratio of money supply to GNP is at the lowest
level reached since the 1920's.
This situation indicates the need for continued growth in
money supply and in general liquidity at a rate closely commen
surate with expansion in economic activity and income. Al
though the rapid increase in time deposits may have largely
compensated for the slower rise in the money supply, the com
bined increase could hardly be called any more than adequate
for a period of economic recovery.
As brought out in the staff memorandum already submitted
to the Committee, member bank required reserves against pri
vate deposits have increased in the past three months at an
annual rate of 4 per cent, covering an expansion of time
deposits at an 11 per cent rate and of demand deposits at a
The combined increase since February
2 per cent annual rate.
has been close to 4-1/2 per cent.
In the latest statement week, total reserves available
for private deposits were adequate to provide excess reserves
of over $600 million, according to preliminary estimates.
About $140 million of these reserves, however, were obtained
by member bank borrowings, which have already been reduced
by about $100 million to a minimal figure. Free reserves were
below $500 million last week, and have been for the past three
During the current statement week, nearly $500
weeks or so.
million reserves are being supplied by a return flow of
currency and the mid-month float rise. These additions have
been partly absorbed by the reduction in member bank borrow
Redemptions and
ings and in System holdings of securities.
sales made earlier would have resulted in a reduction in
10/24/61
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available reserves, but large purchases yesterday will wipe
out some of that effect.
During the next two weeks, market factors will absorb
about $900 million of reserves, while lower required reserves,
resulting from the drawing down of Treasury deposits at member
banks, may release only a small amount. In this period, System
purchases of securities may need to aggregate close to or over
$600 million in order to maintain an adequate volume of reserves
for seasonal needs. A part of these needs will be temporary,
and there could be some sales or runoffs of repurchase contracts
around the middle of November, but in late November and early
December further large purchases will be needed.
During the remainder of this year and into January, the
net increase over present holdings, allowing roughly for this
week's operations, which are not included in the staff memorandum,
will range from around $200 million in mid-November to perhaps as
much as $1,250 million for a brief period in early January. Such
operations would maintain total reserves at around the amounts
projected in the staff memorandum (table 3, column 3).
If credit and monetary demands continue at levels that would
be consistent with economic recovery of the magnitude generally
desired and expected, the maintenance of reserves at the level
indicated should not have the effect of reducing short-term
interest rates.
At some stage in the future, as the economy
approaches fuller utilization of available resources and credit
demands increase, it will be appropriate to adjust the amount
of reserves supplied through open market operations and make it
necessary for banks to borrow some of the reserves they want.
The economic expansion projected as necessary before this stage
is reached is in the order of ten per cent or more and the time
A commensurate expan
period is at least a year, or maybe two.
sion in bank deposits might require close to $2 billion additional
reserves.
Over the next year, at least $1 billion of these, pro
viding a five per cent expansion in reserves, might appropriately
Any additional amounts
be supplied by open market operations.
needed or desired could be obtained through member bank borrow
ing.
Mr. Furth presented the following statement with respect to
the United States balance of payments:
10/24/61
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In the third quarter, transfers to foreigners of
gold, convertible foreign currencies, and dollars amounted
to $900 million. This corresponds to a seasonally adjusted
annual rate of more than $3 billion, as compared to less
than $2 billion for the second quarter (after eliminating
the influence of special debt repayments).
Within the third
quarter, September seems to have been the worst month, and
whatever October figures are available suggest little
if
any improvement.
The third-quarter transfers reflected a deficit in
the so-called basic balance of U. S. payments (current
balance, Government expenditures, and long-term capital
movements).
In the second quarter, basic U. S. payments
were approximately in balance.
The main reasons for this deterioration are primarily
that U. S. imports increased last summer faster than expected
and that the net capital outflow apparently has failed to
show the expected improvement.
As to the current quarter, our export prospects are
not good in Latin America, Japan, and the United Kingdom.
In all these countries domestic inflationary pressures have
either already led to restrictive policies or are likely to
make them necessary in the near future. Prospects are only
moderately good in Continental Europe, where the boom may be
petering out, especially in Germany, and in Canada, where the
effects of the upswing on imports are modified by those of
the recent devaluation of the Canadian dollar.
It is true that exports of some categories, such as agri
cultural commodities and machinery, are expected to rise; but
a considerable part of them will be financed by grants or
long-term loans under aid and agricultural disposal programs,
and will therefore be of little
immediate benefit to our
balance of payments.
Imports may not rise much more, as the slowing-down of
our recovery in recent months may be followed by a similar
behavior of imports.
There is no reason to assume, however,
that they will actually decline.
Similarly, there is no indication of a slowing-down of
our capital outflow. Lending to Japan, which accounted for
a very large part of the outflow in the first half of the year,
may be further reduced or possibly even reversed. Similarly,
massive capital movements to Germany and Switzerland may not
However, any improvement due to these changes
be resumed.
could be offset if the outflow of funds to the United Kingdom
were to gain momentum, as the fragmentary October data suggest.
10/24/61
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This outflow presents U. S. monetary policy with some
what of a dilemma. A gradual increase in U. S. interest
rates, together with the expected gradual decline of U. K.
rates, would reduce incentives for investment in U. K.
short-term assets, unless offset by a reduction in the forward
discount of sterling,
There is evidence, however, that a sizable part of the
outflow is going into U. K. long-term securities.
For this
kind of investment, expectations of rising U. S. interest
rates, together with expectations of a further decline in U. K.
rates, might activate the outflow of funds, with some investors
seeking capital gains, While these movements would come to an
end once a new equilibrium level of interest rates was reached,
they would in the meantime aggravate U. S. balance-of-payments
problems.
In any case, we must expect the pressure on the dollar and
the drain on the U. S. gold stock to continue.
These pressures
may be lessened later this year, as December usually shows a
seasonal improvement in the U. S. balance of payments. This
improvement will give us a welcome respite but should not detract
attention from the basic problems.
At this point Mr. Haves related certain personal observations
growing out of his recent trip to
Europe, during which he attended
the annual meetings of the International Monetary Fund and the
International Bank for Reconstruction and Development in Vienna,
Austria.
In general,
it seemed to him that the meetings were fruit
ful and resulted in a considerable net gain to cooperative international
efforts, particularly because of the general agreement expressed with
regard to the plan to shore up the resources of the Fund to provide
standby credit arrangements to cover exceptional needs.
In the press,
he noted, there had been some articles interpreting certair speeches
by representatives of other countries as attacks on the United States.
However,
such,
no one within the United States delegation regarded them as
and actually a harmonious feeling existed among the representatives
10/24/61
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of the principal nations.
Rather than attacks on the United States, the
speeches to which the press referred appeared to constitute attacks on
loose fiscal monetary, and economic policies in general.
They seemed to
be aimed at any country, whether underdeveloped or industrialized, that
did not display enough self-discipline when such discipline was needed.
Some countries, notably France, expressed rather specific reservations
with regard to the circumstances under which they would like to see the
standby credit arrangements utilized, and it
was generally understood
that the credits were not to be used for normal IMF purposes but only
in case of major disequilibria among key currencies.
Mr. Hayes went on to say that at the meetings there appeared
to be a rather high degree of confidence in the dollar, a view he
had also noted in visits to London,
Paris, and Frankfurt.
However,
these views reflected statistics for the first half of 1961, and
early estimates that this year's balance-of-payments deficit would
be under $1 billion, which had led to a feeling that the United
States might be on the way toward curing its balance-of-payments
problem.
Even so, moreover, he sensed some underlying nervousness
as to whether the United States would continue to display the degree
of self-discipline and determination considered necessary to meet the
situation; that is,
whether over a longer period the country would
follow appropriate budgetary, wage, and monetary policies.
The
attitude with respect to the dollar could worsen rapidly if there
should develop a feeling that the United States was slipping into a
condition of chronic deficit in its balance of payments,
and measures
10/24/61
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going beyond those already taken were needed on several fronts to
make clear this country's determination not to let the situation
drift.
The country had shown a tendency toward a serious balance
of-payments problem in time of recession.
The fact that the recession
involved lower interest rates was one of the reasons, but the country
was now in danger of showing little ret improvement in its balance of
payments despite the improvement in domestic economic conditions.
This
was a problem, then, with which he felt that everyone must be deeply
concerned.
Mr.
Hayes then presented the following statement of his views
on the business outlook and credit policy:
The most striking development since the last meeting
has been the sharp deterioration in the United States balance
of-payments position in September. As a result, the third
quarter payments deficit's
provisionally estimated at 3.2 billion
(seasonally adjusted annual rate) as against 1.9 in the second
quarter and $1.4 in the first. This figure will soon become
known publicly, well before the official release, and may easily
be construed, both here and more particularly abroad, as a
serious reversal of the encouraging tendency of the first half
year, which did so much to help restore confidence in the dollar.
Already there are increasing signs of nervousness abroad as to
the possibility of heavier U. S. deficits over the next year
or so, with a consequent growing threat to dollar stability.
Higher imports have been the major cause of the third-quarter
deterioration. It is noteworthy, however, that the net short-term
capital outflow has been substantial through most of 1961, and
to a large extent this flow reflects a multiplicity of foreign
borrowing operations in this market because interest rates here
are far below those in the borrowing countries. Of course the
British austerity program, including establishment of a 7 per
cent Bank rate, has drawn short-term funds to London, and the
recent cut to 6-1/2 per cent apparently has had relatively
little effect on the strength of London's attraction for
international funds.
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In contrast with this critical international outlook,
the domestic business situation appears calm and substantially
unchanged in the past three weeks. The slower rate of expan
sion in September may be attributed in good part to such special
factors as strikes and weather conditions; the most evidence
still
points to a strong, but not overly exuberant recovery.
It is true that the last couple of months suggest a somewhat
more cautious attitude on the part of both business and the
consumer than had been expected earlier. On balance this strikes
me as healthy, as the absence of speculative pressures has per
mitted much more stable price conditions, on the average, than
might have been looked for at this stage of an upward business
movement.
There is certainly nothing in the credit picture to sug
gest that our policies have been restrictive. On the contrary,
September witnessed a very sharp rise in total bank credit and
the first significant rise in the money supply in many months.
Much of this may be attributed to Treasury financing; and after
a brief reversal early in October, bank credit seems to have risen
again in reflection of the October Treasury program. In contrast,
business loans have shown no great strength and have moved about
The banks' liquidity position
in line with seasonal expectations.
continues to look relatively easy in terms of liquid asset holdings,
especially in New York. Despite loan-deposit ratios well above
those prevailing during most of the post-war period, the banks
have ample liquid resources to meet probable loan demands.
For the moment at least, the danger of a sharp rise in the
Federal Government's deficit due to higher defense spending seems
to have receded. Secretary Dillon's latest estimate of the 1962
fiscal year deficit is about in line with our own estimates of the
last few weeks and substantially below some of the figures which
were recently mentioned in financial circles and the press as a
It is also encouraging that he reiterated the
real possibility.
Administration's firm intention of reaching a balance in fiscal
1963. A clearer picture of the fiscal position will develop with
the release of the post-Congress budget review expected shortly.
With the Treasury expected to announce the terms of the November
refunding within ten days, we shall soon be confronted with the
need to promote stable conditions in the money and capital markets
to assist this financing operation.
As for general policy considerations, the domestic business
situation would justify our adhering to the same degree of
monetary ease prevailing in the last few months. On the other
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10/24/61
hand, the balance-of-payments position is sufficiently dangerous
to warrant a careful review of our policy to see whether there is
anything helpful we can do in the monetary sphere without damag
ing the domestic economy. It seems to me that the level of short
term market interest rates--and particularly the 90-day bill rateclearly offers the most fruitful possibilities. A higher bill
rate might have some influence on capital flows and might also be
of psychological value as an indication that we are not unaware
of the payments problem.
I would not go so far, at this time, as
to suggest a rise in the discount rate, although it may well be
that we shall have to come to this within the near future if the
payments trend is not reversed.
But for the time being I believe
we should avoid the general tightening effects throughout the
domestic economy that would undoubtedly accompany any such overt
move.
I would think that the Manager might be instructed to seek
a higher level of bill
rates, say between 2-1/2 per cent and 2-3/4
per cent for the three-month Treasury bills, with a Federal funds
rate of perhaps 2-1/4 per cent to 2-3/4 per cent, while still
pre
serving a general atmosphere of ease. I am not sure this can be
accomplished, but it is well worth trying. It seems to me that
lower than they
free reserves could be allowed to average a little
have been, say around the $400 million level, without any damage
to business, especially in view of the sharp rise in bank liquidity
since earlier in the year, and the sizable growth in bank credit
in recent weeks. The special authorization should, in my judgment,
be continued and should be used to the extent possible to help
attain the twin objectives of higher short-term rates and con
tinued monetary ease.
I should think that offerings of intermediate and long
maturities should be accepted whenever available at a fair price,
regard for reserve figures, so as to enable the Desk
with little
to make offsetting sales of short-term securities if consistent
with the reserve figures.
During the next few weeks, however,
or no opportunity to make such offsetting
there may be little
sales, because of the sizable net release of reserves called for
during that period; but I do think the Committee should encourage
the Desk to do more swapping of this kind if and when circum
stances provide a suitable occasion.
The present wording of the directive might appropriately
be retained.
Mr.
Ellis said that in the First District it
any pronounced trend in
economic conditions.
was hard to define
However,
there seemed to be
-17
10/24/61
general satisfaction with nonmanufacturing activities; the service and
trade occupations showed high and growing levels of employment.
Con
struction activity seemed to be picking up slightly, and the banking
Therefore,
situation was strong without exhibiting rapid growth.
the
problem area was in manufacturing,
The New England production index exceeded the year-ago level by
1 per cent in August, according to the revised figures, and it
was as
yet too soon to have any firm indication of September trends.
There
was some indication that employment may have declined, while electric
power consumption probably expanded.
in third-quarter results, for it
materialize.
The shoe industry was disappointed
had expected an upturn that failed to
Textile producers scored some further recovery, but
employment was 7 per cent behind year-ago levels.
Continuing, Mr. Ellis said that the general sentiment of
businessmen in the District appeared to be one of optimism regarding
the outlook.
This was reflected in the Reserve Bank's fall survey in
which New England manufacturers were requested to review their invest
ment plans of last spring.
The respondents, employing about 20 per
cent of the manufacturing employees in New England,
reported that they
had boosted their 1961 investment intentions by about 5 per cent since
the spring survey; if present intentions were executed,
year should exceed those of 1960 by about 4 per cent.
outlays this
Durable and
nondurable goods manufacturers apparently were going to participate
10/24/61
-18
about equally in this increase,
and a shift toward outlays for expan
sion was indicated, in contrast with the recent emphasis on modernization.
The condition of District banks had changed only moderately in
the past few weeks.
Business loans were down slightly, but were still
up 4-1/2 per cent from the first
part of the
year.
up, about twice as much as the gain nationally.
Other loans also were
Demand deposit growth
matched that of the country, but other deposits lagged a little.
District banks had been net sellers of Federal funds.
As to policy, Mr. Ellis said he still thought it
say that there was a vigorous lull in economic activity.
appropriate to
He was inclined
to feel that the economy was going to break out on the upside; meanwhile
the
conomy was
m arking
time for a move in
present degree of ease was,
in the proper direction.
some
of course, intended
d irection
and the
to stimulate a movement
He would be a little reluctant to follow the
suggestion of lowering the free reserve target,
for he would not like to
see anything done that might be interpreted as a move on the part of
the System toward restriction at this stage of the business cycle.
Insteaa, he would prefer to continue the present degree of ease and its
stimulative effect.
He would, however,
go along with resolving doubts
on the side of less ease.
Mr. Ellis indicated that he would not favor a change in
the discount rate or in the directive at this time.
either
He would be glad
10/24/61
-19
to see the Desk seek somewhat higher levels of short-term interest rates.
This inferred use of the special authorization to operate in longer-term
securities, and he would favor the use of this device in providing reserves
during the next few weeks.
Mr. Irons reported that conditions in the Eleventh District had
not changed significantly, and that the over-all picture included some
favorable and some unfavorable movements.
Employment and department
store sales had shown a little improvement, especially in the first half
of October, and the agricultural situation was very good.
Unfavorable
factors included a continuation of the eight-day allowable crude oil
situation, which might be expected to persist, although there had been
some pickup in drilling.
Construction was off a little, and production
was down somewhat more in September than had been anticipated, largely
due to hurricane Carla and the effect of auto strikes.
On balance,
District conditions were reasonably satisfactory.
Mr.
Irons said that in talking with businessmen he found that
the general sentiment seemed to be one of optimism, tinged with some
concern as to the inevitability of inflation.
Knowledgeable businessmen
appeared to be more disturbed about the continuing and rising Federal
deficit and the implications of the balance-of-payments
deficit than
about the question of economic recovery in the District or the country.
In the latter respect they were not pessimistic.
-20
10/24/61
District banking conditions were reasonably liquid.
Borrow
ing from the Reserve Bank had been running under $1 million, with no
borrowing on the part of city banks.
As to bank credit, the increase
in loans had been moderate and the increase in investments had been
substantial, largely in reflection of Treasury financing.
time deposits were both up,
was favorable.
Demand and
and on the whole the banking situation
Bankers tended to talk about loan demand being less
than expected, or no better than seasonal, but they all felt in a
position to meet whatever demands might appear.
change in
There had been little
the pattern of trading in Federal funds,
buying and most other reporting banks selling.
with Dallas banks
The totals were about
two to one on the buying side.
Turning to policy, Mr. Irons said there seemed to be a three
way proposition that the Committee must try to average out.
of the domestic economic situation, one might say that it
In terms
would seem
reasonable to continue about the same degree of ease that had existed
during the past three weeks.
However,
the international situation
presented a problem possibly calling for a somewhat different con
clusion.
The forthcoming Treasury refunding, which was another factor
to consider,
suggested maintaining the status quo.
out, the Committee might do well, he thought,
Balancing these
to give more direct
attention to the matter of rates and less direct attention to the level
of free reserves.
He did not believe that under such an approach free
10/24/61
-21
reserves would decline enough
of the domestic economy.
to cause any damage from the standpoint
That would enable the System to give more
attention to firming short-term rates in order to provide relief on
the international side without creating instability or undue restric
tion in the domestic market.
He would envisage a Federal funds rate
of 2-1/2 per cent, a bill rate in the area of 2-3/8 - 2-5/8 per cent,
and little
borrowing from the Reserve Banks.
In that kind of pattern,
free reserves might run around $400-$450 million, which he thought
would still
provide sufficient ease to avoid any restrictive or
restraining influence on the economy, when consideration was given to
the liquidity position of the banks.
The System, of course,
should
provide reserves to reet seasonal requirements. He would hope, however,
that any deviations from the kind of objectives the Committee had been
seeking might be on the side of less ease.
He would not change the
discount rate or the directive at this time, and he would continue the
special authorization.
Mr. Swan said that in the Twelfth District the picture was about
the same as nationally.
In the past month or so, however, the District
perhaps had picked up a little faster.
For example, nonfarm employment
in the Pacific Coast States rose a little more in September than the
national average.
b
The increase, fairly general in nature, was supported
a surprising gain in aircraft employment in Southern California, which
was contrary to earlier expectations of a continuing decline for several
10/24/61
-22
months.
The lumber industry continued in the doldrums, with further
price weakness in both lumber and plywood.
Residential construction
continued to be devoted increasingly to multiple-unit structures,
even though vacancy rates were not particularly encouraging,
steel production fell in
two weeks of October,
District
September but picked up again in the first
apparently in response to demands for construc
tion steel.
District banks were still
encountering only a moderate loan
demand, with the possible exception of some continuing increase in
real estate loans.
In the past month or so they had been net sellers
of Federal funds; however, in view of substantially increased holdings
of Government securities, their net sales of Federal funds were on a
much smaller scale than in the first part of September.
There had been a
couple of indications that some of the banks here getting a little
restive about continuing to keep their
a stronger loan demand.
maturities short in prospect of
They were worried about the income they had
been foregoing and apparently were considering some lengthening of
maturities.
As to policy, Mr. Swan commented that the Committee's latitude
for action was considerably limited by the November refunding of the
Treasury.
Further, he could see nothing in the business situation that
would call for any particularly significant change in policy in either
direction.
He had been impressed, however, by the fact that for the
10/24/61
-23
past four weeks--if one included the current statement week--free
reserves had been running below $500 million with remarkably little
pressure on the bill rate, the Federal funds rate, or even, except
in one week, on member bank borrowing.
While he felt that the
System still needed to encourage credit expansion in light of the
domestic business situation and that it certainly must meet seasonal
reserve needs, he thought it would add up to a satisfactory situation
at the present time if the bill rate were around 2.3 to 2.5 per cent,
the Federal funds rate was at 2 or 2-1/2 per cent, a low level of
member bank borrowing prevailed, and free reserves could be kept
around $450 million.
Although he would not argue for becoming
appreciably tighter than in the past three weeks, he noted that
perhaps the situation actually reflected slightly less ease than
had been suggested at the October 3 meeting.
the discount rte
He would not change
or the directive at this time, and he would con
tinue the special authorization to operate in longer-term securities
for much the same reasons that Mr. Haves had suggested.
Presumably
doubts would be resolved on the side of less ease, although this
would depend somewhat on the Committee's free reserve target.
Mr. Deming said that the Ninth District continued to be more
atypical than typical of the nation in its economic and financial
developments.
In terms of total personal income, for example, its
gains were greater than the nation's for the last half of 1960, less
10/24/61
-24
than for the nation in the first half of 1961, and very recently had
again been running ahead.
Had it
not been for adverse developments
in agriculture, District personal income gains would be significantly
better than those for the United States--and this despite depressed
conditions on the Iron Range.
Measured against a year ago, net farm
income in September was running 8 per cent smaller, in contrast to a
U. S. gain of almost 5 per cent.
District nonfarm personal income,
however, was registering better than national average gains.
In banking, the District also presented a picture in sharp
contrast to the nation.
District member bank loans declined in
September by more than in any other September, save one, since the
end of World War II.
For the entire third quarter the decline in
loans at District member banks was very large, whereas loans usually
increase significantly in this period.
In fact, only in the
recession year 1954 was there another third-quarter loan decline
since the end of World War II,
this year's drop.
and that was only 1/15 as much as
Furthermore, the decline was general--in both
city and country banks and in all District States--and preliminary
October data indicated a continuation of these movements.
Deposits
had continued to grow, and the improvement in bank liquidity had been
marked.
In September the loan-deposit ratio at country banks was
47 per cent in
contrast to a high of 51 per cent in June 1961.
city banks the ratio in September was 51 per cent (it
At
was now 49 per
10/24/61
-25
cent) as against 56 per cent in June and 61 per cent at the peak
in May 1960.
Mr. Deming said that if he were reasoning solely from District
experience his policy prescription probably would have to be to absorb
some of the growing liquidity that could serve as the base for too
much credit expansion in the future.
The national picture, however,
caused him to advocate no more than a continuation of about the
degree of ease that had prevailed over the past three weeks, which
he interpreted to be one of resolving doubts on the side of less ease.
In terms of guides, he would suggest free reserves of about $450 million,
a low level of discounting (and no change in the discount rate),
Federal funds around 2-1/2 per cent, and a bill rate ranging upward
from 2-3/8 per cent for three-month bills.
He saw no reason to change
the directive and favored continuing the special authorization.
Mr.
Allen said that in the Seventh District consumers appeared
to be stepping up their purchases of both hard and soft goods.
August and September, producers of television,
In
furniture, and most
appliances reported large gains over the year-ago months.
In the
four weeks ended October 14, department store sales were 4 per cent
higher than a year earlier, both in the nation and the Seventh
District,
If this trend continued, the question as to when consumers
would begin to increase spending would have been answered.
-26
10/24/61
The work stoppages in the automobile and farm equipment
industries, which prolonged the pause in the upward pace of busi
ness activity, now seemed to be out of the way.
A strike at Chrysler
remained a possibility, but unless lengthy its effect would be
relatively slight because Chrysler dealers were well supplied with
new model cars.
Thus, fourth-quarter production of 1,800,000 auto
mobiles was still expected, despite less then anticipated output
in
October.
And production of approximately the same number was
presently scheduled for the first quarter of 1962.
The sharp advance in automobile sales in
explained by the fact that virtually all
early October was
companies introduced new
models at about the same time and earlier than in previous years.
However,
7
there was optimism in Detroit,
million 1962 car deliveries.
with many estimating around
Inventories were in good shape and
were expected to total 640,000 on October 31, of which 490,000 would
be new models and 150,000 leftovers,
or "dogs"
to use the Detroit
vernacular.
The Seventh District employment situation continued to improve,
Mr. Allen said.
In September three District centers--Peoria, Rockford,
and Gary-Hammond--were upgraded from substantial to moderate unemploy
ment areas.
All centers still classified as having substantial un
employment were in areas influenced by the automobile industry where
improvement was under way.
The substantial basic reserve deficit position of the large
Chicago banks which developed within the past ten days had resulted
10/24/61
-27
chiefly from payments for three Treasury issues,
required reserves or absorbed reserves,
which increased
Government security
holdings of weekly reporting Chicago banks rose $250 million in
the three weeks ended October 18, and loans increased $100 million
during the same period.
Although business demand for credit seemed
to be gaining strength, it was not yet clear that the increase was
anything more than seasonal.
As to monetary policy, Mr. Allen said he felt that the Com
mittee should endeavor to continue the degree of ease that had been
maintained for some time.
There were indications, as he had suggested,
that the upward pace of business activity was continuing, which offered
reason to avoid easing the situation any further.
he did not yet find any persuasive
degree of ease.
On the other hand,
argument for moving to a lesser
He would not favor continuance of the authorization
which was conceived approximately nine months ago and yet was still
termed, euphemistically as he saw it,
Mr. Clay said that while it
the special authorization.
was apparent that economic
activity had leveled off, the significance of this development was
not clear.
Analysis and interpretation were clouded by the impact of
the automobile strikes upon that industry, related industries,
the economy as a whole.
and
Not only had the automobile strikes affected
the volume of industrial output, but the resulting limited availability
of new automobiles had delayed the test of consumer buying of durable
10/24/61
-28
goods--a test which was tremendously important in
pattern of economic activity.
gauging the future
This situation had been further com
plicated by the unexpected leveling off in Federal Government outlays
for goods and services.
The nature of the hesitation in the upswing
of economic activity, and the probable course of future developments,
could not be accurately judged until the automobile industry hit its
full stride and more information was available as to the amount and
timing of Federal Government outlays.
Under these circumstances, Mr. Clay continued, the domestic
economy at this time appeared to require no lessening of the effort
to use monetary policy to encourage the expansion of economic activity.
This view was supported not only by the nonfinancial developments in
the economy.
It
was further underscored by the lack of increased
credit demands of the type typically associated with cyclical expansion.
Accordingly, domestic considerations indicated the need for open
market operations designed to encourage further credit expansion and
the maintenance of a level and pattern of interest rates essentially
in
line with those presently existing.
Mr. Clay noted that the Committee had had evidence that
short-term capital outflows again presented a problem.
Under the
circumstances, he suggested, the Manager of the System Open Market Account
would need to conduct open market operations with a view to keeping
the Treasury bill rate from going too low relative to rates abroad.
-29
10/24/61
That would appear to call for a bill rate no lower than in recent
weeks, and perhaps somewhat above recent levels.
Offsetting opera
tions in longer maturities should in his opinion be undertaken to the
extent necessary to maintain the Treasury bill
rate at such a level,
as it was important that approximately the present ease in bank
reserve positions be maintained.
he added,
Quite apart from other considerations,
the Committee would be faced with Treasury financing again
for much of the period immediately ahead.
Accordingly, it
would want
to avoid any change in policy during that period; but no change would
appear to be appropriate in any case.
In Mr. Clay's view, no change was needed in either the Com
mittee's directive or the Reserve Banks'
discount rate.
He felt that
the special authorization with respect to operations in longer
maturities should be renewed.
Mr. Heflin said that Fifth District business activity had
retained the generally favorable tone reported three weeks ago.
High
levels of employment continued to prevail in virtually all sectors of
the District economy.
seasonally in
Insured unemployment declined more than
every month from March through August,
and the latest
weekly figures suggested a resumption of this favorable trend follow
ing less favorable reports early in September.
Rates of insured
unemployment in September were below the national rate in every State
10/24/61
-30
in the District except West Virginia.
In manufacturing, uncertain
markets had retarded recovery in textiles and lumber.
Textile
companies, however, were encouraged by the recent Internal Revenue
decision allowing them to depreciate machinery for tax purposes on
the basis of a 12- to 15-year useful life instead of the 25-year schedule
currently in effect.
This would give them substantial help in over
coming the effects of a higher support price for cotton and a higher
minimum wage and should enable them to compete more effectively with
imports.
The furniture business, also slow to join the trend toward
recovery, had improved substantially in recent weeks.
Retail sales
of furniture in the District were up sharply in September, and manu
facturers were quite optimistic as they prepared for the fall Southern
Furniture Market now in progress.
Farm income continued to improve.
Through October 13, tobacco
farmers in the District had sold more than one billion pounds of
tobacco for about $650 million, an income increase of about 7 per
cent over the corresponding period in 1960, and average prices for
the season would probably be the highest on record.
Cotton pro
duction was up about 8 per cent, and prices were well above those
of last year due to a higher support price.
Broilers provided the
only gloomy portion of the agricultural picture.
Production was at
an all-time high, but prices were about the lowest in history and
well below costs of production.
10/24/61
-31
With respect to policy, Mr. Heflin commented that the Com
mittee was faced with a situation that had not changed significantly
for several weeks.
Business activity was still rising, but the
movement has lost some of its vigor.
Prices continued to move side
wise and there were no indications of any build-up of speculative
or inflationary forces,
Thus, the state of the domestic economy
seemed to call clearly for continued ease.
On the other hand, the
delicate and uneasy international position of the dollar suggested
that it would be unwise to move toward additional ease.
In addi
tion, the large Treasury refunding operation that was imnediately
ahead would require stable market conditions for its success.
Hence,
it seemed to him that the only reasonable course was to maintain the
present open market policy, which would mean no change in the
directive.
Also, he would favor no change in the discount rate and
a renewal of the special authorization.
Mr. Mills said that because he believed the Committee's
policymaking was faced with critical problems that were crying for
solution, his remarks today would be couched in unaccustomed blunt
ness.
He would argue for more positive action to tighten reserves,
and against dalliance with existing conditions.
In his opinion
it would not be possible to adopt a "troika" policy: a policy whereby
interest rates would be kept low while at the same time they would be
10/24/61
-32-
raised, and under which a strong attitude would be taken toward the
protection of the dollar.
The two critical danger points that he
thought deserved the Committee's attention were a perilously
exposed Government securities market and the weakness of the dollar
on the international exchanges.
In elaboration of those points, he
presented the following statement:
A similarity in the economic developments of the years
1958 and 1961 has been urged as a reason for formulating
comparable Federal Reserve System monetary and credit policies.
However, the most apt comparisons between these two periods
have not entered into policy-making discussions and are of a
financial nature:
In the early months of 1958 an ill-advised policy of forc
ing reserves into the commercial banking system in order to
stimulate credit expansion led not only to excessive credit
ease but also abetted a disastrous speculation in United
States Government securities.
Now again in 1961, and flying in the face of the previous
unhappy experience, a similarly undesirable policy has been em
barked upon for the self-same purpose of encouraging a vast
expansion of commercial bank credit. But this year a scatter gun
aim has been taken at increasing the money supply regardless of
the fact that in doing so damaging hits have been registered on
banking, industrial, and commercial liquidity which is approach
ing toward an inflationary status, and on the very fabric of the
money market. In this latter regard, the continuous injections
of new reserves into the commercial banking system, in leaving
no room for the free play of natural market factors that from
time to time tighten the supply of reserves, have had the effect
of drugging market participants into insensibility to the "real
facts of life" by giving them an implied assurance that the
Federal Reserve System has allied its policies to credit ease for
an indefinitely extended period of time.
* The dangerously top-heavy positions of United States Govern
ment securities dealers are a prime expression of the investment
climate that Federal Reserve System policy actions have created.
The dealers are now carrying positions that are beyond their
10/24/61
-33
function of making markets and instead represent a growing float
ing and undigested supply of securities that has been mistakenly
taken into account for profit motives that have been nourished
by the Federal Reserve System's policies. In consequence of the
market overhang of United States Government securities carried
by the dealers, they are vulnerable to any shift in System policy
toward restraint which would immediately be reflected in falling
prices and higher interest rates. Such developments could lead
to a disorderly market for United States Government securities
if bank lenders felt compelled to call their loans or require
additional collateral. If Federal Reserve System intervention
in the market should then become necessary, an extremely confused
market picture could unroll which might end in the commercial
banking system holding a larger supply of reserves than that
which it had been sought to diminish.
Altogether the present money market situation is fraught
Even so realities must be faced and a start made
with danger.
toward implementing a moderately restraining monetary and credit
policy; otherwise delay and temporizing with the present situation
will only raise more difficult future problems. The sceptical
attitude to Federal Reserve System policies that has been taken by
domestic and foreign monetary experts, and which is a factor in
the weakness of the dollar on the international exchanges and in
renewed gold losses, is perhaps the strongest reason that urges a
revision of policy thinking.
Mr. Mills said he would not recommend a change in the Committee's
policy directive at this time.
However,
he would recommend moving, as
he had indicated, toward a reduction in the supply of reserves.
Feeling
certain that there would be concern about such a policy in terms of its
market consequences, he would suggest that the attitude of the Account
Manager and the System to developments of that character might fall into
the kind of posture outlined in the following statement:
The imperative need for, and adoption of, a mildly restric
tive Federal Reserve System monetary and credit policy could
foreseeably produce drastic money market effects the consequences
of which must be guarded against by appropriate policy actions.
The conventional treatment for correcting a disorderly mar
ket should of course be followed.
10/24/61
-34Upward pressures on interest rates should be reflected
as soon as practicable in a 3-1/2 per cent Federal Reserve
Bank discount rate. The timing for an increase in the discount
rate would be the juncture at which the Federal funds rate
rose to and then tended to move above the present 3 per cent
discount rate of the Federal Reserve Banks. In the process of
these developments, it is conceivable that member banks would
temporarily be in a position to finance United States Government
securities dealers by borrowing at their Federal Reserve Banks
at a less cost than the interest rate which they would charge
on such loans, which would serve the purpose of lifting off the
pressure for their reduction except only as the burden of higher
carrying costs voluntarily induced dealers to reduce their
credits.
Although accident rather than design has brought the level
of free reserves down below $500 million, the absence of abrupt
money market tightening in response to this change in the volume
of free reserves outstanding suggests that their further re
duction can be accomplished and the money market conditioned
for a higher Federal Reserve Bank discount rate with a minimum
of market disturbance. Leaving aside the possibility of disorderly
market conditions, however, a tighter money market can in any
event be expected to produce higher interest yields on Treasury
bills and other types of short-term United States Government
securities. If this kind of development tended to draw corporate
investors out of investment in commercial bank time certificates
of deposits and into higher yielding U. S. Treasury bills, con
sideration could then be given to raising the maximum rate of
interest permissible for payment under Regulation Q.
All in all, advance policy preparation to forestall any con
ceivably adverse effects of a shift in Federal Reserve System
monetary and credit policy toward restraint is the best assurance
that the change can be successfully and beneficially accomplished.
In further comments, Mr. Mills said that he would favor renewing
the special authorization covering operations in longer-term Government
securities.
However, in the outside possibility that a disorderly market
might develop, he assumed that the Account Manager would return to the
Committee for instructions and that the special authorization would not
10/24/61
-35
be construed as authority to move in a disorderly market situation.
Mr. Robertson said that as of today he could not see any
basis for too much concern about adhering to the degree of ease
that had existed over the past several weeks.
There were no infla
tionary tendencies apparent at the moment and the economy still
to be stimulated.
needed
In his view, then, the Committee should continue to
pursue the policy it had followed of stimulating the economy.
The
volume of free reserves had fallen somewhat below the level that he
understood to have oeen contemplated at the October 3 Committee meet
ing, which was to a large extent justifiable because of the numerous
variations in operational factors that had occurred.
However, in order
that monetary policy might maintain what he considered the proper
posture, he would favor moving back up to a free reserve target in the
neighborhood of $500-$525-$550 million in the hope that this would per
mit the Committee to continue to carry out the spirit of its directive,
which was in terms of encouraging credit expansion to promote fuller
utilization of resources.
He had the definite feeling, Mr. Robertson said, that the Com
mittee was overemphasizing the importance of the international picture;
that it
was permitting the foreign tail
to wag the domestic dog.
He
was apprehensive that the Committee would let that factor deter it
from doing what it
could in the way of stimulating the domestic economy.
10/24/61
-36
Under no circumstances would he approve the suggestion that the swapping
device be used for the purpose of stimulating the bill rate.
As to the
outflow of short-term capital and gold, he noted that it served as a
thermometer.
By tinkering with the thermometer, he felt that the
System would only be fooling itself.
What was needed was an effort
to deal with the basic underlying difficulties,
and monkeying with the
thermometer only tended to put off the time for making such an effort,
for the thermometer called attention to what ought to be done.
As he
had said on previous occasions, he felt that too much reliance was
being placed on short-term rates as a guide to System policy.
Mr. Robertson also said that he would not change the directive,
which he thought was appropriate as it
stood, and that he would not
move on the discount rate at this time because he saw no reason for a
change.
In his opinion, the present posture of policy was appropriate
as of now, and probably would continue to be appropriate for the next
one, two, or maybe even three three-week periods.
continue it.
Therefore, he would
He would not approve renewal of the special authorization
covering operations in longer-term securities.
Mr. Shepardson said that he thought the thermometer referred to
by
r. Robertson did indicate the existence of a problem.
In his
opinion, there was a need to get at the basic problem, and one way
was to move in the direction of a tendency toward less ease.
The
-37
10/24/61
international situation deserved serious consideration, both in
terms of actual balance-of-payments prospects and their psychological
effect.
There had been a failure, it seemed to him, to get at the
basic problem to which Mr. Robertson had referred.
Mention had been made
of the fact that prices had been relatively stable, and this was true.
However, if the country was going to enjoy the desired economic growth
and expansion of business, and if the basic balance-of-payments prob
lem was going to be met, it was necessary to recognize the movement
from a seller's market to a buyer's market and the need for some
downward revision of prices.
in terms of their income,
The buying power of consumers, measured
was now high,
and consumers were not spending
more, it seemed to him, basically because they were being
more selective.
Productivity gains, he noted, were now being reflected in lower prices
by some industries, and their continuation would tend to offset in
creased costs in other sectors that were not making comparable gains.
While automobile manufacturers had not raised prices on the new model
cars and apparently intended to absorb the increased wage costs re
sulting from the recent labor contracts, there were rumors that other
sectors of the economy were going to have to raise prices because of
increased costs.
Thus, the current step-up in spending for consumer
durable goods might be due to the prospect of increased prices around
the turn of the year.
Certainly, the addition of more funds to validate
-38
10/24/61
price increases was not going to get at the root of the problem, and
for that reason he would agree with the view that the System should
trend toward a little
less ease.
While he would not be prepared to
go quite as far as Mr. Mills at this time,
nevertheless everyone should
be aware of the problem that was building up and monetary policy should
not be providing tinder for inflation.
support as it
Rather, it should lend such
could to bringing about not only a leveling off but a
correction of prices in
those areas making real productivity gains to
offset the inevitable crawl in some other areas.
Mr. Shepardson concluded by saying that he would not change the
directive or the discount rate at this time.
However,
he would lower
the free reserve target somewhat and give some attention to bringing the
bill
rate up to a level more in the order of 2-1/2 per cent or thereabouts.
Mr.
King said that he had been satisfied with the recent opera
tions of the Desk, which provided the type of ease that he understood
the Committee to have requested at the October 3 meeting.
He would have
no objection if the level of free reserves fluctuated somewhat, but he
was interested in maintaining the degree of ease that had prevailed and
in not changing policy by talking about the resolving of doubts on the
side of restraint.
Further, he would suggest being careful to avoid
giving those who did not understand the limitations of monetary policy
the impression that it
could resolve basic long-run problems; these
-39
10/24/61
must be faced up to in other ways if they were going to be solved.
If the System should try to solve, through monetary policy, problems
that could not be solved in that manner,
this might only tend to encourage
others not to face up to those problems as promptly as they should.
After repeating that he would not alter the present degree of
ease, Mr. King went on to say that at this stage he saw no need to talk
about a higher discount rate because of the lack of any significant
amount of borrowing by member banks from the Federal Reserve Banks.
Only if
it
the banks began to borrow more substantially would he feel that
was necessary to consider a change in the rate.
In summary,
he
believed that a continuation of existing monetary policy would produce
more satisfactory results than if
the System were to start out to try
to solve through monetary policy problems that must really be met
in some other manner.
Mr. Mitchell suggested that there might be a tendency to forget
that in a free enterprise economy there is
bringing the economy out of recession,
an automatic technique for
namely, a reversal from inventory
decumulation to inventory accumulation, which provides a substantial
stimulus.
At present, however,
exhausted; if
it
this stimulus appeared to be about
was not transferred to the sector of final takings,
the economy would be in trouble.
Turning to available evidence that
might indicate whether such a transferral was taking place, he noted
10/24/61
-40
that in September retail sales amounted to $18.2 billion on a seasonally
adjusted basis, a figure that had not changed substantially for four
or five months.
It was below the $18.3 billion average for the year
1960 and only slightly above the $18.0 billion average for 1959, when
there were six million less consumers,
reassuring.
so the September figure was not
Department store sales had shown some signs of life in
the past three or four weeks,
but the sample was unscientific,
the least, and difficult to interpret.
fully higher, but it
to say
Automobile sales were hope
was too soon to know,
while consumer credit
extensions were barely exceeding repayments.
Data on savings inflow
and outflow were not adequate for analysis on a national basis,
but
where good data existed, as in the Seventh District, they indicated
that consumers were showing only a moderate tendency toward more liber
ality in their spending.
Consumer psychology appeared to be adversely
affected by the cold war, by continued high levels of unemployment,
and by an uncertain stock market.
The situation, Mr.
Mitchell said, had been approximately at
this same point for the past two or three meetings, and the time was
getting closer when something would have to give.
Either there would
be a downturn in the industrial production index that could not be
explained by strikes or by weather abnormalities,
start moving upward.
Until it
or activity would
was known what direction the movement
10/24/61
-41
would take, he felt that monetary policy should be as stimulative as
the System could make it
without betraying a concern that would serve
only to add to the anxieties of consumers.
If
the recovery were to
falter obviously, he pointed out, it would take a substantial deliberate
effort on the part of Government to turn the starter over again.
such circumstances,
he felt that the System must be careful to do its
part to encourage the economy to move ahead.
of course,
In
While he was concerned,
about the international situation, the current dilemma
reflected a worsening of the balance of trade, and that was not
going to be cured by the expedient of adding a few basis points to
tte yields on short-term Government securities.
In summary, he
would be inclined to "stay just about where we are" in terms of
monetary policy and not to make any change that could be detected
on the outside.
Mr. Fulton reported that a recent succession of happenings,
including the steel strike, the early automobile model changeover, and
the auto strikes, had left the economy of the Fourth District without
much bounce.
In the steel industry the doldrum in operations had
continued, with
operations down for the second week in a row.
Orders
here on a hand-to-mouth basis; the users of steel were not ordering for
inventory purposes.
tons,
Inventories were estimated at about 9.6 million
which was almost a minimum for working purposes,
and orders for
October and November delivery were no better than for September.
However,
10/24/61
-42
some rebuilding of inventories,
possibly in the area of three to six
million tons, might take place later against the possibility of a
steel strike and also against the possibility of a price increase.
The industry expected production of about 107-110 million tons next
year, but for this year it
now appeared that production would probably
be in the neighborhood of only 96-98 million tons.
were saying that a price adjustment was necessary if
to replace outmoded equipment.
Industry spokesmen
the industry was
However, foreign companies had increased
their capacities, prices of foreign steel were softening, and shorter
delivery schedules were being offered.
Also, the price decline in
aluminum had put a damper on the aspirations of the steel companies.
In the rubber industry, customers seemed reluctant to increase
inventories and were depending on controls to keep inventories at a
They did not seem apprehensive about the possibility of price
minimum.
increases.
Industry spokesmen expressed the opinion that automobile
production for next year might be about 6.3 million units, as contrasted
with the figure of 7 million projected by the automobile makers them
selves.
There might be some help for the heavy industries if
military
expenditures for conventional weapons should begin to appear, but
there had been few contracts as yet.
The District unemployment situation had improved from a statistica
standpoint,
but analysis indicated only a slight improvement,
less than the statistics would suggest.
considerably
The exhaustion of benefits was
one factor and the shortening of the work week was another.
Auto sales
had shown a good seasonal increase in the Cleveland area in the past
10/24/61
-43
three weeks, but there had been a substantial decline in
Cincinnati showed no trend.
Pittsburgh;
Department store sales had improved
slightly from the poor September record; for the year to date they
were still
1 per cent below last year.
Savings deposits at District banks continued to increase.
Loans showed only a small increase, hardly any movement at all, and
no unusual demand for bank credit was anticipated.
Mr. Fulton expressed concern about the international situation
and said he would like to see the bill rate around 2-1/2 per cent.
However, the domestic situation was such that a close eye should be
kept on it,
and he would feel that a degree of ease similar to that
of the past three weeks should be maintained.
He would not like to
see a substantially greater degree of ease; instead, about what had
prevailed recently.
He would not favor a change in the discount rate
or in the directive, and he would renew the special authorization.
Mr. Bopp reported that business was good in the Third District.
Unemployment claims had declined to the levels of 1959, and the steady
decrease in claims was now apparent in total unemployment statistics,
Five major labor market areas recently had been reclassified upward.
Production had been strong recently and carloadings were increasing
steadily.
Department store sales had improved so far in October.
This picture had been disturbed somewhat by the findings of
the Reserve Bank's latest survey of capital spending.
These indicated
10/24/61
-44
that manufacturers in the Philadelphia area planned to spend 10 per
cent less in 1962 than in 1961.
discouraging.
of September,
However,
it
On the face of it,
this was somewhat
since the Reserve Bank's survey was taken as
might not reflect final plans, and the Bank intended
to check up in January.
Moreover, this survey as well as others had
tended to underestimate expenditures at this phase of the cycle, and
there was reason to hope that the 10 per cent figure would turn out
to be erroneous.
In the banking area, no evidence was seen as yet that loan
demand was picking up.
In fact, loans had declined in recent weeks.
Bank reserve positions had been relatively easy most of the time.
Since this was one of the few brief breathing spells in
Treasury financing, it seemed important, Mr.
Bopp said, to consider
especially carefully whether this might be the time to move away from
the Committee's position of prolonged ease.
However, nothing com
pelling was seen in the economic picture that would dictate such a
step.
As long as the business expansion, and especially prices, gave
no threat of getting out of hand,
he believed there was every advantage
in maintaining the same position of ease.
The only argument to the
contrary that carried much weight was the possibility that economic
This,
developments might call for less ease in the near future.
however, was still only a possibility.
If it became more than this,
the Committee might have to act more drastically than if
it
had been
10/24/61
-45
moving away from ease gradually,
to be a risk worth taking.
But at present this seemed to him
Therefore, he would maintain the same
degree of ease and make no change in the directive or discount rate.
He would continue the special authorization.
Mr. Bryan stated that as far as statistics were concerned, the
Sixth District seemed to be going along without displaying any notable
differences from the nation as a whole.
There had been some signs of
hesitation in the recent past and, although he considered it
probable
that the economy was going to break out on the up side, neither the
nation nor the District was in the middle of an exuberant boom.
were at least substantial possibilities,
might not move up,
and instead
There
in fact, that the economy
would move on the down side.
In the
light of that uncertainty, and speaking only in terms of the very short
run, he believed there should be no fundamental change in
of System policy.
the posture
In terms of a figure, he would assume that a free
reserve target in the range of $500-$550 million would be compatible
with an expansion in total reserves appropriate to the present situation.
If
the country did move into an exuberant boom, the System would have to
move as adroitly as possible from a posture of ease to a more restrain
ing attitude.
However, that point had not yet arrived.
Mr. Bryan went on to say that he was just as concerned as anyone
about the problem in respect to the balance of payments.
Aside from the
unemployment situation and the military situation, he believed that
perhaps this was potentially the most dangerous situation confronting the
10/24/61
country.
-46
However, as he had said on previous occasions, he did not
believe that the situation was going to be corrected by the change
of a few basis points in the bill rate.
Nothing of a fundamental
nature had been done to correct the situation and to improve the
attitude of other countries.
Certainly there was nothing in the
fiscal position that would inspire confidence in the dollar, almost
nothing had been done in the area of foreign aid programs, either
military or otherwise, and the country was still following a policy
that encouraged wage rates to increase.
In these circumstances, for
the System to try to correct the balance-of-payments situation by
monetary manipulation struck him as not only absurd but dangerous.
Mr. Johns said that if one looked at the internal economic
situation it seemed reasonable to conclude that monetary policy
continue to be stimulative.
should
He hastened to add, however, that he was
not referring to any dramatic stimulation.
Rather, he would think that
an appropriate course would be to attempt to achieve the total reserves
projected in column 3 of table 3 of the staff memorandum of October 20
on the outlook for member bank reserves, and he would like to see the
Committee's instruction to the Desk expressed in such terms.
Of course,
he did not believe that one could look at the internal economic situation
alone at the present time.
As a matter of fact, the Committee's directive
required consideration of international factors, and he assumed the
Committee would give attention to such factors whether or not they were
10/24/61
-47
mentioned specifically in the directive.
Certainly, he would not want
to under-emphasize the importance of those factors or the dangers they
involved.
The dilemma of which Mr. Furth had spoken was a real and a
difficult one.
It would be nice, Mr. Johns commented, if the Committee had a
crystal ball that would show the future with such clarity as to insure
where the economy was going.
He did not disagree with the view that
it could be helpful to the balance-of-payments situation, at least in
the short run, if there could be such short-term rates in this country,
led by the 90-day bill rate, as to reduce the incentive for so-called
hot money to flee the country.
If one could look and see with assurance
whether the economy was going to expand and grow, with healthy and sus
tainable strength, then he supposed it would be reasonable to assume as
a matter of course, at least based on experience, that there would be a
movement of short-term rates that might be of considerable short-range
benefit to the balance-of-payments situation.
Conversely, if the economy
should move in the other direction, an unwholesome situation could result,
because lower short-term rates are generally associated with slackened
economic activity.
This was another way of expressing the dilemma of
which others had spoken.
He did not believe that monetary policy had
the sole, or perhaps any major, responsibility for providing a solution
to the balance-of-payments problem.
Nevertheless, when he appraised
the risk that monetary policy might have deleterious effects upon the
10/24/61
-48
balance of payments,
at least in the short run, he came to the conclu
sion that the System should not gamble with tightening monetary policy
that might inhibit the expansion of the economy at this particular
point in time.
Mr.
Balderston said he had approached the question of what open
market policy would be appropriate for today by using the device of
asking himself a series of questions,
to most of which he found that the
answers must be tentative in the absence of confirming data.
His first
question was whether the recovery had been in a period of hesitation
recently, to which his answer was:
possibly but not certainly, despite
the general comment to that effect and a slight decline in the Board's
index of industrial production.
His second question was whether there
were indications that the money supply was now responding to the intro
duction of reserves since February, to which the answer seemed to be in
the affirmative, if one could rely upon the September increase in the
active money supply of $1.5 billion, even though the money supply seemed
to have declined by a few hundred million dollars in the first half of
October.
His third question was whether the foregoing answer indicated
that reserves needed to be supplied somewhat less rapidly to provide the
same stimulus to the money
answered:
supply and to the economy, to which he had
perhaps so, although further confirmation was needed.
His
fourth question was whether the transfer abroad of gold and dollars,
plus the widened rate differential between New York and London, was
serious enough to give concern.
To this question his answer was in the
10/24/61
-49
affirmative.
For this reason, he felt it
rate were to rise somewhat,
would be desirable if
the bill
even though a rise would not deter the out
flow of long-term investment funds or cure the deficit in this country's
basic balance of payments.
Mr. Balderston went on to say that from these questions and such
answers as he could provide to them he had come to the conclusion, on
balance, that he
would aim for free reserves of around $500 million,
recognizing that the coming three weeks would have less float than the
past three.
It
was his hope that this target might be achieved with
some rise in the bill rates,
since this was the period of the year when
such rates were under seasonal upward pressure; he would expect the
Account Management to use the special authorization to protect bill
rates during the next two weeks when a large decline in float would need
to be offset,
even though some change in target might be considered,
he was impressed by the fact that any change today should be minor in
order to preserve reasonable market sta ility
during the Treasury
financing that would occur between now and the next meeting.
In summarizing the meeting,
Vice Chairman Hayes commented that
there had been an interesting exchange of views and that it
somewhat more difficult than usual to express the consensus.
might be
There
were several difficult problems and the manner of looking at them
varied considerably around the table.
A majority appeared to feel,
however, that the general policy the Committee had been following was
10/24/61
-50
appropriate from the standpoint of domestic conditions.
There had
been comments about the continued need for stimulation of credit
expansion.
There had also been comments about the general stability
of prices, for the moment at least, but there had been warnings on
both sides of the question as to what might lie over the horizon,
Some had referred to the potential danger of inflation and others had
suggested that the recovery movement might not be too strongly founded.
However, those were more in the nature of longer-range considerations
than matters of immediate concern.
As to the period immediately ahead,
there was recognition that the System should meet seasonal needs for
reserves and also that the System should observe the usual attitude
of helpfulness toward the Treasury's refinancing program.
Turning to international factors,
Mr.
Hayes commented that he
would like to depart for a moment from his role as Chairman and say
that personally he found it
hard to go along with those who had
expressed the view that because things that should be done to deal
with the balance-of-payments problem in fundamental ways were not being
done, the System had no responsibility to do anything.
He recognized,
of course, the argument that the System might create an impression
that it
thought it
actually be done,
letdown in
could do more through monetary policy than could
and that such an impression might contribute to a
other efforts.
Yet,
in considering the whole problem,
he though that on balance the System would lose more by standing aside
10/24/61
-51
than by doing what it
could to indicate that it
saw some danger on
the international horizon, even though admittedly the necessary
things were not being done in
areas such as cost stability or even
cost reduction to improve the situation fundamentally.
Reverting to his role as Chairman,
M
r. Hayes said he thought
that at least a goodly number of those around the table had expressed
some concern about the international problem and had recognized that
there was perhaps something the System could do to help, in a minor
way, to show that it was aware of the problem, without doing danger
to the domestic economy.
In terms of monetary policy, Mr. Hayes said it seemed to him
there was a close balance around the table as between those who would
favor a little tighter policy, or at least the resolving of doubts
on the side of less ease, and those who would make no change in policy.
It was very close.
Of the members of the Committee, however, he thought
perhaps a slight majority veered toward resolving doubts on the side of
less ease as compared with "staying exactly where we are."
As to the level of free reserves, Mr. Hayes noted that various
figures had been mentioned.
In this respect, it was again very close
between "staying where we are" and "very slightly fewer."
When it came to short-term interest rates, however, a clear
majority had said that they would be glad to see higher rates and
that they would hope the Account Manager could do something in that
10/24/61
-52
direction.
The expressions as to the bill rate had included "a little
higher than at present" and 2-1/2 per cent, with some even suggesting
a little higher than 2-1/2 per cent.
In any event, the giving of some
attention to short-term rates apparently was desired by a clear majority
of those present.
It was quite clear also, Mr. Hayes continued, that a majority
of the Committee wished to renew the special authorization to operate
in longer-term securities.
A few had spoken of the value of that author
ization in helping to meet the various objectives that the Committee
was trying to mesh.
Further, it was clear that the Committee did not want to make any
change in the policy directive to the New York Bank at this time.
There
had been one or two comments on the possibility of discount rate action
in the future, but a large majority would feel that no action along
that line seemed appropriate at the present time.
This was almost a
unanimous feeling.
The foregoing, Mr.
the consensus.
Hayes said, represented his effort at stating
He then inquired whether it was felt that the consensus
had been presented accurately.
In the ensuing discussion Mr. Swan commented that he had been one
of those who went along with the idea of resolving doubts on the side of
less ease.
This, however, did not mean that he would favor a change of
policy in the direction of tightening at this particular time.
10/24/61
-53
In reply to Mr. Swan, Mr. Hayes said he had not meant to infer
that the consensus contemplated anything more than the resolving of
doubts on the side of less ease.
Turning to the matter of short-term
rates, he said he thought a majority of the Committee members had
expressed some interest in somewhat higher rates, and this point was
confirmed by Mr. Sherman.
Mr. Hayes then inquired whether there were further comments on
whether the consensus had been properly expressed.
Mr. Mills commented that the statement of the consensus was in
conformity with his understanding of it,
but that he would like to have
recorded his dissent from the implementation of policy in the manner
indicated by the consensus.
Mr.
Hayes replied that he had up to this point meant to inquire
only whether the consensus had been properly stated.
mittee agreed that it had.
in addition to Mr.
Mills,
He judged the Com
Therefore, he would now ask whether anyone,
wished to go on record as disagreeing that the
policy implementation embodied in the consensus should be followed.
Mr. Allen said he agreed that the consensus was as stated and
that it
should therefore be followed.
However,
his own views were
contained in the comments he had made earlier during the meeting.
Mr. Hayes noted that there was always an opportunity to vote on
whether policy should be implemented along the lines indicated by the
consensus.
He inquired of Mr. Allen whether he wished to vote against
10/24/61
-54
the implementation of policy along the lines indicated by the consensus
today, to which the latter responded that he was content to recognize
that the consensus was as stated and to vote for its implementation.
His own feelings would,
of course, be recorded in the minutes.
Mr. Robertson said he felt thatthe consensus had been stated
accurately.
It was a question, in such event, whether a Committee
member felt strongly enough to want to register a formal dissent
against the implementation of policy along the lines indicated by the
consensus.
On this occasion, he did not.
Accordingly, it
implemented in
was understood that Committee policy would be
the manner indicated by the consensus,
as stated, and
that Mr. Mills dissented for the reasons expressed in the statement he
had made earlier during this meeting.
Mr. Hayes then stated that he understood the special authoriza
tion covering operations in longer-term securities would be renewed
until the next meeting of the Committee,
with Messrs.
Allen and
Robertson dissenting, and there were no comments to the contrary.
He
also understood that it was the unanimous desire of the members of the
Committee to renew without change the existing policy directive to the
Federal Reserve Bank of New York, and again there were no indications
to the contrary.
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:
10/24/61
-55-
(1) To make such purchases, sales, or exchanges
(including replacement of maturing securities, and allow
ing maturities to run off without replacement) for the
System Open Market Account in the open market or, in the
case of maturing securities, by direct exchange with the
Treasury, as may be necessary in the light of current and
prospective economic conditions and the general credit
situation of the country, with a view (a) to relating the
supply of funds in the market to the needs of commerce
and business, (b) to encouraging credit expansion so as
to promote fuller utilization of resources, 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
participation 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.
The Committee then authorized the
Federal Reserve Bank of New York, between
this date and the next meeting of the Com
mittee, and within the terms of the directive
issued at this meeting, to acquire inter
mediate and/or longer-term 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. Hayes,
Balderston, Irons, King, Mills, Mitchell,
Shepardson, Swan, and Ellis. Votes against
this action: Messrs. Allen and Robertson.
-56
10/24/61
In response to an inquiry from Mr. Haves,
r.
Rouse stated
that he had no questions to raise concerning the directive to the
Federal Reserve Bank of New York.
With reference to a comment made earlier during the meeting
by Mr. Mills, Mr. Rouse said it was his interpretation of the special
authorization covering operations in longer-term securities that in
the event of a disorderly market he would, despite the existence of
that authorization, come back to the Open Market Committee for
instructions.
He assumed that the Account Manager did not have
authority under the special authorization to act in that kind of
a situation.
It
was agreed that the next meeting of the Federal Open Market
Committee would be held on Tuesday, November 14, 1961.
There followed a brief discussion regarding the dates on
which succeedirg meetings might be tentatively scheduled in view of
the Holiday Season.
No decision was reached,
however, and it
was
understood thet the schedule would be considered further at the next
meeting of the Committee.
The meeting then adjourned.
Cite this document
Federal Reserve (1961, October 23). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19611024
@misc{wtfs_fomc_minutes_19611024,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1961},
month = {Oct},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19611024},
note = {Retrieved via When the Fed Speaks corpus}
}