FOMC Minutes
A meeting of the Federal Open Market Committee was held in
the offices of the Board of Governors of the Federal Reserve System
in Washington on Tuesday, November 14, 1961, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Hayes, Vice Chairman
Allen
Irons
King
Mills
Mitchell
Robertson
Swan
Wayne
Messrs. Ellis, Treiber, 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.
Mr.
Mr.
Mr.
Young, Secretary
Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Mr. Thomas, Economist
Messrs, Baughman, Coldwell, and Ratchford,
Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Koch, Adviser, Division of Research and
Statistics, Board of Governors
Messrs. Furth and Hersey, Advisers, 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
-2
11/14/61
Messrs. Eastburn, Hostetler, Parsons, and
Tow, Vice Presidents of the Federal
Reserve Banks of Philadelphia, Cleveland,
Minneapolis, and Kansas City, respectively
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
Messrs. Anderson, Bryan, and Runyon,
Economists, Federal Reserve Banks of
Boston, St. Louis, and San Francisco,
respectively
Upon motion duly made and seconded,
and by unanimous vote, the minutes of
the meeting of the Federal Open Market
Committee held on October 24, 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 24 through November 8, 1961,
and a
supplemental report covering the period November 9 through
November 13,
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:
As the written reports which you have received
indicate, the System Account supplied a substantial
volume of reserves to the market in the period
During the early part of the
between meetings.
rates were under considerable
period, Treasury bill
downward pressure, and we were fortunate to be able
to acquire $330 million Treasury bills from foreign
accounts, including $280 million from the British as
11/14/61
-3
they sold in order to make a payment to the
International Monetary Fund.
In the latter part of
the period, our efforts were devoted to keeping things
steady while the Treasury carried out the exchange
refunding of its November 15 maturity. There were
difficulties in this respect because the dealers' needs
to finance their purchases of rights, as well as their
already large holdings of bills, tended to focus
reserve pressures on a few large money market banks;
also the reserve estimates again proved to be rather
unreliable.
We made repurchase agreements against
rights and other issues so far as was practicable to
relieve the situation.
The three-month Treasury bill rate ran as low as
2.27 per cent bid at the time of the Treasury refunding
announcement, but subsequently rose sharply to close last
night at 2.49 per cent bid, or 19 basis points above the
level at the time of the last meeting.
The upward push
on bill rates was the result of the build-up of dealer
positions in anticipation of heavy demand for Treasury
bills in connection with the Treasury refunding operation
that failed to materialize, the pressure on dealers to
find financing as they took on over $1 billion of rights,
which in turn put pressure on the money market, and the
Treasury's special auction of an $800 million strip of
bills.
In that auction, on November 9, dealers were the
main bidders and were awarded $510 million of the total
offered.
With no tax and loan account privileges, the
smaller banks, at least in the Second District, virtually
ignored the auction. The Buffalo Branch, in fact, did not
demand from
receive a single tender. There was little
nonbank sources and only limited participation by the
larger banks.
In yesterday's weekly auction, average
issuing rates for three-month Treasury bills were
established at 2.52 per cent, and on six-month bills at
2.72 per cent. Dealers were not very aggressive bidders
because of their already swollen holdings but there were
indications that other potential bill buyers, mostly
nonbanks, were much more interested at these higher
rates. Whether the rate will stay at this level without
our help will depend on whether there is a significant
follow-through of buying from these sources. As you
know, nonbank lenders are currently providing dealers
with about $2 billion; whether they will continue to be
lenders on this scale or whether they will commit funds
for investment remains to be seen,
11/14/61
--
The refunding of the $6.9 billion 2-1/2 per cent
Treasury bonds due November 15 worked out successfully
from the Treasury's point of view.
Exchanges, through
last night, amounted to $3.6 billion for the new 15-month
billion for the reopened 4-1/2
3-1/ per cent note, $2.
year 3-3/4 per cent notes, and $0.5 billion of the 3-7/8's
of 1974. Attrition was kept low, at about $130 million,
and was more than covered by the auction of the strip of
Treasury bills, while some much needed debt extension was
There was, of course, considerable selling
accomplished.
of "rights" by holders who preferred not to exchange and
dealers were willing to take on large amounts at the
modest premiums which prevailed.
They acquired gross over
$1.1 billion "rights at the peak on Wednesday, against
which they had made when-issued sales of over $300 million
of the new issues. After the exchange, dealers had net
long positions of $305 million 3-1/4's, $234 million 3-3/4's
of 1966, and $139 million of the 3-7/8's. At the same
time, their total borrowings (including about $700 million
funds employed by bank dealers) rose to over $4 billion, an
all-time high. With this extended position, dealers were
especially prone to feelings of apprehension; the booming
stock market on last Wednesday and the relatively low
reserve figures released on Thursday led to considerable
speculation that the outlook for long-term bond prices was
not as favorable as it had appeared and that System policy
may have already undergone some change.
The market yester
day afternoon was quite soggy and conditions looked
unfavorable for the Treasury to attempt a "junior" advance
refunding which it has been thinking of doing in the next
few days. Unless the market settles down and something
along this line can be done shortly, the Treasury will
probably be out of the market, except for an offer of an
intermediate bond to holders of the "F" and "G" bonds
maturing in 1962, until early January when cash borrowing
of $2-1/2 - $3 billion is anticipated.
Mr. Mitchell inquired of Mr. Rouse whether the change in
rates that had occurred should be interpreted as a response to
the Open Market Committee's instruction at the October 24 meeting
or whether the development was inadvertent.
11/14/61
-5
Mr. Rouse replied that it
part of it,
was in part inadvertent; some
he believed, was a reflection of the free reserve
figures.
Mr. Robertson said he considered it
extremely unfortunate
that the free reserve figure had dropped as low as it
midst of the Treasury refinancing operation.
did in the
It was his feeling
that this may have had some restraining influence an the sub
scriptions for the longer-term securities offered by the Treasury.
He seriously doubted whether such a drop was contemplated by the
Committee consensus,
It may have been unavoidable,
but if
it
reflected a gearing of open market operations to the bill rate,
that was unfortunate.
Mr. Hayes commented that it
was his impression that for
October the average free reserve figure had been something like
$450 million, and that the figure of $418 million for the past
week could therefore hardly be regarded as radically lower than
the level to which the market had become accustomed.
Mr.
Robertson replied that the over-all figure was good.
The ever
all average was, he felt, in accordance with the consensus at
the October 24 meeting, but the $418 million figure was not.
Mr. Rouse said the Account Management shared the feeling
Mr. Robertson had expressed.
The Management would have preferred
not to have had the situation develop as it
inadvertent.
did; that was
However, he felt this had had only a very minor
11/14/61
-6
effect on the amount of the exchange for the 3-7/8s of 1974 and
the 3-3/4 per cent
-1/2 year notes.
He guessed that the amounts
involved would be less than $100 million, perhaps less than $50
million.
As far as the 3-7/8s were concerned, most estimates of
the amount that would be exchanged had not gone over $500 million
at the outside, and the exchange turned out about as expected.
After further comments, Mr. King said he did not think
the Treasury should have been bothered too much by the fact that
events transpired as they did or that the Treasury had room to
feel unhappy about the role of the System.
He noted that the
Treasury had announced in connection with the refinancing the
auction of an additional strip of bills thereby exerting some
upward pressure on the bill rate.
Mr. Rouse said that he would agree.
Thereupon, upon motion duly made
and seconded, the open market transac
tions during the period October 24
through November 13, 1961, were approved,
ratified, and confirmed.
Mr. Koch presented the following statement with respect to
economic developments:
In assessing domestic economic conditions, interest
continues to focus on the spending activities of the
consumer and the Federal Government. Net experts are
declining; inventory accumulation is not expected to
add as much to economic expansion in the near future as
in the recent past; and capital expenditures depend, to
a certain extent at least, on the strength of demands
11/14/61
-7
for goods generally, With this focus in mind, I
shall concentrate my remarks this morning on these
two sectors of the economy, but before doing so let
me highlight the key economic statistics that have
become available since the last meeting of this
Committee.
They have been mixed.
On the plus side, our industrial production index
for October is now estimated at either 113 or ll4 per
cent of the 1957 average, thus recovering its September
decline and possibly exceeding the recent August high.
Automobile production increased sharply, and industry
schedules indicate a further seasonally adjusted rise
of about 15 per cent in November. New orders for
machinery and heavy engineering contracts are up.
The rental
Employment showed moderate improvement.
Stock prices
housing vacancy rate dipped a little.
have advanced sharply in recent trading. Finally,
total retail sales, particularly automobile sales,
rose substantially, breaking out of the narrow range
prevailing since midyear.
On the minus side, steel production, which usually
changed this
rises seasonally in October, was little
year. The unemployment rate remained at 6.8 per cent of
the labor force, virtually unchanged now for almost a
year. Some decline has occurred in a few sensitive
commodity prices, indicating continued ample supplies.
Corporate profits in the third quarter apparently were
Finally, the McGraw
not up to earlier expectations.
Hill survey of business plans for spending on new plant
and equipment in 1962 showed a rise of only 4 per cent
over this year. This is a smaller figure than many had
forecast earlier and is about the same as anticipated
spending in the current quarter. Similar surveys con
ducted in the comparable phase of the 1954 and 1958
recoveries, however, underestimated expenditures in the
succeeding year considerably.
Turning now to a closer look at the consumer, first,
the rise in personal incomes that characterized earlier
months of the year has slowed down more recently. He
has more to spend but not as much more as had been
anticipated.
As for his spending, it has been sustained but not
As I mentioned earlier,
as high as many had expected.
too early to
October sales were strong, but it is still
say whether this strength is likely to be maintained in
Furthermore, total retail sales are
the months ahead.
from a year ago.
up only a little
-8Recent automobile sales have been strong and the
trade expects a very satisfactory 1962 model year.
Sales of homes have also picked up despite the existence
of relatively high rental vacancies. Mortgage financing
continues to be quite readily available and at rates
little higher than their recent recession low.
Consumer saving and holdings of liquid assets are
sub
Consumer borrowing power is also still
quite high.
stantial.
Buying plans data, however, are not encouraging.
Preliminary data from the most recent quarterly survey
conducted in October give little
evidence that consumer
demand will be a strong independent factor in furthering
expansion.
I conclude with reference to the consumer that
although we may be getting a sharp rise in his spending
this quarter, it is still
not certain how much more than
seasonal it is, or whether it is rising enough to support
the optimistic forecasts for GNP next year. The consumer's
wherewithal for stepped-up spending is at hand, but he
still
remains largely a potential expansionary force.
Turning to the Federal Government, I think most of us
were surprised to discover that Federal purchases of goods
and services barely increased in the third quarter follow
ing earlier sharp advances, and despite substantial increases
These third-quarter figures, however,
in defense ordering.
are likely to be revised upward somewhat.
Moreover,
tentative October figures suggest a pick-up in Federal
spending consistent with the recent stepped-up defense
ordering and with the Autumn Budget Review.
The Budget Review also shows a sharp rise in Federal
receipts over fiscal 1962 which may well be larger than
that in expenditures, thus dampening the expansionary
However, these
effects of the higher Federal spending.
budget estimates are based on programs passed by the last
They make no allowance for
and earlier Congresses.
possible additional or expanded programs of the next
Congress.
So much for the latest available information on the
current economic situation. Let me conclude by saying two
First, the consensus at last week's meeting of
things.
the System's Current Business Developments Committee was
that the next six months would probably be a period
characterized by expanding economic activity and employ
ment without strong upward pressure on prices.
Second,
in framing monetary policy today, more than ever one has
11/14/61
-9
to look beyond the figures and make some judgments.
Cycles in economic activity are never exactly alike
and this one certainly has its distinguishing
characteristics.
For example, it seems to be closely
intertwined with a longer-run problem of satisfactory
manpower and resource use.
It is also set in a frame
work involving more acute international political
problems, larger military commitments, and more adverse
international economic relations.
In this setting, one is torn between one monetary
policy that the domestic economic situation seems to
call for and another one that the international situation
seems to call for. At home, the existing unutilized
labor and material resources suggest the appropriateness
of credit and monetary ease and are a justification for
the continuation of more or less current policy.
On the other hand, the likely expansionary and
inflationary implications of the international political
situation do not as yet appear to have been appreciated
adequately. Nor does the worsening of our balance of
international payments seem to have been fully recognized.
On their face, these factors would call for less monetary
ease.
However, the expansionary and inflationary implications
of the international situation are still
in the future.
They are not pressing at the moment.
If inflation does
develop as a consequence of actual developments abroad
and at home, the posture of monetary policy can shift quite
promptly. As for the balance-of-payments problem, it
appears that some progress is being made toward its basic
solution in the wage and price area, even though cyclically
higher imports are making the figures look worse currently.
Thus, in my view current monetary policy can appro
priately be based mainly on one's assessment of the
seems
domestic economic situation. This situation still
to me to call for relative monetary ease even though I
recognize that there are lags in spending and investing
responses to monetary policy changes as well as dangers
in relying unduly on liquidity and debt creation to
stimulate the economy.
Mr. Thomas presented the following statement with respect
to credit developments:
11/14/61
-10-
Perhaps the most significant recent developments
in the financial area are the further sizable expansion
in the money supply, accompanying only moderate increase
in bank loans, and the rise in the short-term Treasury
bill rate during the past week, following a down-drift
in interest rates, particularly in the long-term sector.
In this climate, the Treasury has successfully effected
a large refunding operation, involving some extension of
maturities, and has raised some new cash.
System operations made possible an increase in
member bank reserves available in amounts sufficient to
support a continuation of private deposit expansion at a
5 per cent annual rate. At the same time, required
reserves increased at an even greater rate, and free
reserves remained below $500 million for more than a month.
In the week of November 8, required reserves, seasonally
adjusted, dropped below the 5 per cent expansion line, and
total reserves declined even further. System operations,
though large, were insufficient to meet the drain on
reserves from other factors.
Free reserves declined to
over $400 million and brought about some tightening
little
in the money market.
Money markets have been relatively easy during most
of the past month, notwithstanding the pressures of bank
credit expansion and the lower level of free reserves.
Although rates on Federal funds averaged somewhat higher
in October than in September, bill
rates generally
continued near recent lows until the past few days, when
yields on short-term bills rose to around 2-1/2 per cent,
and prices of other issues weakened.
Bank credit and money market changes have been influenced
to some extent by sizable operations of dealers in U. S.
half of
Government securities. In September and the first
October, dealers substantially increased their positions in
longer-term Treasury bills and also added to their holdings
heyfinanced these
of coupon issues maturing within a year.
holdings by increased borrowings from banks, both in New
York and outside, as well as from corporations, including
In the past week dealers have added
repurchase contracts.
a large amount to their positions in short-term bills through
bidding in the auction for the new strip of bills. In early
November, in connection with the latest Treasury refunding
operation, dealers added further to their holdings of coupon
issues maturing in 1 to 5 years and in over 10 years.
At present dealers' total positions, including a large
volume of long-term repurchase contracts, are at a new high.
11/14/61
-11-
These various rather large holdings by dealers
represent a source of potential pressure on different
sectors of the Government securities market, unless
the market demand for securities should be strong.
In capital markets, new corporate issues
continued in moderate volume during October at about
$800 million, and a similar amount is estimated for
November,
State and local government issues have
continued large, with over $900 million likely in
November or early December. Bond yields in both of
these sectors have declined in the past month, and
the new issues have been floated at relatively low
yields. Although yields on U. S bonds also declined,
the spread between yields on high-grade corporates and
those on Government bonds has been unusually narrow.
Common stock prices have risen to new high levels
with rather active trading. Average yields on common
stocks, at recent dividend rates, have declined to a
new low level of 2.80 per cent. With corporate profits
failing to come up to expectations, earnings-price
ratios must also be exceptionally low. This may be an
influence tending to give some support to bond prices.
In banking, following a record expansion in total
loans and investments in September, there was a further
Loans to commercial and
moderate increase in October.
industrial businesses, to security dealers, and on real
estate increased somewhat, while those to sales finance
At city banks in the week ending
companies declined.
November 1, there were substantial further increases in
loans in nearly all categories, while partial data for
the week of November 8 indicate declines in both loans
and investments.
After increasing sharply in September,
holdings of securities showed only moderate further
increase at all commercial banks in October, with some
decrease at city banks during the month and also into
November.
In general, it would appear that banks have been
putting available funds to use, either in response to
loan demands from customers or through purchases of
They have seemed willing to operate with a
securities.
somewhat lower level of free reserves. Operations in
Federal funds have been rather large.
Money supply, seasonally adjusted, increased further
in October and at $144.2 billion in the last half of the
This figure
month slightly exceeded the July 1959 peak.
ll/14/61
-12-
is less than 2 per cent above the level that generally
prevailed from late March through August and is little
more than 3 per cent larger than the low level of mid
1960.
Some of the increase in private deposits in
October resulted from a decline in U. S. Government
deposits from the exceptionally high level outstanding
at the beginning of the month.
The growth of time
deposits seems to have slowed down to a low rate after
Savings deposits at city banks
the middle of October.
continued to increase, but other time deposit accounts
declined.
These shifts in other deposits help to explain
why the private money supply increased so much in October,
although the growth in bank credit slackened.
Review of over-all credit developments for the year
to date indicates that credit has been generally available
in amounts adequate to support substantial economic
recovery.
At the same time, measures of credit and of
liquidity relative to general economic activity indicate
that credit and monetary availability is rather low by
Interest rates have been excep
historical standards.
tionally steady.
An important question for consideration is how much
more credit expansion may be appropriate in the period
Estimates based on projections of further economic
ahead.
recovery toward fuller, but not over-full, utilization of
resources call for continued expansion in bank credit at
On the basis of these
close to the rate of recent months.
available for private
reserves
in
increase
an
computations,
credit expansion at a rate of at least 5 per cent per annum
Estimates of reserve
continues to appear appropriate.
needs at this rate have been supplied the Committee in a
staff memorandum.
The System might, without risk of overstimulation,
follow a policy of supplying that amount of reserves
If actual monetary and
through open market operations.
credit demands fall short of the amounts indicated, inter
If this occurs
est rates would presumably tend to decline.
and encourages an outflow of funds abroad, then the growth
in reserve availability can be slackened somewhat, keeping
free reserves only large enough to encourage expansion
without depressing interest rates.
If, on the other hand, credit and monetary demands
tend to exceed the amounts projected, then banks could be
In this
required to borrow any additional reserves needed.
event interest rates would tend to rise. Should credit
-13demands expand at a pace that seems excessive or should
the expansion appear to contain speculative or other
unsustainable elements, further member bank borrowing
might be restrained by raising discount rates. A
discount rate increase, however, would presumably not
be needed until there is evidence of excessive or
unhealthy credit expansion based on member bank borrow
ing and the Treasury bill rate has risen to the level
of the existing discount rate.
Under a program of this nature, the target of
policy would be the amount of total reserves available,
rather than the volume of free reserves, Free reserves
would result from the relation of credit and monetary
demands to the available supply of total reserves.
Restraint on credit expansion and the course of interest
rates would be similarly determined by the level of demands
for credit. To be sure, the relationship between interest
rates in this country and those abroad and international
movements of funds and of gold might be a limiting
influence.
As long, however, as domestic credit demands are
sufficient to exert some upward pressure on interest rates,
international money market considerations may be less
decisive. If economic expansion continues as projected
and the volume of reserves supplied is limited to the
amounts suggested, interest rates are likely to be firm
and might even rise moderately.
Mr. Hersey presented the following statement with respect to
the United States balance of payments:
A rise in the level of U. S. imports in recent months
Some
has been a major factor in the balance of payments.
such rise in imports has been foreseeable for some time
past, but the degree and timing of the rise was not easily
predictable.
Early in the year imports were running at a rate of
$13-1/2 billion. In relation to GNP this was a little
In April and
lower than in previous recession periods.
and in June total
May imports of materials rose a little,
In July case a very sharp
imports moved up a little.
rise. For that month by itself, in annual rate terms,
imports were at $16-1/2 billion.
Fortunately, this peak rate has not been maintained.
In August and again in September imports were at a rate
of $15 billion, well below the July peak and alsowhich is more significant statistically--somewhat
below the June-July average.
Nevertheless, the August
September rate is 10 per cent above the rate in the
earlier months of this year, and this change has a
fairly big effect on the over-all balance of payments.
An interpretation of the recent changes in imports
must still
be highly tentative.
It seems likely (1)
that there were some accidental features in the heavy
concentration of imports in the month of July, and (2)
that the rise to June-July, involving orders placed
somewhat earlier, was closely associated with the sharp
upswing after February and March in the buying and out
put of domestically produced materials, and with the
unusually early and sharp shift in this recovery from
decumulation of inventories to accumulation.
(3)
This line of thought, together with the probability
that inventory accumulation in the domestic economy is
not accelerating greatly in the current quarter, leads
to an hypothesis that further changes in imports this
year may be relatively small--though next year rising
consumption is likely to push imports up more.
The rise in imports was the largest single factor
increasing the over-all deficit in the balance of
payments in the third quarter as compared with the
first
half of 1961.
Estimates for other items are still
very preliminary.
There were apparently other adverse
factors besides imports, including a small decline in
exports not financed by economic aid (while economic
aid and exports financed by it apparently increased),
and a drop in the foreign purchases of U. S. corporate
securities. However, the adverse factors were partly
offset by a shrinkage in unrecorded outflows.
The
result was a deficit, on the seasonally adjusted basis,
at an annual rate of somewhat over $3 billion.
For the year 1961, the over-all balance-of-payments
deficit now looks like being not far from $2-1/2 billion
without counting the advance debt payment by Germany
last spring, or about $2 billion if that is counted.
There is still
a considerable margin of uncertainty in
these figures.
Of the $2-1/2 billion adjusted deficit,
the current account, Government aid with normal repay
ments, and long-term private capital movements may
give a debit balance of about $1 billion--which will
have been concentrated, at a much higher rate, in the
11/14/61
-15
second half of the year--while short-term U. S.
private capital outflow and unrecorded transactions
will have produced the rest of this year's over-all
deficit.
For 1962, the deficit on current account,
Government aid, and long-term capital will undoubtedly
be much above the $1 billion estimate I have just given
for this year, and probably quite a little
above the
rate in recent months.
In round terms, to get a
balance on current transactions, Government aid, and
long-term capital account would require a merchandise
trade surplus of about $7 billion if there were no
inflow of foreign long-term capital, as was the case
in the third quarter this year, or of $6-1/2 billion
if that inflow resumes.
These figures must be thought
of as subject to a rather wide range of uncertainty.
The $6-1/2 billion requirement results from economic
aid (net of repayments) now apparently at a level of
about $4 billion a year and military expenditures
abroad (net of foreign military purchases here)
running at about $2-1/2 billion a year.
In addition,
there is the movement of long-term capital.
If foreign
purchases of U. S. corporate securities resume, the net
outflow of long-term capital might be as little
as
$1-1/2 billion.
This might be more or less offset by
the credit balance on other items such as receipts on
services less payments on civilian services and
remittances.
There is no prospect whatever of the merchandise
export surplus approaching $6-1/2 billion next year.
In the first
half of 1961, the rate of export surplus
was $6 billion, but with the rise in imports the third
quarter rate of export surplus was about $4 billion.
It is impossible to forecast within a billion or
so how far short next year's merchandise export surplus
may fall of the requirement (itself uncertain) for
balance on current account, Government aid, and long
term capital. Measures affecting the tying of aid may
and so too may the new program of export
help a little,
A continuation of price stability in
credit insurance.
this country, which is absolutely essential for restoring
equilibrium in the long run, may begin to show some
results on the trade balance next year. But the
dominating forces in the short run of a year or so are
bound to be cyclical movements in demand here and abroad.
U. S. imports are virtually certain to rise further.
-16-
11/l4/61
U. S. exports have been fairly stable this year, in
the $19-1/2 billion to $20 billion range; to forecast
them in 1962 is particularly difficult. At the
moment, it looks as if the current account, Government
aid, and long-term capital account may show a deficit
next year in the range of $3 to $4 billion, but it may
be less or more than that.
On top of this, there are wide uncertainties about
short-term U. S. capital outflow and unrecorded transac
out of account so far,
tions, which have been left
Although preliminary estimates for the third quarter
place the net total of these other elements at a very
low figure in that period, the picture in the very
latest months is not very reassuring. Specifically,
net transfers of gold, convertible currencies, and
liquid dollar liabilities to the rest of the world in
September were about $400 million, and incomplete
figures for October suggest a similar figure for that
Such high figures as these may possibly reflect
month.
a renewed unfavorable balance, at least for the moment,
Some allowance for this is
on unrecorded transactions.
contained in the estimate I have given for the total
Considering the uncertainties, it
deficit this year.
would be pointless to try to pin down now any estimate
for unrecorded transactions next year, or for the final
over-all deficit next year.
Chairman Martin stated that Mr. Hayes had just returned
from a trip to Europe to attend the monthly meeting of the Bank
for International Settlements and that in the circumstances
Mr. Trieber would make the statement on the business outlook
and credit policy usually presented by Mr. Hayes.
However,
Mr. Hayes had agreed to comment informally on impressions gained
from his trip.
In his comments,
countries,
Mr. Hayes said that some European
such as Italy and perhaps Switzerland,
appeared to
-17
11/14/61
be moving ahead as strongly as ever.
There were some slight
signs of a slowing down of the boom in Germany, and France was
moving ahead at a somewhat less rapid pace than a while ago,
A
striking item in all of these countries was the shortage of
labor, with attendant pressure on costs, which in the longer
run would be helpful from the standpoint of the United States.
As to the balance-of-payments picture, the major development of
the past few months had been the big swing in leads and lags of
payments involving the United Kingdom and Germany.
Whereas just
prior to a few months ago, this had been working against Britain
and for Germany,
the opposite situation now prevailed.
Kingdom was now in heavy surplus in its
over-all balance and
Germany was losing reserves fairly rapidly.
gaining reserves included France,
The United
Other countries
Italy, and Belgium, with
Switzerland about in balance at the moment.
As to the dollar, Mr. Hayes sensed that there was
generally a considerable feeling of confidence,
private circles chinks in
although in
this confidence were beginning to be
seen, as reflected in articles in the press.
While he did not
believe central bankers were thinking in those terms as yet,
they were paying close attention to the balance-of-payments
problem and the efforts of this country to correct it.
They
were encouraged by the experience of the first half of 1961,
-18
11/14/61
especially the improvement as compared with 1960, but there was
uneasiness about the more recent trend.
The third-quarter
figures had not, of course, as yet been publicized at the time.
In essence,
the central bankers were still
giving this country
the benefit of the doubt, but questions were being raised as to
how the country expected to improve the situation.
encouraged to note the better ability, apparently,
They were
to cope with
the wage problem and the greater wage stability than had prevailed
in other years.
They were also glad that some progress was being
made on the military side,
the European countries.
even though at the expense of some of
The central bankers felt
that some
arrangements should be entered into to equalize that burden to
some extent.
The Federal budget figures were being watched
closely, and the central bankers were not quite sure what to
make of the prospective $7 billion deficit for fiscal 1962.
this latter
why,
In
respect, Mr. Hayes said he had tried to give reasons
under present conditions,
this should not be a dangerous
development.
Mr.
Hayes went on to say that the European central
bankers were acutely conscious of capital movements and the level
of interest rates.
abroad,
They were conscious of the amount of lending
short- and long-term, that this country had done over the
past year.
Some reactions as to what might be done reflected
different traditions in
the countries of those speaking; there
1/14/61
-19
was even the suggestion that moral pressure should be exercised
to get the banks and underwriters out of this kind of lending,
and Mr. Hayes had attempted to explain how such action would be
contrary to the mores of this country, and potentially dangerous.
The rise in the bill rate had been too recent to be the
subject of comment, Mr. Hayes said,
There seemed, however, to
be a feeling on balance that a fairly good job had been done in
keeping the bill rate where it was,
On the other hand, it was
felt that rates were somewhat on the low side,
There was much evidence of a desire to cooperate
internationally at various levels.
There was awareness that the
United States gold stock had special international significance,
and that the gold inflows and outflows were watched all over the
world.
Although every opportunity had been taken to assure the
Europeans that United States gold was available to all central
banks that asked for it,
there was no doubt but that some central
banks had been refraining on a unilateral basis from taking as
much gold as they would like to have if
they were to feel completely
comfortable with their reserve positions.
This meant, of course,
that they were holding more dollars than they really wanted.
The British felt that their bank rate reduction was a
part of this international cooperative effort.
There was also a
cooperative attitude evident in the approach most central banks
took toward the London gold market.
They felt that purchasing in
-20
11/14/61
that market when price pressures were considerable was not
appropriate, and there was a general disposition to stay out
and not create additional price pressure.
As to International Monetary Fund developments,
Mr.
Hayes said that he purposely stayed away from discussions of
that subject.
felt
From what he heard, however, it
seemed to be
that there was a good chance of reaching a reasonable
compromise that would be satisfactory to everyone on expanding
the Fund's resources.
In further comments on the United States payments
deficit, Mr. Hayes said he did not like to think of what the
Europeans would have to say if
they thought it
that the basic deficit next year would be in
billion.
was really possible
the area of $3 or $4
He also noted that gold sales as the result of dollar
accruals abroad were likely to step up in the next few months.
All of this added up to a very sensitive situation.
The crucial
point was whether foreign observers saw evidence that this country
had the determination to prevent continued heavy deficits and to
bring them down to reasonable figures, which to his mind would be
something in
the order of $1 billion or less.
It
was very much
up to the Government, and certainly the Federal Reserve System,
to give some evidence of such determination.
Mr. Young presented the following statement concerning
the recent meeting, which he had attended,
of the OECD Economic Policy Committee:
of a Working Party
11/14/61
-21
Since the last meeting of this Committee, there
has been another meeting of Working Party 3 of the OECD
Economic Policy Committee.
This time the entire session
was devoted to a consideration of the U. S. balance-of
payments problem. While the discussion was friendly
and sympathetic, a genuine concern was evident at all
stages of the talks about the U. S. payments deficit
and about how its correction might be achieved.
It is
necessarily difficult to summarize so wide-ranging an
exchange of information and viewpoint as took place,
so the following points provide only a capsule sketch
of substance.
The persisting deficit in the U. S. balance of
(1)
payments threatens to undermine market confidence in the
existing international payments system.
(2)
Strengthening of market confidence is urgently
needed and can probably be accomplished by U. S. demon
stration that relevant policies are being consciously
directed to the correction of its payments deficit.
The problem of correction is immensely
(3)
complicated and correction can only be slow at best,
considering the large load that the U. S. is carrying
for the defense of the Atlantic Community and for aid
to less-developed countries,
(4)
The surplus countries of Western Europe have
in
a role to play in accomplishing correction: first,
pursuing expansive domestic financial policies; second,
in further removing quantitative barriers to imports and
reducing tariffs; third, in opening wider the doors of
access to capital markets by foreign borrowers; fourth,
in assuming a larger responsibility in providing develop
mental aid; and fifth, by increasing their share of the
Other committees
defense burden of the Atlantic Community.
or working groups in OECD can properly be called upon to
help in eliciting European cooperation with the U. S.
towards these ends.
(5) As reported to us, specific concerns of the
European financial community about U. S. economic develop
ments relate to the Federal Government's sizable budget
deficit, a too easy monetary and interest rate policy, the
absence of a governmental wage policy and our continuing
upcreep in wage rates, the over-all competitiveness of
U. S. producers in world markets, and our high rate of
unemployment and generally wide margin of unutilized or
11/14/61
-22-
underutilized resources. At the same time, there is
patently a consensus of view favorable to U. S. policies
that appear likely to foster further economic recovery
and step up the pace of our domestic growth.
No conclusions were reached as to policies deemed
right and necessary to correct the U. S. payments
imbalance, considering the need for economic recovery and
growth.
The whole problem, it was felt,
needed further
study, discussion, and analytic consideration by the
Working Party. Accordingly, the U. S. problem was con
tinued on the agenda for the next meeting, to be held
early in December.
At that meeting, the U. S. deficit
will be discussed in relation to the surpluses that
various major European countries have been experiencing.
The outcome of that discussion will be reported to you
at the Committee's mid-December meeting.
Mr. Treiber presented the following statement of his views
on the business outlook and credit policy:
The domestic business and credit situation continues
The basic outlook continues
to develop satisfactorily.
to be for a strong, but not overly exuberant, expansion
in business activity. The picture has been somewhat
obscured by the special factors of weather and strikes
that led to the dip of one percentage point in industrial
production in September and continued to be a factor
The upward movement
limiting the improvement in October.
quarter
in over-all activity since the trough in the first
of the year has been substantial; there has been little
sign of a slowdown despite the adverse factors operating
in August and September.
too fragmentary to be conclusive,
There are signs, still
that the results for October will be better, perhaps giving
In particular, the retail
a boost to business confidence.
sales picture strengthened noticeably in October. While
the McGraw-Hill survey of business plans for plant and
equipment spending in 1962 indicates only moderately larger
expenditures next year, it should be borne in mind that
previous surveys taken in similar periods following a
recession seriously underestimated the advances that
actually took place; the current survey is encouraging.
At the same time, prices are steady and there is some
evidence that the over-all unemployment picture is
Unused resources, as reflected in the
improving.
11/14/61
-23
unemployment figures, however, remain large and the
speed with which they will be put to use remains
uncertain.
In contrast with the domestic scene, our balance
of payments is a cause for concern.
The increased
deficit for the third quarter made the first
page
newspaper headlines this morning. Preliminary incomplete
data for October give little
ground for hope that the
deficit was reduced from the high September figure.
The
payments deficit in the third quarter of 1961, adjusted
for special transactions, increased to $3.2 billion
(seasonally adjusted annual rate) despite the fact that
the volatile short-term capital and "errors and omissions"
accounts came into balance.
Without the considerable
improvement in these two accounts between the first
and
third quarters, the over-all adjusted deficit for the
third quarter would have been much larger. Furthermore,
there is some likelihood that we may experience rather
substantial gold losses in the next few months, as some
of the countries that have been accumulating dollars
rapidly tend to convert some of these accruals into gold.
The dollar is still vulnerable.
During the last two months there was a large expansion
in the investment portfolios of the commercial banks.
There was a good demand for bank loans in October.
Business, real estate, and security loans all showed
strength.
The money supply, as measured by currency in the
hands of The public plus checking accounts, has risen
This is
a bit more than 2 per cent since a year ago.
certainly not an undue expansion; the nonbank sector of
the economy is not exceptionally liquid. On the other
hand, banks are more liquid than at the comparable stage
of the previous business expansion; they have a larger
proportion of short-term assets in relation to total
assets. Their loan-deposit ratios, although higher than
they were in the corresponding period of 1958, have
declined substantially in recent months,
The Treasury's refunding operation and its offering
of $800 million Treasury bills in strip form were well
received. With the conclusion of these operations the
Treasury will be out of the market until early next yearunless it decides to try a junior advance refunding which
is now being talked about in the market. If the Treasury
11/14/61
-24-
were to decide promptly to undertake such an operation,
the System would have to take such decision into
consideration.
The most disturbing factor now before us is our
poor balance of payments. The problem of the balance
of payments must command the close attention of various
parts of Government and of various sectors of the
private economy.
The recent encouraging signs regarding
the business expansion and the comfortable position of
the banks enable us to give greater weight to the inter
national situation.
The rise in short-term rates since the last meeting
of the Committee should be helpful from the international
viewpoint. The average rate on the three-month Treasury
bill auctioned yesterday was 2.516 per cent. We think
this is a desirable development. The rate on three-month
bills is still
below the top of the range of 2-1/8 - 2-5/8
per cent which has existed for more than a year. We think
it desirable that the market rate on three-month bills
move into a modestly higher range--say 2-1/2 - 2-3/4 per
cent.
Such a move certainly would not signal a policy of
credit restraint. Yet it should help in a small way in
the international situation. To accomplish this end, a
lower level of free reserves is likely to be necessary.
With this in mind, we would be prepared to see free reserves
in a $300-$400 million range should this prove necessary.
We see no reason to change the discount rate. We believe
that the authority to engage in transactions in longer-term
securities should be continued.
As for the directive, it seems to us that in the light
of the international factors and the basic strength of the
domestic economy, the Committee could properly change the
directive so as to put less emphasis on encouraging credit
expansion and greater emphasis on international factors.
This might be done in two parts: first, by substituting
the words "to providing reserves for further credit
expansion" for the words "to encouraging credit expansion,"
and second, by substituting the words "special attention"
for the word "consideration" in the clause which now calls
for the Committee to give consideration to international
factors.
As so revised, the directive would read.
"to providing reserves for further credit
expansion so as to promote fuller utilization
of resources, while giving special attention
to international factors."
11/14/61
-25
Mr. Johns commented that the statement of Mr.
Thomas
had covered in detail the point that he himself had expected
to use in
beginning his remarks; namely, that in the most recent
past, say the past two or three months,
there had been rates of
increase of reserves and of money that could be characterized
as extraordinarily rapid.
period,
example,
in
If
one looked at a somewhat longer
he would get quite different rates of increase.
For
going back to March, one would derive a rate of increase
reserves,
both before and after considering those behind
Treasury deposits,
of about 6 per cent, and an increase in
the
active money supply of about 3 per cent, or about 6 per cent if
time deposits were included.
On the whole, however,
the state
of the economy was such that the maintenance of the extraordinary
rates of monetary expansion that had occurred in the past two or
three months were not needed.
At the same time,
the amount of
unemployment remained large, there were significant amounts of
unused capacity in many lines, and prices seemed to be behaving
rather satisfactorily.
considerations,
On the basis of these and other relevant
he was of the opinion that an unusually low rate
of monetary expansion would not be appropriate at this time.
Therefore,
he was inclined to agree with the staff memorandum
on the outlook for member bank reserves that a further increase
of total reserves,
exclusive of those behind Treasury deposits,
at a rate of about
5 per cent per annum would be appropriate.
11/14/61
-26
In other words, he would be inclined to go along with the
projections in column 3 of table 3 attached to the staff memo
randum.
However, in order to get a lessening of the rate of
expansion, it
would probably be necessary for excess and free
reserves to be permitted to decline,
and perhaps substantially.
This could not be predicted with confidence,
it
of course, because
would depend on the decisions of others.
Mr. Johns said he would like to point out that the
free reserve figures might be quite misleading at this particular
time as a guide to monetary policy.
He was inclined to think
that Committee objectives should be put in terms of total reserves,
as in
the staff memorandum,
and that excess and free reserves be
allowed to fall wherever they might, depending on the decisions
of others; for example, the decisions of banks as to what they
did with the available reserves.
Since the decisions to be made
by others could not be predicted with confidence,
it
would be
necessary to watch developments closely and to be poised to make
quick changes in policy in
either direction depending on the
circumstances.
Mr.
Bryan said that Sixth District statistics seemed to
indicate a continuation, though perhaps at a somewhat less rapid
rate, of the expansionary movement.
example,
He could point out, for
the considerable increase in department store sales,
the rise in nonmanufacturing employment,
the rather sharp rise
11/14/61
-27
in manufacturing payrolls, and the expansion of bank credit,
taking both loans and investments into account,
However, the
most striking development that had come to his attention was
the difference in sentiment at the
Reserve Bank directors
meetings this month and a month ago.
As borne out also by the
comments at the most recent meeting of the Birmingham Branch
directors, there seemed to have been a striking improvement in
sentiment.
If this could be taken as a token of things to come,
one could look forward,
at least for some months,
tion of the expansionary movement.
was noteworthy in
to a continua
The agricultural situation
that there were bumper crops almost throughout
the whole District; the only difficulty was that the generally
prevailing drought situation forecast some trouble from the
standpoint of fall pastures and fall seedings.
At this point Mr. Bryan summarized a report made recently
by a top textile executive in the Sixth District who had just
returned from an extended visit to Japan.
The substance of the
report was that the mills he had visited made those in the United
States obsolete by comparison in terms of automated machinery.
As to policy, Mr. Bryan said he had come to this meeting
prepared to advocate lowering the free reserve target because of
factors already mentioned by others.
These included the increase
in the money supply recently, which was especially large if
time
deposits or some fraction thereof were taken into account.
Also,
-28
11/14/61
total reserves were now above the 3 per cent trend line running
back through the postwar period.
felt
He would agree with those who
that the free reserve target was a particularly treacherous
concept at this point, and he would prefer to adjust in
of total reserves.
Taking total reserves, he thought it
terms
would
now be appropriate to drop down from a 5 per cent growth increment
to something like a 3 per cent figure.
something in terms of free reserves,
If he had to suggest
he would drop the target at
least to the $400-$450 million level, which would be a gradual
step in
the direction of getting tighter control of the money
situation.
Mr. Bopp reported that both business and banking in
Third District had been hesitating somewhat.
the
There had been
some slowing down in the advance of business, as indicated by
steel operations,
labor force figures, and freight car loadings.
A number of labor market areas were still
substantial unemployment.
September.
classified as having
However, retail sales improved in
The banking picture still
failed to show a pickup
of business loans, and total bank credit had actually declined
recently.
Reserve positions were comfortable.
In view of the balance-of-payments problem and the fact
that the Treasury refunding operation was still
in process, Mr.
Bopp said that he would not recommend moving toward further
11/14/61
-29
monetary ease.
Whether the recent hesitation in
anything more than that remained to be seen.
the economy was
It might be found
that the economy was already moving ahead along a moderately
expansionary course.
Under the circumstances,
essentially the policy that had prevailed.
he would continue
He would not change
the discount rate or the directive, and he would continue the
special authorization covering operations in longer-term
securities.
Mr. Fulton said that there had been no marked change in
the pace of business in the Fourth District since the previous
meeting of the Open Market Committee.
In the steel industry,
there had been no observable pickup in orders; the automobile
industry was buying steadily, but at a rather low level.
The
cessation of the auto strikes had not encouraged the buying of
steel because the auto companies took all of their deliveries
during that period and now must use their inventories before
increasing scheduled deliveries.
The steel industry expected
production in the fourth quarter to be about the same as in
third quarter, that is,
the
around 26-28 million tons, which would
make a total of approximately 97 million tons for the year as
a whole, much less than anticipated at the beginning of the
year.
The industry hoped for a pickup in the first
quarter of
1962 and projected about 110 million tons for the year.
The
industry was expecting a strike at the end of June, but of rather
ll/14/61
-30
short duration.
raised if
It was felt that prices would have to be
any costly settlement was made; the industry could
not continue to expand plant and modernize facilities at the
present rate of earnings.
Foreign steel was again becoming a
problem, with prices quite soft.
Scrap prices were down
substantially, reflecting the low rate of production in
the
United States and the somewhat declining rates of production
abroad.
In further comments on the District economy, Mr, Fulton
said that the paperboard industry was strong, with new highs in
output, reflecting the flow of material into the form of
finished goods.
sales,
However,
in view of the present rate of retail
there was some question as to how long the existing rate
of production of finished goods could continue.
sales in
the District were up somewhat,
While retail
consumer buying still
lacked vigor, perhaps due to some extent to lingering fears of
unemployment, much of which was still
in evidence.
Also,
the
calls of men to active military duty might be exerting some
effect.
Department store sales for the year to date were still
1 per cent below a year ago.
The automobile industry, Mr, Fulton said, was looking
forward to a good year.
The industry expected to produce better
than 1.8 million cars in
the fourth quarter, making a total of
5.5 million for this year, and expectations for next year ranged
-31
11/14/61
from a minimum of 6.3 million to around 7 million.
Sales were
good, dealer stocks were low, used car prices were high, and
few price concessions were being made.
The unemployment situation was still
it
had improved slowly, but only in
expectations,
a major factor;
accordance with seasonal
Of the 14 major labor market areas in
the Fourth
District, 9 continued to be classified as areas of substantial
unemployment, along with 25 of the smaller areas.
The machine
tool industry was one that had experienced no real push,
It
had a fair backlog of orders, many of which were for foreign
shipments; domestic orders were not up to par.
conditions in
Summarizing
the District, Mr. Fulton said he did not feel
that a boom was imminent,
As to open market policy, Mr. Fulton expressed the view
that the level of free reserves had been too low, particularly
in the latest week,
He would like to see free reserves in the
range of $450-$550 million, with something around $500 million
as the target,
rates,
With respect to the recent rise in short-term
he noted this would appear from the historical record to
be a normal occurrence in mid-November with rates falling back
to lower levels soon thereafter,
Conversations with persons in the Fourth District
reflected a feeling that a wage-cost push must be expected, and that
prices inevitably were going to be increased.
This was felt to
11/14/61
-32
reflect the lack of any national wage policy.
Mr. Fulton concluded
that monetary policy could not do anything about price adjustments
due to this particular phenomenon.
Therefore,
he felt that the
System should make a calm appraisal of the situation,
not put the
brakes on precipitantly unless the whole economy appeared to be
moving toward a fuller utilization of resources,
both plant and
manpower, and not be overly concerned about price movements if
they
Mr. Fulton added that he
resulted only from the wage-cost push.
would not favor changing the discount rate or the directive and that
he would renew the special authorization.
Mr. Mitchell commented that the Committee continued to face
some real uncertainty in the area of consumer behavior.
things had now moved far enough along in
the Committee ought to make up its
doing or were going to do.
too early.
Perhaps
this cyclical swing that
mind as to what consumers were
On the other hand, perhaps it
was still
In his opinion, however, consumers probably were not
going to make much contribution to the growth of the economy, at
least until they got over their present frame of mind.
regard a change in
He did not
consumer takings from the range of $18.0-$18.3
billion that had prevailed for several months to a rate of $18.6
billion as a substantial increase in
spending.
Even though
consumer income had been rising and consumers had adequate access
to credit, they appeared apprehensive.
Therefore, they were not
likely to spend in the next few months as freely as necessary to
11/14/61
-33
give business the encouragement it
plant, and equipment.
In the circumstances,
that had been evident in
might well continue.
needed to expand inventories,
the lack of enthusiasm
inventory policy and capital expansion
Mr. Bryan had observed a change in sentiment
in the Sixth District recently, and this might be the point where
such a change was about to take place generally.
However, corporate
profits in the third quarter were disappointing and the McGraw-Hill
survey of business plans for capital investment reflected the kind
of sentiment on the part of businessmen that existed at the time the
survey was taken.
In the circumstances,
policy should not be changed.
Mr. Mitchell believed that monetary
He was disappointed that recent develop
ments in the bill rate had created speculation about a change in
policy having occurred.
This seemed to be leading to an expectation
of changes in financial markets generally, which he did not think
would help to achieve economic growth and stability,
In short, he
saw nothing to gain by arousing public expectations that monetary
policy was tightening or about to tighten.
Mr. Mitchell noted that the Chairman of the Council of
Economic Advisers had said recently that if unemployment did not
decline,
it
would be up to the Administration to create jobs.
However, he (Mr. Mitchell) felt
that it
would be better if
private economy could be persuaded to create jobs.
the
Monetary policy
ll/l4/61
-3
should do whatever it
could to make this possible, and its major
contribution at this juncture would be to maintain an even keel,
with interest rates kept as low as possible consistent with the
dilemma presented by the international situation.
In that respect,
a major problem, apparently, was that foreigners wanted to know
how this country was going to get its payments position into
balance,
but he did not feel that anyone in
answer to that question.
As he saw it,
this country knew the
the Federal Reserve could
do just one thing about the balance-of-payments problem.
It
could
encourage foreigners to leave their money in this country by making
interest rates competitive with those in key Western European
countries.
In his opinion, however, carrying this policy much
farther than it
had been carried in
recent months would be too
high a price to pay at the moment, considering the importance of
a somewhat lower level of interest rates to stimulate the domestic
economy.
All things considered,
he came out in
his thinking to the
conclusion that monetary policy should not change at this juncture.
As to free reserves,
he felt that he could go along with a target
of about $500 million.
More important, however, was the need to
get back to the psychology and rate relationships that existed
before last week and to stay there for the time being.
Mr. King commented that at the start of the downswing in
activity over a year ago he was one of those who had talked
11/14/61
-35
considerably of international factors,
Today, however,
and he thought rightly so.
he did not weigh those factors quite as heavily.
In his view, difficulty was being experienced because of an
illusion that the System perhaps had helped to create.
He had
read in some of the financial papers that the System had been
pursuing too easy a monetary policy for too long.
real impact of monetary policy, he concluded,
is
However,
the
on the borrower,
being measured by the interest rates charged the borrower by
commercial banks.
There was rather general agreement,
he thought,
that interest charges of banks actually had not dropped very
substantially during the recession.
Nevertheless,
the System had
been satisfied, for rather obvious reasons, to live with the
illusion that it
was pursuing an easy money policy.
Criticisms
were now being heard from persons concerned about the international
situation who believed that interest rates were not moving up fast
enough, but the System was failing to assert that actually it
not have an easy money policy.
did
He could not conclude that policy
was quite as easy as some of the press articles would suggest, or
as it
was made out to be by some foreign sources.
This, he thought,
was basically the difficulty with which the System really was
struggling.
If
the System were to give an indication at this stage
of the game that it
did not subscribe to the view that monetary
policy had been overly easy, and instead felt that it
had maintained
11/14/61
-36
a reasonably prudent course up to the present time, a start could
be made toward demolishing the illusion that he though existed.
Also, if
the situation were viewed in this context, he believed
that there would be less difference of opinion within the Committee
as to the appropriate thing to do at this time.
Mr. King said he would hope that the general degree of ease
that had prevailed up until recently might be continued.
This
would be characterized by a Federal funds rate under 3 per cent,
but without being too specific since he thought it
to instruct the Desk in terms of exact figures.
was not reasonable
He saw no need to
change the directive at this time.
Mr. Robertson commented that there was still
of unutilized resources,
capacity.
both in
a great amount
terms of manpower and productive
There had not been the growth and expansion that might
have been expected.
In the circumstances,
tightening of policy at this time.
he saw no reason for a
The stage of the cycle had been
reached where a tightening of credit probably would be needed in
the relatively near future, but as of now he felt that the Committee
ought to maintain the same degree of ease that had existed, excluding
the most recent week.
An impression that policy had been changed
would give rise to a great deal of concern.
This might be necessary
by the time of the next meeting, or two meetings hence, but as of
today he would favor maintaining the degree of ease that had been
typical during the past two or three months,
whether stated in
terms
11/14/61
-37
of free reserves, total reserves, or nonborrowed reserves.
If
any doubts should arise, he would hope that they might be resolved
in such manner as not to be indicative of any tightening on the
part of the System.
Governor Mills said that he was in general agreement with
the interest rate and reserve targets proposed by Mr. Treiber in
the latter's comments.
However,
the top-heavy positions of the
Government securities dealers indicated that such objectives must
be approached cautiously to avoid, as far as possible, disruptive
effects on the Government securities market.
In capsule form, his
views on policy would run about as follows:
On balance, the parlous monetary and credit situations
to which I have drawn particular attention at the last two
meetings of the Open Market Committee have since worsened
and the difficulty of escaping unfortunate consequences
For the reasons that
has been correspondingly increased.
I have previously cited, it continues to be imperative to
develop a point in the supply of reserves, the effect of
which will contain the expansion of commercial bank loan
credit largely within the bounds of the resources now at
the banks' disposal at the same time that a firmer
structure of interest rates will serve to discourage the
In cambination, the
transfer of gold and dollars abroad.
scissorlike effect of these policy actions should give
public evidence of a determination to follow orthodox
principles in defending the international exchange value
of the United States dollar.
Unequivocal adoption of the kind of monetary and
credit policy outlined will need to be declared in a
revision of the directive to the Manager of the System Open
Market Account so as to read
. . (b) to giving precedence to combating
" .
international factors that tend to destabilize the
exchange value of the United States dollar, while
minimizing bank credit expansion to the end that
ll/14/61
-38
increases in bank loans will largely be financed
out of existing bank resources."
The special authority to operate outside of the
U. S. Treasury bill
market should be continued, and an
increase to 3-1/2 per cent in the discount rate at the
Federal Reserve Banks should be made if and when upward
pressure on interest rates has made a raise appropriate.
Mr. Wayne reported that Fifth District business had
continued to improve, but at a very gradual pace.
adjusted nonfarm employment,
reached a new high again in
enterprises,
Seasonally
following a slight August decline,
September.
Among nonmanufacturing
employment increases had been most marked in mining,
services, and government.
and contract construction.
Employment decreases occurred in
trade
Construction activity seemed to have
leveled out at near-record employment,
supported by a good backlog
and a fairly good volume of new contract awards,
According to
September man-hour statistics, all important classes of durable
goods manufacturing except two continued to gain, while important
nondurable goods industries, except tobacco manufacturing and
textiles, suffered losses.
The fact that man-hours in all major
industries, except transportation equipment,
were still
below
1960 activity peaks pointed up the gradual pace of this recovery
to date.
Encouraging developments had occurred recently in
furniture industry, which staged its
in years; in
the
most successful fall market
textiles, where improving demand had strengthened
11/14/61
-39
certain prices; and in the coal business.
The bituminous coal
industry appeared to have emerged from a long period of adjustment
in which new, highly efficient equipment was being utilized to meet
the pressures of rising costs and stiff
and power sources.
Significant additions of coal miners to
unemployment rolls were not expected,
jobs be opening up in
problem.
competition from other fuels
nor would many new mining
the foreseeable future to help solve the
The industry expected to hold its present domestic markets
and to expand them eventually with the aid of coal research.
the meantime,
In
costs were now low enough to compete successfully in
virtually all world markets, and demand was strong in Europe, in
the Far East and,
to an increasing extent, in Latin America,
so the
future looked very good for exports.
On balance, businessmen contacted in the past ten days in
a survey of recent business trends reported increases in manufacturers'
new orders and shipments,
a downward trend in inventories, slight
gains in employment and hours of work, and generally stable wages
and prices.
Unemployment had continued to decline, and both total
and insured unemployment rates, except those of West Virginia, were
substantially below the comparable national rates.
District banking
developments of the past three weeks had been dominated by seasonal
factors,
Turning to policy, Mr. Wayne said that while October data
suggested a small pick-up in
the rate of recovery, the persistence
-40
11/14/61
of a relatively high level of unused resources and the continued
absence of inflationary pressures were strong arguments against
any lessening of ease.
On the other hand, increasing vulnerability
of the dollar in the international market argued against additional
ease,
He was not persuaded that System action at this time to
force short rates higher was necessary.
This was not to deny the
importance of the unfavorable balance-of-payments developments,
but in his opinion the Committee would not yet be justified in
gearing its
actions primarily to those pressures.
Mr. Wayne noted that he was not present at the
meeting three weeks ago.
From the record, however,
comittee
the consensus
as to the amount of free reserves to be maintained was not entirely
clear to him.
time,
In any event the level of free reserves since that
and especially the level that prevailed last week, was
somewhat lower than seemed appropriate to him.
Considering both
the domestic economy and the international situation, he would
favor a target in the neighborhood of $500 million in
the weeks
ahead, with a considerably smaller departure on the downside than
occurred last week.
He thought it
was premature to lower free
reserves out of solicitude for the dollar's position abroad.
For the
present, he would favor no change in discount rates and renewal of
the substance of the present directive.
of the special authorization.
He would also favor renewal
-41
11/14/61
Mr. Clay commented that evidence continued to be lacking
as to the pace of economic activity ahead.
While the temporary
restraint of the automobile strike was now behind us, and it
should
be possible to obtain a more accurate picture of the underlying
strength of the economy, it
to be fully reflected in
when it
was too early for these developments
the economic data.
This was one time
was reasonable to anticipate that economic visibility would
be better at the time of the next meeting of the Committee than
today.
Indications were that economic activity would continue to
expand,
but the rate of expansion could not be foretold.
Substantial
expansion in government demand for goods and services appeared
assured, but the timing and impact were not clear.
was expanding,
Consumer demand
The important test of a sustained expansion in the
consumer durable goods area lay just ahead,
however, as the strike
settlements would make new cars readily available to the market,
The recent projections of business demand for inventories and
capital goods did not appear to be strongly expansionary, but a
strong upsurge in
consumer demand, with its
accompanying effect
on plant utilization and corporate profits, could materially alter
those developments.
When this situation was considered along with the large
volume of unutilized manpower and other resources, it
became
11/14/61
-42
clear to him that this was not the time to lessen the degree of
monetary ease maintained by the Federal Reserve System.
Credit expansion at the rate of recent months and a level
and pattern of interest rates in line with recent weeks would be
desirable, Mr.
Clay felt,
until economic visibility improved.
The
international flow-of-funds problem continued to call for watch
fulness regarding the Treasury bill
rate.
However, it
was
unnecessary to compromise domestic economic objectives to attain
the desired bill
operations in
rate.
This could be avoided by carrying out
longer maturities to whatever extent was necessary
to maintain reserve objectives.
Mr.
Clay expressed the view that no change was required in
the Committee's directive or in
the Reserve Banks'
discount rate.
The special authorization for operating in longer maturities should,
in
his opinion, be renewed.
Mr. Allen reported that economic activity in
District continued to improve slowly.
the Seventh
Employment, automobile sales,
new orders of durable goods manufacturers,
and loans at weekly
reporting member banks had strengthened somewhat further since the
last meeting of the Committee.
Samplings of opinions of businessmen
indicated very general expectations that the recent trend would
continue during the remainder of this year and well into 1962.
There
had been no recent reports, however, indicating expectations of a
boom-like expansion.
11/1/61
-43
Retail deliveries of new autos (domestically produced) in
October totaled 535,000 and were only 1 per cent below the record
number last year, when a large inventory of 1960 model autos was
being liquidated at reduced prices.
During the last third of
October, retail deliveries were at a record rate, 2 per cent above
those of a year earlier.
One of the major manufacturers estimated
that current sales were equivalent to an annual average of 6.5
million.
While prices of used cars had weakened recently, this was
thought to be an adjustment from recent high levels rather than an
indication that the demand for new cars would weaken.
Further gradual improvement of industrial employment in the
Seventh District was reflected in the reclassification of four labor
market areas in October.
Michigan; one,
Wisconsin.
Two of these, Muskegon and Flint, were in
South Bend, was in
Indiana; and one, Madison, was in
All except Madison were predominantly industrial areas,
and even in Madison the improvement was attributed in part to higher
employment in manufacturing.
Steel production in the Chicago and Detroit areas had shown no
decisive move either up or down but some improvement was expected if
production of automobiles continued at a high level during the remain
der of the year.
The failure of the expected volume of orders from
the auto industry to materialize in
September and October was attributed
in part to the possible effects of the new labor contract on scheduling
of auto production.
The "annual wage" features of the contract
11/14/61
-44
might tend to reduce seasonal fluctuations in the production of
autos.
This would also tend to stabilize purchases of steel by
that industry,
Banks in the Seventh District reported that they were still
waiting for the rise in loan demand, Mr. Allen said.
Also, they
were becoming increasingly restless with their large holdings of
short-term Treasury securities, indicating possible moves to lengthen
the maturity of their portfolios unless loan demand should rise
sharply before year end.
There was some evidence that loan demand had been strengthen
ing.
in
The over-all rise in loans of weekly reporting member banks
the District during September and October was about $300 million.
This was double, or more than double,
ing period in
the increase in the correspond
each of the three preceding years.
securities were deleted,
If loans on
the relative increase was smaller but still
substantially greater than in
other recent years.
The country
showed much the same pattern as the District, except that the
increase in
total loans was greater relative to the preceding
three years while the increase in business loans was not so strong
as for Seventh District banks.
At Chicago banks the effect of the rise in
loans on reserve
positions had been more than offset by sales of securities and modest
gains in deposits.
banks in
Government securities held by weekly reporting
Chicago had declined about $250 million since October 18,
11/14/61
-45
with nearly all of the decline in Treasury bills.
Chicago central
reserve city banks had improved their reserve position since mid
October (from a basic deficit of $276 to $187 million).
continued to purchase Federal funds in
They had
amounts ranging from $100
to $300 million per day and had borrowed from the Reserve Bank at
the close of each of the past three weeks.
Mr. Allen said the operations of the Desk during the past
three weeks had been consistent with his understanding of the
instructions given at the October 24 Committee meeting.
However,
questions had been raised as to whether the operations signalled
a change in policy.
He believed the current information available
to the Committee as to trends in the economy indicated that its
policy objective should be to maintain the status quo and to avoid
if possible giving any signals which might be construed as indicating
either greater or less ease.
Therefore, he would recommend no change
in the directive, no change in the discount rate, and a free reserve
target of around $500 million.
He continued to oppose the special
authorization.
Mr. Deming commented that it
was again necessary for him to
say that there was nothing particularly new in
developments in the Ninth District.
economic and credit
Estimates of cash farm income
indicated that 1961 income would approximate that for 1960 but
would run 3 per cent below the 1958-60 average.
U. S.
cash farm
-46
11/14/61
income,
of course, would be higher than in 1960.
the District showing was that gains in
countered by relative losses in
the first
the second half.
The reason for
half would be
For the third
quarter, cash income was running 8 per cent below last year, as
the effects of the drouth became evident.
it
As he had noted previously,
was expected that District farm income would continue to lag
year-earlier levels throughout the current crop year, ending next
July 1,
In the nonagricultural sector, things were going along
about as before except that the District's retail sales record
seemed to be lagging the nation's a little
bit.
Bank debits for
September were the same as a year earlier despite the fact that
District personal income was 3.6 per cent ahead of September 1960.
Debits increased appreciably in October.
District banks continued
to experience significantly smaller loan demand than the national
record indicated,
and the bank liquidity picture had improved
In sum, the District continued to be typically atypical.
further.
Mr. Deming then reviewed computations he had made of gains
in GNP on a quarter-to-quarter basis and on a year-to-year basis
beginning with the first
quarter of 1961 and extending into the
predictions being made by various sources for the first
It
had become fashionable, he noted,
as modest.
half of 1962.
to characterize the expansion
It was true that periods of expansion in
the past had
produced larger gains quarter to quarter and year to year than this
-47
11/14/61
time. However, average gains of 7 or 8 per cent must be viewed,
in his opinion, as something more than modest, and even the less
optimistic predictions for 1962 looked quite good when annual
comparisons were made.
Of course, all of the projections rested
partly, and perhaps in large measure,
on what might happen in
terms of consumer behavior in the course of the next six months.
Obviously, the projections were far from solid.
Nevertheless, all
of the figures indicated something more than an economy in the
doldrums; instead, they indicated fairly substantial, significant
gains.
It was said that gains of the order rather generally
predicted in the first half of 1962 could be achieved without
significant price pressures, but he was not so sure they could be
achieved without such pressures if
in bank credit was permitted.
a potentially explosive build-up
It was necessary for the Committee
to be cautious at this stage of the cycle in approaching its
work.
Mr. Deming said that his analysis was quite similar to that
of Mr.
Johns.
He would be inclined almost to abandon free reserves
as a target during the coming months,
total reserve figures.
and to cling quite closely to
In this respect, he would be happier with a
4 per cent annual growth rate than with a rate of 5 per cent.
if
Then,
the pressure of bank credit expansion should begin to mount, this
would probably lead to a lower free reserve figure,
What he was suggesting, Mr. Deming said, did not really
represent any striking change from present policy.
The System would
-48
11/14/61
continue to supply reserves to provide for further bank credit
expansion, but not quite as liberally as in the past two or three
months.
However, in view of the considerations he had mentioned,
he felt that it
would be wrong for the System to proceed on the
basis that since nothing had happened as yet, nothing was going to
happen in
the future.
It would be better to get into a position
to deal with problems as they might come along.
His prescription,
Mr. Deming added, perhaps did not come out greatly different from
the recommendations of Mr. Treiber,
Conceivably, the result would
be free reserves of the order mentioned by Mr. Treiber, but he
would prefer to stick to total reserves.
As he saw it,
the course
he was suggesting would not represent enough of a change in policy
to call for a revision of the directive at this time.
hand,
On the other
he would have no strong objection to the change proposed by
Mr. Treiber.
He would not favor changing the discount rate at this
time, and he would renew the special authorization.
Mr.
Swan said that in
the Twelfth District defense orders
had exerted some impact on employment.
Based on a breakdown of the
September figures (October figures were not yet available in
this
detail), the increase in manufacturing employment was entirely in
durable goods and primarily in defense-related industries.
however, there was no evidence of secondary effects in
As yet,
other areas.
The mixed situation was borne out by the fact that while total
11/14/61
-49
manufacturing employment was up in
September,
the average work
week, at 39-1/2 hours, was the shortest since March.
This trend
toward shorter hours was general throughout the nondurable goods
category.
In October, Seattle was reclassified from an area of
substantial unemployment to an area of moderate unemployment due
to increased activities at the Boeing plant, but 8 of the 15 major
labor market areas in the District were still
of substantial unemployment,
classified as areas
including the Los Angeles-Long Beach area.
Department store sales reached a record level in
though still
September;
high in October, they were down somewhat from the
preceding month.
On the other hand, there was a sharp increase in
automobile sales in the first
appeared quite optimistic.
10 days of October, and dealers
In agriculture,
the crops were good
and mild weather had extended the harvesting, particularly of some
fruits and vegetables, with the result that farm employment was
quite well maintained even after the usual seasonal peak.
In the three weeks ending November 1, District banks showed
a considerable expansion in loans as well as investments,
bankers still
expectations.
although
felt that the demand for loans was not up to previous
At the time of the October 24 meeting, it
reported that the banks were still
but on a narrower basis,
had been
net sellers of Federal funds,
They were now net buyers, and for the week
ending tomorrow the figures undoubtedly would show them to be net
buyers on a fairly substantial basis.
11/14/61
-50
In summary, Mr. Swan said it
recovery in
the Twelfth District was proceeding, in
possibly, at even a little
whole.
seemed to him that the
faster rate than in
However, there was still
some respects,
the country as a
no clear evidence of a markedly
vigorous pick-up, or any general feeling that this was likely to
develop.
In no sense did it
appear that the situation was likely
to get out of hand in the near future.
As to policy, Mr. Swan then said in view of the rather
moderate credit demands and the lack of significant price pressures,
he did not yet see any reason,
concerned,
but it
to tighten further.
had not as yet.
so far as the business situation was
The situation could change rapidly,
Further, a period of digestion was still
necessary in connection with the Treasury refunding.
Therefore,
he would feel that for the next three weeks there was no reason for
a change in prevailing policy, as reflected in the situation that had
existed prior to the week of November 8.
He had gained the impression
from bankers and others in the Twelfth District that recent develop
ments had been interpreted in terms of a change in policy, not so
much because of the free reserve figure of $418 million for the week
of November 8 but because this culminated a period of several weeks
in which free reserves had run below $500 million.
Nevertheless,
$418 million figure was the lowest for any of those weeks,
the
and when
looked at in combination with the free reserve figure for the last
11/14/61
-51
day of the statement week and the high level of member bank
borrowing on that day, it
had mentioned.
led to the general impression that he
Accordingly, it
seemed to him that a continuation
of the sort of policy envisaged at the October 24 meeting would
be desirable,
While he shared some of the views that had been
expressed about the unreliability of free reserves as a guide,
he felt that it
would be unfortunate if
they ran significantly
below $450 million in the next three weeks or if
rate ran consistently above 2-1/2 per cent,
the 90-day bill
He would recommend no
change in the discount rate and no change at this time in the directive.
He would continue the special authorization.
Mr. Irons said that in the past three weeks the Eleventh
District had experienced general improvement,
but rather steadily.
The slack in industrial activity resulting
from Hurricane Carla had been recaptured,
was back in operation,
not at a rapid rate
The chemical industry
and the activities of other industries in
the affected area had resumed.
Thus,
the industrial production
index, which dropped seven points immediately following the hurricane,
had now regained six of them.
The agricultural situation was highly
satisfactory, with good crops, moisture conditions,
and pasture
outlook, along with good prices for the products.
Mr. Irons went on to say that at last week's joint meeting
of the Dallas Bank's head office and branch directors a number of
directors reported on conditions as seen by them in
territories
11/14/61
-52
within the District.
The reports, he said, were unanimously
favorable and optimistic.
Employment was up, Mr. Irons said, and unemployment had
dropped down a bit, the figure being a shade over 5 per cent in
the State of Texas on an unadjusted basis.
were holding steady.
Department store sales
It might be said, therefore, that the District
economy was showing reasonable and satisfactory expansion.
As to
banking, loan demands had increased during the past three weeks.
The banks were in a comfortable reserve position, however, and
bankers seemed to feel able to meet any demands for credit that
might reasonably be expected.
from the Reserve Bank.
There was no significant borrowing
Federal funds purchases,
although lower
during the past three-week period than they had been, exceeded sales.
Mr. Irons said he did not think the System could hope to
escape the hazard of guesses and anticipations about changes in
policy.
At the moment, while he did not favor any drastic change
in policy, he found himself much in agreement with the position
expressed by Mr. Treiber.
He would continue a policy of ease but,
as indicated by Mr. Treiber's suggestion regarding the directive,
shift the emphasis somewhat to more consideration of the short-term
rate structure and less to the free reserve figure.
He would like
to see the bill rate around 2-1/2 per cent and Federal funds trading
around 2-1/2 per cent.
Bank credit expansion would have to be
ll/l4/61
-53
watched to see what was being done with the available reserves.
Apparently, the banks had been using the funds that the System had
been making available, as indicated by the increase in bank credit
and the money supply.
Recognizing all of the limitations of the
free reserve figure, he would not be disturbed if
ranged around $400
million, if
that statistic
that was necessary in
achieve the rate position that he had mentioned.
order to
He would look
upon monetary policy as one of ease rather than restraint if
reserves were in the area of $400 million.
drift, perhaps, toward a little
However, he would
less ease.
Although he did not regard a change in the directive
as compelling, Mr. Irons said he rather liked the suggestion made
by Mr. Treiber, which would tend to shift the emphasis a little,
He would not favor changing the discount rate, and he would renew
the special authorization.
At this point Mr. Hexter, Assistant General Counsel,
joined the meeting.
Mr. Ellis said that in New England business conditions
continued their sideways recovery.
Business sentiment seemed to
have overrun the statistic evidence, which was not very conclusive
one way or the other.
The manufacturing index dropped a point in
September from August, the first
decline since March,
and stood
four percentage points above the comparable 1960 figure.
production in
September was below the year-ago level.
Shoe
There had
-54
11/14/61
been some continued strength in
offset some weakness in
residential construction, which
nonresidential building, but there was no
evidence of a real break-through in
that category of activity.
The same could be said for the employment pattern, there having
been no substantial change in the employment or unemployment picture.
No labor market areas were reclassified in
October.
Department
store sales continued to run ahead of last year quite strongly, to
provide the most outstanding record of any District in
that regard,
and the record on purchases of new automobiles also was relatively
strong, although no firm recent data were available.
The pattern of a sideways movement also was evident in
the credit picture.
sideways in
level.
The consumer instalment credit index moved
September and stood only 1 per cent above the year-ago
Weekly reporting banks showed a modest gain in deposits
in
October, but business loans shaded off, and the banks were still
awaiting the increase in
loan demand that they had been expecting.
Their liquidity positions had improved, and loan-deposit ratios had
eased a bit.
They had been net sellers of Federal funds since
September.
Mr.
Ellis reported that business sentiment had been
tending to become more optimistic,
this being traceable partly to
the expected increase in defense procurement in
the District.
there was an expectation among retailers of an increase in
Also,
consumer
-5
11/14/61
spending.
At the regional outlook conference that had just been
completed, the economists in attendance were a little
less
optimistic than the System economists who met recently appeared
to have been.
As to policy, Mr. Ellis expressed the view that the
variations from goals in the past few weeks would seem to have
been comprehended in the consensus that doubts should be resolved
on the side of less ease.
the trend in
the future.
That, he thought, might be the key to
He had came to this meeting prepared to
accept slightly lower goals, for example in
free reserves.
ahead, he saw the likelihood of a strong upward movement,
that the break-through in
Looking
feeling
consumer spending probably would be in
Recognizing the lag in effectiveness of
an upward direction.
monetary policy and wishing to avoid unduly sharp and abrupt
action when credit began to spurt ahead, he felt that the Committee
should begin gradually to put itself in a better position to apply
the brakes when that became necessary.
a stimulus,
in mind,
but a little
he concurred in
The economy still
less than had been the case.
needed
With this
the suggestion that there be a lowering
of the growth increment in total reserves; he would favor an incre
ment of 3 or 4 per cent.
variables reacted.
Then the Committee could see how other
He would not be surprised if free reserves
moved down from $500 million closer to $400 million, and he would
be prepared to accept something around the $400 million level as
-56
11/14/61
an appropriate expression of the continued stimulus that should
be provided under current conditions.
surprised if
the bill
Likewise, he would not be
rate was nearer to 2-1/2 per cent than it
had been up until a couple of weeks ago, and he would expect that
the Federal funds rate might push near 3 per cent more frequently.
In his opinion, this would still
fill
sympathies on the side of less ease.
the prescription of resolving
Further, he felt that such a
policy would be within the range of the existing directive and that
it
would therefore not be necessary to change the directive at the
present time.
He saw no need to move on the discount rate in
the
immediate future, and he would continue the special authorization.
Chairman Martin expressed the view that the evolution of
monetary policy had been proceeding satisfactorily and noted that
his judgment appeared to coincide with that of a majority of the
Committee.
He felt that the System was moving satisfactorily in
the direction of perhaps reaching a point when it
overt change in policy.
might make an
In his opinion, however, the situation
had not yet come to that point.
Mr. Allen had referred to main
taining the status quo, and he (Chairman Martin) also would think
that maintenance of the status quo would be the best general
position that the System could take at this particular time.
There
would be another Committee meeting in three weeks and perhaps things
would then be a little
was operating in
clearer.
At present, however,
the Committee
an atmosphere in which misinterpretations existed.
1/l4/61
-57
A number of people had spoken to him in terms that System
operations had severely prejudiced the current Treasury refunding.
He did not believe that for a moment; instead, he felt that the
Desk had handled things pretty well through this period.
there had inadvertently been a decline in
Nevertheless,
the level of free reserves.
It was unfortunate that the free reserve figures had come to attract
so much attention, but the over-all picture involved a number of
factors that had all worked in
the direction of creating an
atmosphere in which a change of policy was anticipated.
Interest
rate changes would have to be expected; that would be the natural
way for things to develop rather than for the System to force matters.
If
the System had been going to force matters, it
some time ago.
In his view, therefore,
this juncture change the policy that it
a period of time.
should have started
the Committee should not at
had been pursuing for quite
As he had said, he felt
that System policy was
evolving quite satisfactorily.
The Chairman went on to say that he thought the consensus
of this meeting was rather clear.
It
did not contemplate, perhaps,
quite the maintenance of the status quo, but certainly it
not favor any change in
time.
would
the directive or the discount rate at this
A minority leaned toward a shift of emphasis to total reserves,
but he questioned whether the Committee wanted to shift its
substantially until it
going to occur.
sights
knew more clearly what developments were
11/14/61
-58
The Chairman also said that he hoped the Treasury would
not undertake an advance refunding in
If
it
did, however,
it
the present atmosphere.
would be most unfortunate for the Federal
Reserve to take any overt action,
and in
any event he felt that
the System would be in
a better position if
it
did not upset the
money market unduly in
view of the misinterpretations in
some
quarters concerning the relationship of open market policy to
the current refunding.
In this connection,
the Chairman noted
that the Treasury had not made representations to him of any kind.
Nevertheless,
there had been enough comment from other sources
for him to be aware that some feeling existed.
circumstances,
he would consider it
ability.
It
the
advisable for the System to
go along for the next three weeks feeling its
its
In all
might be, of course,
way to the best of
that market forces would
automatically move in the direction that had already created an
atmosphere of expectation of a change of policy.
the record of recent Committee meetings,
On reviewing
one could see that the
drag had been in the direction of lower levels of free reserves
than probably was contemplated by the majority at the respective
meetings.
Thus,
to some extent it
might be said that policy had
been made for the Committee.
At this point Chairman Martin stated that he would like
to make certain comments on the balance of payments.
First, he
11/14/61
-59
wanted to make it
It is
clear that he thought the situation was serious.
easy, he noted,
to see ghosts in
these things.
However,
the problem had existed for well over a year and was a deep-seated
one,
It
seemed clear to him from his recent trip abroad,
the
Chairman said, that the financial leadership of the western world
had at this particular point shifted from the United States to
Europe.
For example, the discussion regarding expansion of the
resources of the International Monetary Fund was basically in
terms of a United States drawing on the Fund and a defensive
position on the part of the United States.
The change had been
subtle, but clearly this country was in a defensive position; he
had seen this developing over a period of time.
This was a process
in which the fundamentals were being carefully studied.
deficit, fiscal policy, and wage-cost policy were in
becoming a paramount issue in
the world.
The budget
combination
While there might be a
tendency for Europeans to say that this country was following an
unduly easy money policy, some of the critics were people who had
a self-serving interest in
the evaluation of the matter. Europeans
were not yet persuaded en masse that this country was following an
inflationary monetary policy.
They were aware of the country's
domestic problem, including the extent and persistence of unemploy
ment.
At least, the thoughtful persons were aware of it,
along
with the fact that there are relative degrees of inflationary
-60
ll/14/61
conditions and that no country can set interest rates alone.
In
conversations abroad, he had tried to point out that the payments
mechanism at the present time is
a privilege that carries
responsibility for each country.
Each country must think of its
responsibility to the payments mechanism when it
of acquiring any amount of gold that it
has the privilege
may want.
Monetary policy, the Chairman noted, had not been asked
to carry the whole load of the balance-of-payments problem.
The
Administration was struggling with the problem of the Federal
deficit, and it
had made progress in
through the year.
terms of debt management all
As to the wage-cost problem, he was not
personally too optimistic.
As he saw it, the steel industry was
not refraining from raising prices so much because of the
President's injunctions as because the industry could not get
prices up.
It was fearful of a strike and of the demands that
might be made, particularly if
economy during the first
there should be improvement in
the
six months of 1962 to the extent that was
generally anticipated.
The Chairman concluded his comments by saying that he had
merely wanted to leave with the Committee the thought that no one
ought to minimize the balance-of-payments problem.
He was not trying
to say that he thought there would be a crisis; he was hopeful that
it
could be avoided.
However, he sometimes felt
that only a crisis
11/14/61
-61
would galvanize public sentiment to a realization of what was
involved.
that it
The Administration had said repeatedly, he pointed out,
would not place an undue burden on monetary policy.
present, with the supply of goods more than adequate,
and unemployment still
At
prices stable,
quite high, he did not believe anyone could
document a charge that the System was creating cheap money.
If
conditions reached the point where cheap money was being created,
the System would have to take overt and clear action, but for a
variety of reasons this was not the proper time, in his opinion,
for such action.
There had been a tendency toward a tighter money
market simply through the play of market forces, and he considered
this a satisfactory development under present conditions.
In his
view, the Desk should not be criticized for not having been more
aggressive.
well in
Rather, he felt that the Desk had been handling things
view of the forces in the market.
Mr. Mills requested that his dissent be recorded from the
implementation of policy according to the cons nsus, which he
strongly believed failed to grasp the initiative that the Federal Reserve
System should take and failed to grapple with the situation.
Mr.
Hayes said that he thought his position differed from
the consensus to a considerably less degree than that of Mr. Mills.
However, he could not help but feel that the System should be doing
its
part, though not through overt action at the present time, to
contribute to a re.ognition of the serious international problem.
-62
11/1 4 /61
This was with the proviso that if
the Treasury should undertake
an advance refunding, then no change in policy would be appropriate.
Chairman Martin commented that the views of everyone would
be recorded in full in
the minutes.
He then inquired whether there
was anyone who wished at this point to change the emphasis in his
comments, as expressed previously, and there was no such indication.
Accordingly, it
was understood that the consensus,
as stated
earlier by Chairman Martin, was accepted as accurate and that Messrs.
Hayes and Mills dissented from the implementation of policy along
the lines of the consensus.
The Chairman then said he assumed that the Committee wished
to renew until the next meeting the special authorization covering
operations in longer-term securities, with two members (Messrs.
Allen and Robertson) dissenting, and there were no comments to the
contrary.
With respect to the directive, Mr. Mills commented that
although he dissented from the implementation of policy according
to the consensus, he did not wish to dissent from a renewal of the
existing directive.
Mr. Hayes commented to the same effect.
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:
(1) To make such purchases, sales, or exchanges
(including replacement of maturing securities, and
allowing maturities to run off without replacement)
for the System Open Market Account in the open market
-63or, 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 participations to
one or more Federal Reserve Banks) such amounts of special
short-term certificates of indebtedness as may be necessary
from time to time for the temporary accommodation of the
Treasury; provided that the total amount of such certificates
held at any one time by the Federal Reserve Banks shall not
exceed in the aggregate $500 million.
The Committee then authorized the
Federal Reserve Bank of New York, between
this date and the next meeting of the
Committee, within the terms and limitations
of the directive issued at this meeting, to
acquire intermediate 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.
Voices for this action: Messrs. Martin,
Hayes, Irons, King, Mills, Mitchell, Swan
and Wayne. Votes against this action:
Messrs. Allen and Robertson.
Chairman Martin referred at this point to a set of staff
documents relating to System operations in
foreign currencies that
had been distributed with a memorandum from the Committee Secretary
-64
11/1 4 /61
dated November 3, 1961.
These documents, which had been prepared
as a basis for further consideration of the subject by the Board
of Governors and the Open Market Committee, included:
1.
Proposed action of the Board of Governors to amend
Regulation N, Relations with Foreign Banks and Bankers.
2.
Proposed action of the Federal Open Market Committee
to instruct the Federal Reserve Bank of New York on
operations in foreign currencies, including the
establishment of a subcommittee of the Open Market
Committee to direct and supervise the day-by-day
conduct of foreign currency operations of the New
York Bank for System account.
3.
Briefing paper for discussion with the Treasury on
the division of responsibility for foreign currency
operations between the Federal Reserve and the
Stabilization Fund.
4.
Initial action of the proposed subcommittee of the
Federal Open Market Committee to establish guidelines
for the conduct of foreign currency operations by the
New York Bank for System account.
5.
Explanatory paper on the aims and scope of System
foreign exchange operations, perhaps to be discussed
with members of the Congress and possibly to be used
as a basis for a press release in case the Board and
the Open Market Committee should decide to go forward
with such operations.
6.
Paper concerning legal aspects of the proposed System
operations in foreign currencies.
Chairman Martin noted that the foregoing documentation had
been prepared in the light of the preliminary discussion of the
subject at the Committee meeting on September 12, 1961.
He went
on to recall that at the September 12 meeting he had expressed
the hope that in due course the Comittee might arrive at a clear
1/14/61
-65
position on this subject.
Since that time, he continued, he had
become more and more convinced that in one form or another some
operations in foreign currencies would have to be conducted,
The
changed conditions in money markets around the world and the
progress that had been made since Bretton Woods, including the
establishment of virtually full convertibility of European currencies,
had changed the payments picture in
such a way that some operations
to deal with the problem of movements of funds between money markets
seemed appropriate.
The Under Secretary of the Treasury for
Monetary Affairs had made a significant contribution to the thinking
in this field.
The System ought to pursue the matter in every way
possible and determine the issues involved, including whether
operations in foreign currencies should be conducted by the Treasury
To repeat, he was more convinced than
or the Federal Reserve.
before he began his recent European trip that in same way or another
this activity would have to be conducted.
The Chairman then turned to Mr. Young,
who commented that
the preparation of the papers that had been distributed represented
a think-through exercise.
The staff had endeavored to determine
what specifically would be involved in initiating and conducting
a Federal Reserve foreign currency operation.
There had been
intensive discussions by the staff in Washington and with the staff
of the New York Bank,
including the Foreign Department.
There had
also been exploratory discussions with the Under Secretary of the
-66
11/14/61
Treasury for Monetary Affairs.
These staff discussions may not
have covered all of the technical issues involved,
that they had.
but it
was felt
It was thought that the question had been quite
carefully worked out as an operational matter.
There was no
remaining issue between the staffs at the Board and at the New
York Bank except one with respect to the expressed purposes of
the operation, to which he would refer later,
Mr. Young went on to say that, as he had indicated,
it
had
been necessary in the course of the staff work to have some
discussions with Under Secretary Roosa.
However, those discussions
did not involve Mr. Roosa in consultation with the Treasury staff
or with the Secretary of the Treasury at this particular stage.
Rather,
they sought to determine the lines along which negotiations
with the Treasury might be started and carried out, and the third
of the papers that had been distributed presented the staff views
as to a basis for starting such negotiations.
This did not
necessarily mean that the understanding that would be worked out
would follow quite along the lines suggested,
for the Under
Secretary would have to conduct discussions with the Treasury staff
and review the matter thoroughly with the Secretary.
After the
matter had been discussed and worked out with the Treasury, it
contemplated that it
was
would be placed before the National Advisory
Council on International Monetary and Financial Problems for the
Council's information and to provide an opportunity for any objections
1l/14/61
-67
to be registered.
It was not anticipated,
would be objections.
Rather, it
however, that there
was anticipated that the Council
would act on the matter in a way that would enable the operations
to proceed without referring specific operations to the Council,
but with an understanding that reports to that body would be made
from time to time.
As to the one issue that remained between the staffs at
the Board and the New York Bank, Mr. Young commented that everyone
was,
of course, much interested in providing a statement of the
purposes of the operations in foreign currencies that would cover
the objectives fully and would represent an adequate platform on
which to stand, and on the basis of which an explanation could be
made to the Congress and the public about the program.
The New
York staff felt strongly that there should be included as one of the
purposes the objective of helping to protect and maintain the value
of the dollar in international markets.
On the other hand,
the
inclination of the staff at the Board was to view this with
reservations because in the end the question whether there was
confidence in
the dollar was a matter of pursuing proper monetary,
fiscal, and other governmental policies, whereas the operations
in foreign currencies could at best have only a relatively small
influence and could only deal with temporary developments in
exchange markets at times when those markets were unsettled.
the
-68-
11/14/61
This issue was, however, clearly of secondary importance in
relation to the consideration of the plan as a whole.
Mr. Hayes then presented substantially the following
statement:
We are pleased with the progress of the proposal that
the Federal Reserve System conduct operations in foreign
currencies.
The documents enclosed with Mr. Young's
letter of November 3 are well prepared.
While we have
some specific comments and suggestions as to details,
we are in accord in principle.
We are satisfied as to the legal authority of the
System to engage in such operations.
Our counsel has
carefully considered the legal aspects of the proposal;
our counsel and counsel for the Board of Governors have
conferred from time to time on various aspects of the
matter; and our counsel concurs in the conclusions in
Paper No. 6 regarding the authority of the Federal
Reserve to conduct the proposed operations.
We believe that the System is qualified by virtue
of its personnel, its experience, and its resources to
conduct the proposed operations.
Having the legal
authority and the necessary capacity and skills, the
System should conduct the operations in coordination with
the U. S. Treasury. We would consider it unwise for the
System to conduct its operations under the direction of
the Treasury.
Paper No. 3, in our opinion, suggests a
workable plan for the coordination of System and Treasury
activity in this important field. As stated in that
paper, the proposal would be submitted to the National
Advisory Council on International Monetary and Financial
Problems for discussion and comment, and the Council
would be furnished with reports.
We trust that the System will move forward with dis
patch to discuss the proposal with the Treasury and to
take such other steps as may be appropriate to put into
operation this important proposal to help protect and
maintain the value of the dollar in international exchange
markets.
(You can see from this phraseology how we feel
at the New York Bank about the point to which Mr. Young
referred. While this operation might be only a minor
part of the total program to protect the value of the
dollar, nevertheless it is clear that one of the reasons
-69for engaging in the operation would be to help in the
process of maintaining confidence in the value of the
dollar.)
The imperative necessity of defending the
dollar, coupled with the practical limitations on the
Stabilization Fund, makes the proposal a priority
project.
Turning now to the six documents enclosed with
Mr. Young's recent letter, and particularly to Paper
No. 2, which describes proposed action by the Federal
Open Market Committee, we consider it highly desirable,
as I just indicated, to retain paragraph numbered (1)
at the bottom of the first
page of Paper No. 2.
It is
important that the United States take whatever steps
may be appropriate to protect and maintain the value of
the dollar in international exchange markets.
It is
important that all arms of Government promote this
objective, using whatever means are available to them.
While the System acting alone cannot accomplish the
Paragraph (1) properly
objective, it can help to do so.
describes the System's role as one of helping-of
contributing as best it can within the area of its
The goal of paragraph (1) should be constantly
operations.
before us.
The third sentence on page 3 would establish a
The
maximum quota of holdings of foreign currencies.
Committee should be free to change the quota from time
to time in the light of experience and changing conditions.
We suggest a figure of $500 million initially. As pointed
out in Paper No. 4, operations will be limited by the
existence of a large balance-of-payments deficit which
the accumulation of large amounts of
will make diffiult
On the other hand, such operations
foreign exchange.
are necessary now; we should have sufficient annunition
to cope with exchange market disturbances of the likely
magnitude suggested by recent experience.
The maximum quota would have to be allocated among
six or seven currencies, as indicated on page 6 of Paper
No. 4; thus the subquota for a particular currency would
not be very large.
We have a few comments on Paper No, 3 regarding the
responsibility of the Treasury and the Federal Reserve for
We can submit these in
foreign currency operations.
memorandum form.
We also have several comments on Paper No. 4, which
would constitute guidelines to be adopted by the Subcommittee.
-70We can also submit our comments on this paper in
memorandum form.
Since it is proposed that the
substance of this paper be adopted by the Subcommittee,
our comments could be discussed at a meeting of the
Subcommittee, without going into detail today.
In summary, we favor the proposal that the System
undertake operations in foreign exchange; we trust that
the proposal will move forward toward prompt consummation;
and we will submit memoranda suggesting certain modest
changes in the language of the documents which would not
involve any substantive change in the program.
Chairman Martin then stated that he had in mind that the
subject of System operations in
foreign currencies would be placed
on the agenda for the next meeting of the Committee (December 5,
1961) with a view to some action being taken one way or the other.
He then turned to Mr. Wayne,
distributed to the Committee,
whose letter
on the subject had been
and asked whether Mr. Wayne had any
comments that he would like to make at this time in
supplementation
of his letter.
Mr. Wayne replied that he had no comment,
that, as indicated by his letter,
except to say
he was not yet satisfied on
legal grounds with the Federal Reserve's authority to undertake
the proposed operations.
Mr. Mills then presented the following statement:
The theory of central bank operations in foreign
Actions to stabilize the
currencies is unassailable.
can serve worthwhile
currency
foreign
of
a
value
exchange
central bank
Where
purposes.
domestic and foreign
by a
are
undertaken
operations in foreign currencies
or
distrust
investor
to
is
subject
nation whose currency
to
dissipate
be
can
effect
their
to speculative attack,
lack of confidence and arrest speculation in that the
11/l4/61
-71
nation whose currency is in question will have
demonstrated its ability to meet the exchange
difficulties which it confronts.
Similarly, where
several foreign currencies have simultaneously
become unsettled on the international exchanges because
of widespread emotional lack of confidence in their
basic values, a group of central banks acting in
concert can maneuver the exchange resources at their
disposal, to the end that particular currencies subject
to waning confidence can be restored marketwise to their
normal status, by virtue of which public concern regard
ing their values will have been deflected.
This sort of
procedure already has proved its worth with respect to
the Basle agreements having to do with the difficulties
experienced by the pound sterling earlier this year.
In
essence, however, central banks operating in concert in
foreign currencies can do no more than gain time for a
particular nation whose currency has been supported to
correct the fundamental problems which exposed its currency
to question and in that way restore confidence in its
international exchange value.
This line of reasoning is applicable to any engagement
of the Federal Reserve System in operations in foreign
Such operations can be suitable when conducted
currencies.
in ways that will smooth out relatively minor fluctuations
in the exchange value of the United States dollar.
If it
should be contemplated that such operations would be engaged
in as an attempted means of correcting basic weakness in
the exchange value of the United States dollar, they can
be open to question in that, unless such operations were
entered into in conjunction with determined fiscal and
monetary policy actions to maintain international confidence
good and,
in the U. S. dollar, they will have done little
perhaps, might even have added to whatever distrust might
be in evidence regarding the dollar's basic exchange value.
Moreover, if Federal Reserve System operations in foreign
currencies should be undertaken more as a palliative rather
than as a cure to intrinsic weakness in the international
exchange value of the United States dollar, less positive
rehabilitative response could be expected at some future
time if it became necessary to seek support from the group
efforts of friendly central banks.
All of the above takes for granted that the Federal
Reserve Banks have certain legal authority to engage in
It is also assumed that
operations in foreign currencies.
the financial risks to be borne by the Federal Reserve Banks
-72
11/14/61
when engaging in such actions have been fully weighed
and that recognition has been given to the fact that
the adoption of the proposed procedures will mark the
Federal Reserve System's entry into a province that has
historically been an almost exclusive preserve of the
United States Treasury, and in a manner that will
inevitably subordinate the interests of the Federal
Reserve System to those of the United States Treasury,
Mr. Mills added that his real concern was that if
this kind
of operation was intended to paper over cracks in policy mistakes
or decisions,
it
would be worthless.
It was his fear that that was
about what was to be considered and ventured.
Mr. Hayes agreed that if
what Mr. Mills had mentioned
were actually the intent, the operations would be worse than
worthless.
However, if
they could be used along with more
fundamental efforts, they might serve on occasions to dampen trends
that would lead, needlessly, to an intensification of fears and
problems that were not justified.
Mr. Swan expressed agreement with the indication given by
Mr. Young that the proposed System operations would be recognized
to have a relatively small influence and should be focused on
preventing temporary developments from accumulating in
direction.
the wrong
However, this did not seem to him to square precisely
with the statements in
the papers that had been distributed which
suggested the use of such operations in dealing with seasonal
along
instabilities and cyclical swings in
international payments,
with other temporary instabilities.
He raised the question whether
11/14/61
-73
the Federal Reserve might not create the impression that it
be doing more than it
snould.
would
The phraseology with respect to
promoting orderly conditions in exchange markets also would seem
to suggest that the Federal Reserve was going to be operating on
a continuing basis, in which case the System might rather quickly
find itself, in view of certain basic problems, with a larger
amount of holdings than anticipated, and no place to go from there.
In this respect, Mr.
Swan said, he did not have a real basis for
arriving at a jud ment on a maximum quota of holdings that might
be appropriate for initial operations.
However, his reaction was
that $500 million, divided six or seven ways, was on the low rather
than the high side,
Another point, Mr. Swan said, was that he felt it
important to have a clear understanding in
was
terms of the authority
of the Federal Reserve as opposed to that of the Treasury.
Also,
he would like to have some further exploration of the question of
operating through a subcommittee of the Open Market Committee.
It
might be that this was entirely necessary; this was an area where
expert knowledge was vital and close timing was necessary on a continu
ing basis.
However, he was not sure that this could not be done
more informally, without the creation of a subcommittee,
on the
basis of day-to-day consultation between the Board and the New York
Bank.
On the other hand, if
the establishment of the subcommittee
11/14/61
-74
was necessary, perhaps there should be an even more explicit
recognition of the importance of the subcommittee in relation to
the Committee as a whole.
The creation of the subcommittee might
be absolutely necessary, but he felt at the moment that he would
like to go a little further in one of the two opposite directions
that he had mentioned.
Mr. Allen recalled that at the time of the September 12
meeting he had made two statements.
One of them had also been
made by Chairman Martin at that time, and again today:
was going to do the job.
would not quarrel.
somebody
With this statement, Mr. Allen said, he
However, he had also said in September that
just because a given procedure might be considered legal, he might
not necessarily want to do it.
After reviewing the staff documents
that had been distributed, he felt that there were just two alterna
tives.
The first would be to take the position that this was the
Treasury's job, and that the System would continue to act as the
agent of the Treasury; if the Treasury needed more money, let the
Treasury request the funds from Congress.
The second alternative
would be to report to the Congress that some agency should be
specifically authorized to undertake these operations, and that the
Federal Reserve, if the Congress should so direct it,
would be willing
to do the job.
Mr. Irons said he thought the legal question was probably
quite marginal.
In his opinion, some of the arguments advanced in
11/14/61
-75
the staff document dealing with the legal aspects
had to be stretched pretty far to be accepted.
of the matter
Nevertheless,
he
believed the question was marginal enough that the System could
undertake these operations legally.
However, he also had the three
reservations that Mr. Swan had mentioned.
Like Mr. Swan, he was
somewhat concerned about the thought of going into foreign currency
operations in order to deal with cyclical swings in international
payments and for other purposes that raised similar questions.
This point, and the others raised by Mr. Swan, should be given
careful thought and study.
Mr.
Irons went on to say that he was impressed by the
documents that had been distributed.
He felt that there was an
appropriate place for the Federal Reserve in this area, and he
would be inclined to pursue the matter with the Treasury to work
out the details, with the possibility of moving in
suggested by the staff papers.
that whereas one group in
the direction
There was, of course,
the problem
the Treasury might be ideal to work with,
working with another group might give rise to various problems.
He did not know how to get around that; by the nature of things,
some groups would be easier to work with than other groups over a
period of time.
He would not considrthat potential problem as
being so grave as to prevent moving in the direction suggested by
the staff documents.
11/14/61
-76
Chairman Martin noted that an important subject was under
discussion.
Accordingly, he inquired whether it was felt that it
would be desirable to set up a special meeting in connection with the
next regular Committee meeting on December 5 in order that full
attention might be devoted to this question and the Committee could
try to reach some conclusions.
An alternative would be just to
include the item on the agenda for the December 5 meeting.
In this
connection, Chairman Martin noted that he would have in mind that
succeeding meetings of the Committee would be held on December 19
and on January 9, 1962.
After some discussion of various possibilities, Chairman
Martin suggested that the subject be placed on the agenda for
the December 5 meeting to see how much could be accomplished at
that time.
He noted that Mr. Young expected to be out of the
country on that date.
There was general agreement with the procedure suggested
by the Chairman.
In this connection, Mr. Hayes raised the question
whether it might not be desirable for Vice President Coombs of the
New York Bank to be present when the subject was discussed further,
and Chairman Martin replied that he thought this would be desirable.
The Chairman next called for a report by the Secretary on
suggestions received thus far, in light of the procedure agreed upon
at the meeting on September 12, 1961, with respect to the Committee's
operating procedures,
11/14/61
-77
Mr. Young commented that a number of letters had been
received,
some only recently.
In consideration of the range of
views and suggestions, he felt
that the Committee might want to
request the secretariat to prepare a paper that would pull together
those views and suggestions in
some systematic way.
Chairman Martin then made the comment that perhaps the
Committee would have to schedule a special meeting on this subject
at some point.
He noted that the matter should be resolved not
later than early in the new year.
Asked for his thinking on the scheduling of meetings,
Chairman said it
was his view that the Committee should meet on
December 19, or two weeks from the December 5 meeting.
opinion,
the
In his
the present situation called for keeping in close touch
with developments.
If
a meeting were held on December 19,
ensuing meeting would be held on January 9.
the
A suggestion had been
made to him that Committee meetings might be held at monthly intervals,
but at this particular time he felt that it
Committee to tighten its
would be better for the
schedule somewhat rather than the reverse.
In reply to a question concerning the prospective meeting
schedule after January 9, the Chairman said he had in mind that the
annual organization meeting would be held on March 6, 1962.
This
would mean that at some point prior to that date the Committee would
meet on a two-week basis.
In view of the problems currently
confronting the Committee,
he felt that the Committee probably
should follow such a schedule.
11/14/61
-78
Mr. Hayes indicated that although he did not disagree,
he would be inclined to favor, at some point further in the future,
meetings at four-week intervals under certain conditions.
It
was then understood that further staff work in
connection
with the study of the Committee's operating procedures would proceed
in
the manner that had been suggested by Mr. Young.
It
was agreed that the next meeting
of the Open Market
Committee would be held on Tuesday, December 5, 1961.
The meeting then adjourned.
Secretary
Cite this document
Federal Reserve (1961, November 13). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19611114
@misc{wtfs_fomc_minutes_19611114,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1961},
month = {Nov},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19611114},
note = {Retrieved via When the Fed Speaks corpus}
}