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, April 17, 1962, at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Hayes, Vice Chairman
Balderston
Bryan
Deming
Mr. Ellis
Mr. Fulton
Mr. King
Mr. Mills
Mr. Mitchell
Mr. Robertson
Mr. Shepardson
Messrs. Bopp, Scanlon, Clay, and Irons, Alternate
Members of the Federal Open Market Committee
Mr.
Swan,
President of the Federal Reserve Bank
of San Francisco
Mr.
Sherman,
Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hexter, Assistant General Counsel
Mr. Thomas, Economist
Mr. Reed, Chairman of the Federal Reserve Bank
of New York
Messrs. Heflin and Francis, First Vice Presi
dents of the Federal Reserve Banks of
Richmond and St. Louis, respectively
At its meeting on February 13, 1962, the Federal Open Market
Committee adopted an authorization for foreign currency operations that
provided, among other things, for a Special Manager of the System Open
Market Account for foreign currency operations to be selected in accordance
with the established procedure for selection of the Account Manager.
At
4/17/62
-2
the same meeting, reference was made to the provisions of the Committee's
By-Laws and Rules of Organization regarding selection of the Manager.
In a memorandum to the Comittee dated February 23, 1962, Chairman
Martin pointed out that, since the new position of Special Manager had been
authorized, the Committee's By-Laws and Rules of Organization should be
amended to provide for the Special Manager as well as the Manager.
The
memorandumalso suggested that the Committee might wish to consider a change
The
in the method of selection of the Manager and the Special Manager.
By-Laws and Rules of Organization provided that the Reserve Bank selected
to execute transactions for the Open Market Account should select a Manager
of the Account who would be satisfactory to the Committee.
It was sug
gested that consideration might be given to changing Section 5 of
Article II of the By-Laws (with a conforming change in the Rules) so as
to provide that the Committee would select a Manager of the System Open
Market Account and a Special Manager for foreign currency operations for
such Account, both of whom would be satisfactory to the Federal Reserve
Bank selected to execute transactions for the Account.
Discussion of this matter was deferred at the Committee meeting
on March 6, 1962, in order that Chairman Reed of the Federal Reserve Bank
of New York might meet with the Committee and express his views.
It was
understood at that time that Chairman Reed would intend to be present
for discussion with the Committee at its meeting on April 17, 1962.
Under date of March 23, 1962, Mr. Hayes transmitted to the Commit
tee a memorandum recording his views concerning the proposal for a change
4/17/62
-3
in the method of selection of the Manager and Special Manager.
Reasons
cited by Mr. Hayes for opposing the proposed change in procedure were:
(1) the transfer to the Federal Open Market Committee of the initiative
for the selection of the Manager and Special Manager would tend to obscure
the institutional responsibility of the Federal Reserve Bank of New York
for carrying out the policies of the Committee; (2) such transfer of
initiative would tend to erode the statutory authority of the Board of
Directors of the Federal Reserve Bank in New York in respect to the
appointment of officers and the assignment of their duties; and (3)
such transfer of initiative would, actually or potentially, create
personnel problems for the Bank.
Under date of April 11, 1962, there was transmitted to the Commit
tee, at Chairman Martin's request, a memorandum dated April 3, 1962, that
had been submitted to him by Mr. Hackley, General Counsel of the Open
Market Committee.
This memorandum cited certain legal considerations
that should be borne in mind with regard to the method of selection of
the Manager and Special Manager, and in light of those considerations
and Mr. Hayes' memorandum, discussed arguments for and against the pro
posed change in method of selection.
In a memorandumto the Committee dated April 9, 1962, Mr. Hackley
reported having reviewed the Committee's published general Regulation,
its published Rules on Organization and Information and Rules on Procedure,
and its unpublished By-Laws, all most recently amended in 1955, to deter
mine what conforming changes,
if
any, were necessary as a minimum in light
-4
4/17/62
of the Committee's authorization dated February 13, 1962, regarding
foreign currency operations.
As to the Regulation,
that any changes were essential.
it
did not appear
As to the Rules on Organization and
Information, the Rules on Procedure, and the By-Laws, certain minor
changes seemed necessary.
Recommended amendments were submitted with
the memorandum along with certain other minor amendments that would bring
the Rules and By-Laws into conformity with current Committee practices.
To some degree,
it
was pointed out, the nature of the changes would
depend upon the Committee's decision as to the method of selection of
the Manager and Special Manager, in the light of Chairman Martin's
memorandum of February 23, 1962.
In introductory remarks, Chairman Martin noted that the Open
Market Committee's Ad Hoc Subcommittee on the Government Securities
Market in its report of November 12, 1952, had suggested, without pro
posing such a shift, that consideration be given by the Open Market
Committee to an arrangement under which the Account Manager would not
be an officer of any Federal Reserve Bank, but instead would be appointed
by and solely responsible to the Committee.
Chairman Martin then turned
to Chairman Reed and indicated that the Committee would be pleased to
have his views regarding the current proposal, as stated in his (Chair
man Martin's) memorandum of February 23, 1962, which was that the Manager
and Special Manager be selected by the Open Market Committee,
subject to
their being satisfactory to the Reserve Bank selected to execute transactions
for the Open Market Account.
4/17/62
-5
Chairman Reed indicated that he would not propose to repeat the
arguments set forth in Mr. Hayes' memrandum, which he felt personally
were persuasive, if
not compelling.
Instead, his approach would be to
supplement the memorandum from the point of view of a person in his
position who believed deeply in the importance of the Federal Reserve
System.
For almost 50 years, the System had demonstrated the value of
a unique blending of public and private, central and regional.
Histor
ically, there had been a tendency in government for a system of that
kind to be sucked toward the center.
Therefore, it
would be advisable
to look carefully at any suggested change that might weaken the regional
aspects of the Federal Reserve System.
Chairman Reed recalled that at the most recent meeting of the
Conference of Chairmen of the Federal Reserve Banks there was discussion
of recommendations of the Commission on Money and Credit with respect
to the Federal Reserve System.
Among other things, the Commission had
recommended that the Reserve Bank Presidents no longer have responsi
bility in the formulation of open market policy, and that the Reserve
Banks no longer participate in the establishment of the discount rate
or in the designation of members of the Federal Advisory Council.
It
was the view of the Chairmen and Deputy Chairmen in attendance that
if
such changes became effective, one of the great values of the
Federal Reserve System over the years would be impaired to a substantial
degree.
It was felt that the Federal Reserve System was not well
enough understood by the American people.
Part of the job of the System
-6
4/17/62
was to assure that everything possible was done to broaden and deepen
public understanding of the System throughout the country.
The Board
of Governors had done some excellent work in that regard, but the
Federal Reserve Banks and branches, working through their directors
and officers, had perhaps even greater leverage on the informational
front.
If
anything should happen to weaken the status of the regional
banks, that would be a step in the wrong direction.
The Reserve Banks
would begin to lose competent executives and be unable to attract community
leaders to their boards of directors.
It was against that background, Chairman Reed continued, that
he approached the question at hand.
Anything that was done to weaken
the prestige, standing, or importance of any of the Reserve Banks called
for the best kind of reasons.
suggested a change.
The burden of proof was on those who
The proposed change in procedure for selection of
the Manager and Special Manager of the System Open Market Account was
not a matter of substance.
Anyone chosen for either of those positions
must be thoroughly satisfactory to the Open Market Committee as well as
to the Reserve Bank.
The New York Bank, assuming that it was chosen as
the Reserve Bank to execute transactions for the Open Market Account,
obviously must be satisfied with the persons who were going to be Manager
and Special Manager of the Account.
Committee must be satisfied.
At the same time, the Open Market
In his judgment, however,
a change of
procedure that would take away from the New York Bank and its Board of
4/17/62
-7
Directors the present right to designate the officer of the Bank who
would be Manager or Special Manager, subject to the complete approval
of the Committee, would be a change in the direction of reducing the
status of the Reserve Bank.
He did not think that such a change was
necessary,
Chairman Reed reiterated that he could see no disagreement in
substance.
In effect,
the appointment of a Manager or Special Manager
was a joint appointment.
If
it
were so expressed,
difficulty on the part of the New York Bank.
he would not see any
However,
if
the present
procedure was turned around and the New York directors were given only
a veto power, not only would this accomplish nothing of substance but
it
would represent a diminution of the status and importance of the
Reserve Bank.
If any other Reserve Banks were affected in the same
manner, he would feel exactly the same way.
Asked regarding his concept of the primary responsibility of
the Account Manager, Chairman Reed replied that he thought of the Manager
as an officer of the Open Market Committee, and certainly the Manager
was an officer of the New York Bank.
The Manager had a responsibility
in both directions, but it was hard to think of him as an individual
standing quite apart from the New York Bank.
facilities, personnel,
The Manager required the
and research of the Bank to do his job.
He
(Chairman Reed) would prefer to think of the Committee as placing respon
sibility not in one individual but in an institution.
The President of
the Bank was also a member of the Open Market Committee, and the Account
4/17/62
-8
Manager likewise had to wear two hats, for he had a divided responsibility.
His policy direction came from the Open Market Committee.
In terms of
doing a good job of execution, his responsibility was to both the Committee
and the Reserve Bank, the latter having been selected as the institution
to get the job done.
If
The Manager should be backed up by good facilities.
he was not, the Reserve Bank was at fault.
Question was raised whether it
as though the Open Market Committee,
might not appear to an observer
in selecting a Reserve Bank to
execute transactions for the Open Market Account and turning over to
that Bank's directors the task of selecting a Manager of the Account, had
created an opportunity, at least, for misuse of information.
To this,
Chairman Reed replied that the directors of the New York Bank understood
completely that they were not entitled to receive,
and would not receive,
knowledge of the policy discussions and directives of the Open Market
Committee or knowledge of the day-to-day activities of the Account
Manager in implementing those directives.
They received reports after
the fact and went through the form of ratification.
Sometimes, in the
case of new directors, there had been a few questions on their part.
Once the situation was explained to them, however,
perfectly.
they understood it
He was not familiar with any instance in which there had
been a slip on the part of the Manager in advising a member of the
Board of Directors of things about which the latter should not know.
If
the question that had been put to him were carried to an extreme,
4/17/62
-9
Chairman Reed noted, it
would be necessary to go such further than the
current suggestion for changing the method of selection of the Manager
and Special Manager.
It would be necessary to lift
of the Open Market Account out of the Reserve Bank.
the whole operation
This would require
an additional apparatus without adding to the quality of the operation.
Chairman Martin said he wished to make it
clear that he had been
the one who proposed the change in method of selection.
He was in
complete agreement with everything Chairman Reed had said concerning the
importance of the regional structure of the Federal Reserve System.
He
also agreed that the question at hand was one of form and not of substance.
However, he felt that the form was wrong under the present arrangement.
Chairman Martin noted that at one time the Open Market Committee
operated with an executive
committee, but a change was made so as to have
all of the Reserve Bank Presidents participate in every meeting of the
Committee.
Along with this evolution, attention had been directed to the
method of selection of the Account Manager and the question of the
Manager's primary responsibility.
He (Chairman Martin) did not feel
that the proposed change in method of selection would impair the institu
tional responsibility of the New York Bank or in any way impugn the
activities of the directors of that Bank.
however,
It
ought to be made clear,
that the Committee could select an individual from any of the
Reserve Banks,
or in fact from anywhere in the United States, rather
than from the New York Bank alone.
On that point, also,
was no disagreement between Chairman Reed and himself.
he felt there
4/17/62
-10It seemed to him, Chairman Martin concluded,
would be much better if
that the form
the Comittee selected the Manager and Special
Manager, subject to their being satisfactory to the Reserve Bank selected
to execute transactions for the Open Market Account.
All of the Reserve
Banks ought to be equals in the matter of selection; the fact that one
of the Banks was located in New York City was,
relatively unimportant consideration.
in his judgment, a
As Chairman Reed had indicated,
this was a matter of form and not of substance, but it
should be resolved
one way or the other.
Chairman Martin then indicated that he would call for expressions
of views around the table, and he turned first to Mr. Hayes.
Mr. Hayes said that in terms of substance, he did not see that
any real difference of opinion existed.
He would subscribe to what had
been said about the necessity for everyone on the Committee and at the
New York Bank to be satisfied with the men selected as Manager and
Special Manager.
Furthermore, he would regard the whole field as being
open for the selection.
If the other Reserve Banks or an outside source
produced a person who appealed to everyone concerned as the best man,
that person should be selected; he had no disposition to say that the
man should have to come from the New York Bank.
He hoped that the New
York Bank would be able to train people in such manner that it
would be
thought that such persons were deserving of consideration, but that did
not preclude other persons from also being considered.
However, even
-11
4/17/62
though the matter was one of form rather than of substance, the principle
involved was important for the reasons Chairman Reed had outlined.
This was
one more evidence of the tendency to impinge on the status and importance
of the Reserve Banks.
He did not propose to review in detail the argu
ments that had been presented in his memorandum.
memorandum, he had read it
with interest.
As to Mr. Hackley's
He would omit from his comments
some of the considerations Mr. Hackley had listed that would bring in a
broader scope of issues.
His memorandum,
Mr. Hayes pointed out, made three principal
points about Chairman Martin's proposal that in his
judgment
were important.
First, the proposal failed to recognize the institutional responsibility
of the New York Bank for carrying out open market operations pursuant to
the will of the Committee.
Second, the proposal would tend to erode the
authority of the Reserve Bank's directors.
personnel problems for the Bank.
Third, it
would create some
There could hardly be disagreement, he
thought, that the Federal Reserve Bank selected to execute transactions
for the Open Market Account had an institutional responsibility to see
that the job was well done.
Since the directors had authority to appoint
the officers of the Bank and to define their duties, there was a strong
logic in the present procedure.
He found some passages in Mr. Hackley's
memorandum with regard to the Committee delegating authority to the
Manager that to him were not realistic.
Under the law, the execution
of open market transactions must reside with a Reserve Bank.
The 12
Banks, operating together and acting through the New York Bank, were to
12..
4/17/62
carry out such transactions.
The points in Mr. Hackley's memorandum
failed to recognize that institutional responsibility.
Further, the
New York Bank's experience in personnel administration pointed up the
validity of the argument made in his (Mr.
Hayes')
memorandum.
Bank was going to try to develop good people within its
there must be an atmosphere in which it
If the
organization,
could attract and retain such
persons through giving them reasonable hope of promotion.
Also, there
were distinct advantages in having the Account Manager in a position
to consult closely with his associates, including the other senior
officers of the Bank, his alternates, and the whole organization of
the Securities Department.
Coverage in depth was extremely important.
When there were no open market operations, the fact that the Manager
engaged in other operations was also an advantage, for this kept him
in close touch with the market.
All central bank operations in the
New York money market were closely interrelated.
Discount operations
were tied in closely with open market operations, and the foreign
exchange activities would also be tied in closely.
He thought it
highly
important to stress the fact that it was the Reserve Bank that should
sort out these things and keep them properly coordinated.
He could not
stress too much the institutional responsibility.
As to possible courses of action, Mr. Hayes said it
his feeling all along, as his memoradum
had been
indicated, that the burden
of proof was on those who would change the method of selection of
4/17/62
-13
the Manager and Special Manager.
He did not believe that it
had been
demonstrated that there would be a real advantage in a change; quite
the contrary.
However, he recognized the force of some of the arguments
that had been made.
From a strictly realistic standpoint, the Committee
and the New York Bank were each vitally interested in the selection of
the Manager and Special Manager.
The simplest answer seemed to be a process
to have the Manager and Special Manager se
of joint appointment; that is,
lected by the Open Market Committee and the New York Bank simultaneously.
While he saw no necessity to change the present procedure, he thought that
the procedure of joint selection would be acceptable.
He could not speak for
the directors, but he thought it would be acceptable to them.
appear to meet all
It would
of the objectives that had been set forth in the proposal
advanced by Chairman Martin.
Mr. Ellis said that as he looked at the job to be performed, there
were essentially two parts.
cisions of the Committee.
First, there was the execution of the de
He thought it was agreed that this function
must be performed by a coordinated team.
The importance of the Manager
being an officer of the Reserve Bank and being engaged,
in that capacity,
on other operations for which the Bank was responsible seemed to be agreed
upon and not a matter at issue.
The second part of the problem was the
matter of effective communication between the Open Market Committee and
the operating people in the New York Bank.
There should be a direct re
lationship between the Comittee and the operating officer known as the
4/17/62
-14
Manager.
That was the reason for the Manager's presence at open market
meetings.
It
was the underlying reason for the Committee's continuing
efforts to improve its
methods of comunication to the Manager.
Committee must depend on, and have confidence in,
the Manager.
The
If
it
did not have confidence, that would lead to questioning the Manager's
motives rather than to discussion about techniques and practices.
The
overriding responsibility of the Manager must be to the Committee in
respect to the decisions that the Committee expected him to carry out.
At the same time, the Manager must clearly be acceptable to the New
York Bank:
an officer of that Bank and a person who could work well
with the staff of the Bank. The Committee and the New York Bank should
both participate in seeking the best person.
It
struck him as of relatively little importance, Mr. Ellis
said, whether the Committee or the New York Bank made the decision or
approved the decision. For the record, it should be clear that the
Open Market Committee did not stand in a secondary position.
However,
the Committee need not have preeminent authority in the selection of
the individual. Mr. Hayes' proposal for joint appointment would seem
to meet satisfactorily the objectives of the Committee.
It would show that
the Committee was not in a secondary position in the selection process.
From the standpoint of form, it would seem appropriate if the By-Laws
were to provide that the Committee made the selection of the Manager
jointly with the Federal Reserve Bank selected to execute transactions for
the Open Market Account.
However, if agreement could not be reached on
the procedure of joint selection, then he would favor the proposal of
-15
4/17/62
Chairman Martin whereby the Committee would select a Manager and a
Special Manager, both of whom were to be satisfactory to the Reserve
Bank selected to execute transactions for the Open Market Account.
Mr. Irons said he would start with the thought that the Manager
of the Account had a dual responsibility.
The Manager performed a
function for which he was directly and primarily responsible to the
Committee.
At the same time, he had a technical administrative respon
sibility that made it desirable for him to hold a position of seniority
within the Reserve Bank selected to execute transactions for the Open
Market Account.
The very fact that the Committee selected a particular
Bank--which would inevitably be the New York Bank--ought to be regarded
as an expression of complete confidence in that Bank and recognition
of that Bank's institutional prestige and character.
It would be
unfortunate if anything were done that would tend to lessen the institution
al prestige of the Bank.
The question under discussion involved a matter
of form rather than a matter of substance, but it involved the possibility
of criticism of the Committee for not at least sharing primary responsi
bility with the Reserve Bank in the selection of the Manager and Special
Manager.
A relatively unimportant matter of form might lead to questions
of substance.
Mr. Irons said he rather liked the joint appointment suggestion
as a compromise move, with a spelling out of the fact that the Manager
and the Special Manager were to be not only senior officers of the New
York Bank but also officers of the Committee.
The two-hat type of
4/17/62
responsibility went all through the System; it
this one instance.
was not applicable in just
To a degree, the appointment of a Reserve Bank
President was a joint arrangement, and a President was wearing a second
hat when he served as a member of the Open Market Committee.
If the
compromise approach were followed, the Open Market Committee would have
primary responsibility for the selection of the Reserve Bank to conduct
operations for the Open Market Account and joint responsibility with
the directors of that Bank in the selection of the Manager and Special
Manager.
Those persons would be senior officers of the selected Reserve
Bank and also of the Committee.
They would serve at the pleasure of the
Committee, and they would attend all of the meetings of the Committee.
Mr. Swan said he would agree with what had been said about the
dual responsibility of the Manager and Special Manager, and also with
the thought that the Committee was discussing something that involved
primarily a question of form. However, as Mr. Irons had suggested,
it was important that matters of form not shift over to matters of sub
stance.
If the question of the method of selection were coming up
originally, he would have leaned a little
toward the primary respon
sibility being more clearly reflected as flowing to the Committee.
However, he would not like to see any change made that might be inter
preted as more significant than it really was.
While he had not thought
about the possibility of joint selection, this possibility appealed to
him, although it was not entirely clear what might be involved in the
mechanics of such an arrangement.
If this could be made evident not only
4/17/62
-17
to the Committee but to anyone else who might be interested, the joint
selection approach might be quite satisfactory.
In any event, however,
the designation of the Manager and Special Manager as officers of the
Committee ought to be recognized.
selection procedure if
In summary, he would favor the joint
it could be made clear just how the procedure
would work, and if it was clear that this would not raise further questions
about the relation of the Manager and Special Manager to the Committee.
Mr. Deming said he had not thought of the possibility of joint
selection until this morning. He had started out with the thought that
the present arrangement, whereby a Reserve Bank was selected to execute
transactions for the Account and that Bank then selected the Manager, was
not completely logical because in his view the responsibility of the
Manager ran to the Committee more than to the Reserve Bank.
Neither, how
ever, did it seem completely logical to select a Reserve Bank to execute
transactions and not give that Bank authority to select the Account
Manager.
On balance, he had favored Chairman Martin's suggestion because
it would clearly indicate that the Manager's primary responsibility was
to the Committee.
As the discussion proceeded this morning, however, he
would now lean toward the joint selection approach.
It would seem to be
no more illogical than either of the other arrangements.
Mr. Scanlon stated that he wished to associate himself with the
comments of Mr. Deming.
Mr. Clay indicated that he found no difficulty in the present
arrangement.
It
did not concern him particularly which procedure was
-18
4/17/62
followed, but the present arrangement added something to the prestige
of the New York Reserve Bank.
the world, it
Located in the central money market of
seemed desirable for the New York Bank to have that
prestige, and it did not bother him that the Kansas City Bank could
not have it.
As to the possibility of selecting an Account Manager or
Special Manager from elsewhere throughout the System, there might at
some point be an individual with talent along those lines in some Bank
Nevertheless, it would be difficult to expect that
other than New York.
the Manager or Special Manager would come from the Kansas City Bank, for
example, unless the individual concerned was transferred to the New
York Bank prior to his appointment in order to obtain experience.
Mr. Clay went on to say that he had found no difficulty with
other situations where a somewhat similar type of problem existed.
For
example, the directors of the Kansas City Reserve Bank had appointed
him as President, but his appointment was subject to approval by the
Board of Governors.
He had responsibilities, on the one hand, for the
operation of the Reserve Bank, and on the other hand in relation to
the Federal Open Market Committee.
handling that problem.
He had found no difficulty in
Likewise, he found no problem in the Kansas
City Bank acting as fiscal agent for the Treasury, for which purpose
the Reserve Bank selected officers at that Bank to handle such
operations.
He would find great difficulty in having to accept an
individual whom the Treasury might happen to put in the Bank to conduct
-19
4/17/62
such operations, but he had no difficulty with the present situation.
A lot of these things existed in a lot of places throughout the System.
Mr. Clay said he had a strong feeling that the regional aspects
of the System represented its
greatest strength as far as the people of
the United States were concerned.
As he saw it,
the current proposal for
selection of the Manager and Special Manager would have some tendency to
detract from the prestige of the New York Bank.
Further, an extension of
that tendency over a period of time might result in the Account Manager
employing personnel and having a separate payroll.
He would prefer to
have the responsibility vested in the New York Bank as an institution.
If he did not feel the responsibility was being carried out properly,
he would not hesitate to talk with Messrs. Hayes and Rouse and then
talk to the Open Market Committee on the same basis.
In summary, he
would prefer to retain the present method of selection.
Mr. Mills said he felt that Chairman Reed had identified the
crux of the longer-range problem in his opening statement when he
expressed concern that over a period of years there would be a gradual
centralization of authority within the Federal Reserve System.
A weaken
ing of the system concept would eventually pull the Federal Reserve in
the direction of nationalization.
In his (Mr. Mills') opinion, however,
the proposal to shift to the Open Market Committee the function of
selecting the Manager and Special Manager would operate in the direction
of halting such a trend.
Actually, the Federal Open Market Committee
might better be named the System Open Market Committee.
It
was a
4/17/62
.20
Federal Reserve System organization and had a System-wide responsibility
that did not attach to any one of the Federal Reserve Banks, except to
the extent that one Bank was selected by the Committee to execute trans
actions for the Open Market Account.
In his opinion, the time had come
to indicate clearly that the Committee, as a System organization, con
trolled and directed the conduct of open market operations.
He had a
feeling that over a period of years the operation of the Account had
thrown the Desk into a propinquity with the Treasury and the Executive
Branch of the Federal Government that could set in motion a drift toward
centralization.
The kind of proposal that Chairman Martin had submitted
to the Committee would stand as an obstacle to that trend.
Mr. Robertson noted that the Open Market Committee's job was to
make policy.
The Manager's job was to make decisions to implement that
policy, and the New York Bank's job was to execute transactions for the
Open Market Account.
Theoretically, it could be said that those functions
should be separated completely, but this was not feasible in practice.
Although the current proposal was a compromise,
it
was in
the proper
direction of indicating to the world that the Manager and Special Manager
had a primary responsibility to the Open Market Committee.
Consequently,
he would support the proposal submitted by Chairman Martin.
Mr. Shepardson said he would agree with the thought expressed by
Chairman Reed that the strength of the Federal Reserve System was in
its component parts.
Like Chairman Reed, he had a strong desire to
preserve that kind of a system.
As to the problem immediately before
-21
4/17/62
the Committee, he noted that in a large private corporation there was
a treasurer or some similar official who carried out the fiscal policies
of the company.
bank.
These policies were effectuated through a commercial
The treasurer could call the bank and give instructions as to
what he wanted done and in what amounts.
In the case of the Treasury,
where a Reserve Bank was acting as fiscal agent, it was his understand
ing that the Treasury gave instructions to the Reserve Bank as to what
it wanted done and in what amounts.
In the case of the Open Market Com
mittee, which was representative of the whole Federal Reserve System, it
was not feasible for the Committee to be in daily session and to make
decisions on a day-to-day basis.
Instead, the Committee normally formu
lated policy for a period of three weeks and delegated to the Account
Manager the job of making day-to-day decisions in light of the prescribed
policy. The Manager was in effect the corporate officer who gave instruc
tions to the commercial bank, in this case the Reserve Bank selected by
the Open Market Committee to execute transactions for the Open Market
Account.
The Committee could not conduct the actual financial trans
actions.
Therefore, the Manager of the Account must be primarily re
sponsible to the Committee, and there should be no question about that
responsibility. Theoretically,the Account Manager might be an employee
of the Open Market Committee and on the Committee's payroll.
As such,
he might be housed in the Reserve Bank, or certainly in close relationship
to the Reserve Bank.
However, because of the need for depth and training
that Mr. Hayes had mentioned, such a procedure might be of questionable
-22
4/17/62
value in practice.
There was an advantage in having the Manager also
an officer of the Reserve Bank so that he could work more closely with
the Bank's staff.
It seemed to him, Mr. Shepardson said, that it was important to
show clearly the responsibility of the Manager to the Committee, since
it was the function of the Manager to make day-to-day decisions imple
menting Committee policy.
The function of the Reserve Bank was to ef
fectuate transactions reflecting those decisions.
On that basis, it
seemed to him that the proposal submitted by Chairman Martin was sound.
He did not think that it would detract in any way from the position of
the New York Bank.
The New York Bank, by its right of veto, could
assure itself of the selection of an individual who was acceptable to it
and who was compatible with the Bank's organization.
Mr.
King expressed agreement with what Mr. Mills had said.
The type of proposal submitted by Chairman Martin was more likely to
preserve the regional concept of the System than an unclear delineation
of responsibility.
By statute, the Open Market Committee had a heavy
responsibility, and it
decisions.
must delegate the implementation of its
policy
Therefore, the real question was the effective delegation
of responsibility.
In his opinion, the regional concept was far more
likely to endure if
there was a clear delineation of authority than if
the Committee simply preserved a form that had existed in the past for
one reason or another.
He doubted whether the joint selection procedure
actually would meet the need,
for he thought that the Manager and Special
4/17/62
-23
Manager had a direct responsibility to the Open Market Committee.
a member of the Committee,
As
he would like to know that there was one man
who could answer questions clearly in the event of any disagreement.
had been said, this was essentially a matter of form.
As
However, critics
of the Federal Reserve System had an opportunity to express themselves
if the System followed procedures that were not logical.
On this basis,
he would favor the suggestion made by Chairman Martin.
Mr. Mitchell commented that although the Open Market Committee
might not be the most powerful body of men in the world, it
leading architect of monetary policy.
was the
In terms of execution of policy,
its principal implement was the Account Manager.
For the public
record it should be clear that the Manager and Special Manager were
responsible to the Committee,
for their selection.
and that the Committee was responsible
For this reason he would favor the proposed
change in the method of selection.
From a practical standpoint he would
have no objection to the joint selection procedure, but for the record
he felt it would look better if the Committee made the selection of
the Manager and Special Manager.
Mr.
Fulton said he would align himself with those who had com
mented favorably on the joint selection procedure and on making it
clear
that the Account Manager and the Special Manager were officers of the
Open Market Committee.
He added that by reason of the Trading Desk
being situated in the New York Bank and by reason of the presence at
that Bank of one of the members of the Open Market Committee,
that
4/17/62
-24
member could be alleged to wield an undue influence.
Further,
the Com
mittee member from the New York Bank had been for years the Vice Chairman
of the Committee.
Therefore,
it
might be desirable to rotate the Vice
Chairmanship among the members of the Open Market Committee rather than
to have it always in New York.
Mr. Bopp commented that he had not heard until today about the
possibility of a joint selection procedure.
He leaned favorably toward
that approach, although he had some concern about the mechanics of such
a procedure.
He was not particularly impressed by the personnel difficul
ties claimed for the Federal Reserve Bank of New York in the event of a
change in the method of selection of the Manager and Special Manager, but
he was concerned about the personnel problem from the standpoint of the
Open Market Committee.
If an adequate person could not be found at the
New York Bank, he would not hesitate to go to another Federal Reserve
Bank or to any other source to locate a man for the post of Manager or
Special Manager.
was desirable.
However, this would not provide the continuity that
If there was any doubt that the New York Bank had within
its organization an individual on whom everyone could agree in advance,
the thing to do would be to place a man in that Bank and train him.
The
element of continuity was important; the problem of the method of
selection of a Manager or Special Manager went not only to the specific
act of selection but to the development of individuals as well.
Accordingly,
while the idea of joint selection struck him favorably, the procedure
should extend to the development of competent people.
If the Committee
4/17/62
-25
should feel at any time that the New York Bank did not have appropriate
individuals, the New York Bank should know that in advance, so that a
person could be found who would be acceptable to everyone in a real sense.
Mr. Bryan commented, in regard to the contention that a change of
the method of selection would reduce the institutional prestige of the New
York Bank, that another organization established by statute--the Federal
Open Market Committee--was one of the most important institutions within
the Federal Reserve System; its prestige must also be considered.
In the
housekeeping section of the 1952 report of the Ad Hoc Subcommittee there
were in his opinion more important things than the question of who initiated
the selection of the Account Manager.
He thought of this particular
question as involving a matter of form that was important principally from
the standpoint of the public record.
He would be willing to accept the
joint selection arrangement if it could be worked out to the satisfaction
of a majority of the Committee.
If not, he would be compelled to vote for
Chairman Martin's suggestion.
Mr. Balderston referred to the observations that had been made pre
viously regarding the fundamental distinction between policy direction
and ministerial duties involved in the execution thereof.
Open Market Committee normally met at three-week intervals.
As noted, the
In the
interim, with problems of communication being what they were, it must
rely on the Manager and the Special Manager to interpret the will of the
Committee as they understood it.
It was vital to the success of both
areas of work that the Manager and Special Manager be looked upon, not
-26
4/17/62
only within the System but by the Government at large and by the financial
community, as part of the policy direction of the Open Market Committee.
As to ministerial duties, they must be carried on by the New York Reserve
Bank.
Mr. Balderston went on to say that, like others who had spoken,
he believed in the decentralized central banking system of this country.
He was hopeful that it would be possible to continue this decentralization
and that the principal coordinating agent of the System would continue to
be a board, as distinguished from a single governor.
There had been sug
gestions from time to time that the open market function be handled by a
board located in Washington.
In his opinion, however, such a move would
be a fundamental blunder that would undermine the strength of the Federal
Reserve System.
The Reserve Bank Presidents should be represented on the
Open Market Committee, not merely advisory to it.
Therefore, he saw a
real point in the suggestion that this was the time to make clear, by
providing for the selection by the Open Market Committee of the Manager
and Special Manager, that the Committee was the policy-maker with respect
to the open market instrument and that its policies were implemented
between Committee meetings by a Manager and a Special Manager who were
officers of the Committee.
It was important that the procedure followed
be such as to bear the closest examination by the most outspoken critics
of the System, and in his opinion the present procedure left the System
exposed.
For the Open Market Committee to pick the New York Bank for
the performance of ministerial duties and delegate to that Bank the
-27
4/17/62
selection of the individuals who were to interpret policy during intervals
between Committee meetings seemed to him to leave the whole Federal
Reserve System vulnerable to criticism.
Therefore, he would favor the
proposal submitted by Chairman Martin.
Chairman Martin said he hoped everyone understood the intent of
his suggestion.
His thinking, in making the suggestion, went to the
future of the Federal Reserve System as a system.
His thought was not
to take power away from any individual Reserve Bank.
Everyone took
pride in the work of the Reserve Banks, and the last thing in his mind
would be to try in any way to detract from the prestige of any Bank.
The method of selection involved a question of form rather than substance,
but in his opinion the form was important.
The idea of a system involved
not one Bank but all Banks working together.
It was with this thought
that he had submitted his suggestion, which of itself was a compromise.
He thought it important to make clear that in the selection of the Manager
and the Special Manager the authority was vested in the Open Market Com
mittee.
Over a long period of years, there had been devoted Account
Managers, including Messrs. Burgess,
Now the present
Sproul, and Rouse.
Manager was going to reach the point of retirement in a relatively short
time, and it would be necessary to select a new Manager.
From the stand
point of the System, it seemed important that there be no question about
the point of control in the selection of the Manager.
Again he wished
to emphasize that in his opinion the proposal he had submitted would in
-28
4/17/62
no way impair the institutional prestige of the New York Bank.
He could
sympathize with the position of Messrs. Reed and Hayes and welcomed the
presentation of their views.
However, it certainly was not the intent
of the proposal to detract in any way from the status of the New York Bank.
The Chairman then said that he felt the Committee ought to dispose
of this matter.
Therefore, he would propose that the question be put
to a vote.
Mr. Mills moved that Section 5 of Article II of the By-Laws of
the Committee be amended, effective immediately, so as to read as follows,
with a conforming change in the Rules on Organization and Information:
Section 5. Manager and Special Manager of the System
Open Market Account. - The Committee shall select a Federal
Reserve Bank to execute transactions for the System Open
Market Account.
The Committee shall also select a Manager
of the System Open Market Account and a Special Manager for
foreign currency operations for such Account, both of whom
shall be satisfactory to such Federal Reserve Bank.
They
shall serve at the pleasure of the Committee and shall
attend all meetings of the Committee.
This motion was seconded by Mr. Shepardson.
Mr. Hayes noted that a vote on the motion of Mr. Mills would
preclude the opportunity for an expression by the Committee members con
cerning the suggested alternate procedure of joint selection of the
Manager and Special Manager.
Accordingly, he moved that Mr. Mills'
motion be amended to provide
in effect that the Manager and Special
Manager of the System Open Market Account be selected jointly by the
Federal Open Market Committee and the Federal Reserve Bank selected to
execute transactions for the System Open Market Account.
4/17/62
-29
In order to insure a vote on Mr. Hayes' motion to amend, his motion
to amend the previous motion was seconded by Mr. Balderston.
At this point Chairman Reed withdrew from the meeting.
A vote was then taken on the motion by
Mr. Hayes to amend the previous motion by
Mr. Mills, and the motion to amend was defeated.
Votes for the motion to amend the
previous motion: Messrs. Hayes, Deming,
Ellis, and Fulton. Votes against the motion
to amend the previous motion: Messrs. Martin,
Balderston, Bryan, King,Mills, Mitchell,
Robertson, and Shepardson.
The motion to amend having been defeated,
a vote was taken on the motion that had been
made by Mr. Mills, and the motion was carried.
Votes for the motion:
Messrs. Martin,
Balderston, Bryan, Deming, Ellis, Fulton, King,
Mills, Mitchell, Robertson, and Shepardson.
Vote against the motion: Mr. Hayes.
Chairman Martin then pointed out that at its meeting on March 6,
1962, the Open Market Committee had approved the selection by the New
York Bank of Mr. Rouse as Manager of the Open Market Account and Mr.
Coombs as Special Manager for foreign currency transactions until the
adjournment of the Committee meeting at which his suggested change in
the By-Laws was discussed, which meant that further action by the Committee
was now necessary.
He noted that Mr. Rouse was scheduled to retire from
service with the New York Bank in the fall of 1963, but had expressed a
desire to be relieved as Manager of the System Open Market Account prior
to that time.
He also indicated that pursuant to an understanding at a
recent meeting of the Committee, a group composed of Messrs. Hayes,
4/17/62
-30
Balderston, and himself had been studying the qualifications of persons
who might be recommended to succeed Mr. Rouse as Manager, that the group
was prepared to make a recommendation,
and that a memorandum would be
submitted to the Committee.
In this connection, question was raised with regard to the most
appropriate timing of a change in Managers, from the standpoint of both
Mr. Rouse and his successor, and Mr. Hayes cited advantages that would
accrue from Mr. Rouse's continuing as Manager for some further period of
time.
He added, however, that he had not yet thought the matter through
to a specific recommendation as to what date might be most suitable for
making the changeover effective.
It was also noted that although, according to the action taken
by the Open Market Committee on March 6, 1962, its approval of the
selection of Mr. Rouse as Manager and Mr. Coombs as Special Manager
would expire with the adjournment of today's meeting, the amended pro
cedure just adopted by the Committee for selection of the Manager and
Special Manager called for approval of the Committee's action by the
directors of the New York Reserve Bank.
Mr. Hayes stated, however, that
he felt confident that the directors, at their meeting on Thursday of this
week, would approve the selection of Messrs. Rouse and Coombs as Manager
and Special Manager,
respectively.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, Mr. Rouse
was selected as Manager of the System Open
Market Account, to serve as such until
further action was taken by the Open Market
Committee.
4/17/62
-31
Upon motion duly made and seconded, and
by unanimous vote, Mr. Coombs was selected to
serve as Special Manager of the System Open
Market Account for foreign currency operations.
Consideration then was given to possible amendments to the Com
mittee's By-Laws, Rules on Organization and Information, and Rules on
Procedure, as presented in Mr. Hackley's memorandum of April 9, 1962, it
being noted that one amendment to the By-Laws and to the Rules on Organiza
tion and Information had already been approved at this meeting, reflecting
the change in method of selection of the Manager and Special Manager of
the System Open Market Account.
Upon motion duly made and seconded,
and by unanimous vote, the Committee's
By-Laws, amended previously in one respect
by action of the Committee at this meeting,
were further amended, effective immediately,
to place them in the following form:
ARTICLE I.
MEMBERS
Section 1. Organization - Prior to the first meeting of
the Committee on or after March 1 of each year, each member of
the Committee representing the Federal Reserve Banks shall cause
a record of his election and of the election of the alternate to
serve in his absence to be forwarded to the Secretary of the
Committee. If any question be raised as to the election or
eligibility of such member or alternate, the Committee shall de
termine such question before permitting such member or alternate
to participate in the meetings.
Section 2. Alternates - In the event a member is absent
from a meeting of the Committee, his alternate, in attending the
meeting, shall have the same status as the member for whom he is
serving.
Section 3. Oath - Each member of the Federal Open Market
Committee and each alternate shall take the same oath of office
as that required by the Constitution for officers of the United
States.
4/17/62
-32
Section 4. Quorum - Seven members (including alternates
present and acting the
in
absence of members) shall constitute a
quorum for the transaction of business; but less than a quorum
may adjourn from time to time until a quorum is in attendance.
Section 5. Meetings - The Committee shall meet in
ton, D. C. at least four times each year and oftener if
necessary. Meetings shall be held upon the call of the
of the Board of Governors of the Federal Reserve System
request of any three members of the Committee. Notices
Washing
deemed
Chairman
or at the
of calls
by the Chairman to other members shall be given by the Secretary.
Requests of any three members for the calling of a meeting shall
state the time therefor and shall be filed in writing or by
telegram with the Secretary who shall forthwith notify all
members of the Committee in writing or by telegram. When the
Secretary shall have sent notices to all members of the Committee
that a meeting has been requested by three members and of the
time therefor, a meeting shall be deemed to have been called.
Whenever any member of the Committee representing Federal
Reserve Banks shall find that he will be unable to attend a
meeting of the Committee, he shall promptly notify his
alternate and the Secretary of the Committee in writing or by
telegram, and upon receipt of such notice the alternate shall
advise the Secretary whether he will attend such meeting.
Section 6.
deliberations,
Conduct and Deliberations - The proceedings,
discussions,
and actions of the Committee,
except
as required by law and except as authorized by the Committee,
shall be strictly confidential, and no information shall be re
leased except as authorized by the Committee and in the annual
report required to be made to Congress by section 10 of the
Federal Reserve Act as amended.
Section 7. Order of Business - The following shall be the
order of procedure to be followed at meetings of the Committee:
1. The Secretary shall present the minutes of the
last meeting of the Committee.
2. The Manager of the System Open Market Account
and the Special Manager for foreign currency operations
for such Account shall make their reports of operations
for the System Open Market Account occurring since the
preceding meeting.
3.
The Committee Economist and other economists
shall make such reports as may be appropriate.
4/17/62
-33
4. The Committee shall then consider open-market
policies.
By a majority vote of members present, the Committee may
adopt a different order of business for any particular meeting.
ARTICLE II.
Section 1.
OFFICERS
Chairman and Vice Chairman of the Committee - At
its first meeting on or after March 1 of each year the Committee
shall elect a Chairman and a Vice Chairman to serve until the first
meeting on or after March 1 of the next year.
The Chairman of the
Committee shall preside at all meetings thereof and shall perform
such other duties as the Committee may require. The Vice Chairman
shall perform the duties of the Chairman in the absence of the
In the absence of both the Chairman and Vice Chairman,
Chairman.
the Committee shall elect an Acting Chairman.
Section 2. Secretary and Assistant Secretaries - At its
first meeting on or after March 1 of each year the Committee shall
elect a Secretary and one or more Assistant Secretaries to serve
until the first meeting on or after March 1 of the next year. It
shall be the duty of the Secretary to keep minutes of all meetings
of the Committee and a complete record of the action taken by the
Committee upon all questions of policy relating to open-market
operations, and he shall record the votes taken in connection with
the determination of open-market policies and the underlying
reasons assigned therefor. He shall have custody of such minutes
and records and shall perform such other duties as the Committee
may require. In the absence of the Secretary of the Committee, an
Assistant Secretary shall act as Secretary pro tem.
Section 3. Economist and Associate Economists - At its first
meeting on or after March 1 of each year, the Committee shall
meeting on or after
elect an Economist to serve until the first
March 1 of the next year. The Committee shall also from time to
time, as it may decide, elect one or more Associate Economists.
The Economist and Associate Economists shall prepare for the use
of the Committee and present to it such information about business
and credit conditions as will assist the Committee in the determina
tion of open-market policies, and shall perform such other duties
as the Committee may require.
General Counsel and Assistant General Counsel
Section 4.
meeting on or after March 1 of each year the Com
At its first
mittee shall elect a General Counsel and an Assistant General
meeting on or after March 1 of
Counsel to serve until the first
4/17/62
-34-
the next year. It shall be the duty of the General Counsel to
furnish such legal advice as the Committee may require.
In the
absence of the General Counsel, the Assistant General Counsel
shall act as General Counsel pro tem.
Section 5.
Manager of the System Open Market Account and
Special Manager for Foreign Currency Operations - The Committee
shall select a Federal Reserve Bank to execute transactions for
the System Open Market Account.
The Committee shall also select a
Manager of the System Open Market Account and a Special Manager for
foreign currency operations for such Account, both of whom shall be
satisfactory to such Federal Reserve Bank. They shall serve at the
pleasure of the Committee and shall attend all meetings of the
Committee.
Section 6. Filling Vacancies - At any meeting the Committee
may fill
any vacancy in the office of Chairman, Vice Chairman,
Secretary, Assistant Secretary, Economist, Associate Economist,
General Counsel, Assistant General Counsel, or Manager or Special
Manager of the System Open Market Account.
ARTICLE III.
AMENDMENTS
These by-laws may be amended at any meeting of the Com
mittee by a majority vote of the entire Committee.
Upon motion duly made and seconded, and
by unanimous vote,the Rules of Organization
and Information, amended previously in one
respect by action of the Committee at this
meeting, were further amended, effective
immediately, to place them in the following
form, with the understanding that the amended
Rules would be published in the Federal
Register:
RULES OF ORGANIZATION
As Revised Effective April 17,
1962
SECTION 1--BASIS AND SCOPE
These rules are issued by the Federal Open Market Committee
(hereinafter sometimes called the Committee) pursuant to the
Administrative Procedure Act (60 Stat. 237; 5 U.S. C. 1001) and
the Federal Reserve Act (sec. 12A, 48 Stat. 168; 12 U.S.C. 263).
-35Included therein are the rules specified by section 3(a)(1) of
the Administrative Procedure Act.
SECTION 2--COMPOSITION AND MEETINGS OF COMMITTEE
(a) Members. The Federal Open Market Committee consists
of the members of the Board of Governors of the Federal Reserve
System and five representatives of the Federal Reserve Banks who
are Presidents or First Vice Presidents of such Banks.
The
representatives of the Federal Reserve Banks, and an alternate
for each representative, are elected in accordance with section
12A of the Federal Reserve Act for terms of one year commencing
on March 1 of each year.
(b)
Chairman and Vice Chairman.
At its first meeting on
or after March 1 of each year, the Committee selects a Chairman
and a Vice Chairman from among its membership.
(c) Meetings. The Committee meets at Washington, D. C.,
on call by the Chairman of the Board of Governors of the Fed
eral Reserve System or at the request of three members of the
Committee, at least four times each year and oftener if deemed
necessary.
SECTION 3--PERSONNEL
(a)
Official Staff.
The official staff of the Federal
Open Market Committee includes its Secretary and Assistant
Secretaries, General Counsel and Assistant General Counsel,
and Economist and Associate Economists, who perform the duties
indicated by their titles. These staff members are selected
from among the officers and employees of the Board of Governors
of the Federal Reserve System and the Federal Reserve Banks.
In addition, one of the Federal Reserve Banks is selected by
the Committee to execute transactions for the System Open
Market Account; and the Committee selects a Manager of the
System Open Market Account and a Special Manager for foreign
currency operations for such Account, both of whom shall be
satisfactory to such Federal Reserve Bank.
(b)
Others. The services of other officers and employees
of the Board of Governors of the Federal Reserve System and
Federal Reserve Banks are made available and are utilized by
the Committee as required.
4/17/62
-36RULES REGARDING INFORMATION,
SUBMITTALS,
As Revised Effective April 17,
AND REQUESTS
1962
SECTION 271.1--BASIS AND SCOPE
This part is issued by the Federal Open Market Committee
(sometimes called the Committee in this part) pursuant to the
Administrative Procedure Act (60 Stat. 237; 5 U.S. C. 1001) and
the Federal Reserve Act (sec. 12A, 48 Stat. 168; 12 U.S.C. 263).
It includes the rules specified by sections 3(b) and 3(c) of the
Administrative Procedure Act.
SECTION 271.2--SUBMITTALS,
PETITIONS, AND REQUESTS
(a)
Place.
The mailing address of the Federal Open Market
Committee is: Federal Reserve Building, 20th Street and Consti
tution Avenue, Washington 25, D. C. The Committee customarily
meets at the offices of the Board of Governors of the Federal
Reserve System at that address.
(b) Method.
All submittals, petitions, and requests, in
cluding requests for access to information, shall be made in
writing and mailed to the Committee at the address stated in
paragraph (a) of this section. Any petition or request shall
be signed by the person making it, or his duly authorized agent,
and shall, in so far as practicable, clearly, completely and
concisely state his full name and address, the facts involved
(including the purposes for which any unpublished information
requested will be used if made available), the action desired,
the person's interest in the matter, and the reasons why the
petition or request should be granted.
SECTION 271.3--AVAILABILITY OF INFORMATION
(a) Federal Register. Rules describing the Committee's
organization and procedure and any substantive rules or state
ments of policy which are formulated and adopted by the Committee
for the guidance of the public will be published in the Federal
Register.
(b) Policy Record. A complete record of the actions taken
by the Committee during the preceding year upon all matters of
policy relating to open market operations, showing the votes
taken and the reasons underlying the actions, is included in
each annual report made to Congress by the Board of Governors
of the Federal Reserve System in accordance with section 10
of the Federal Reserve Act.
4/17/62
-37-
(c)
Unpublished Information. Except as may be specific
ally authorized by the Committee, or as may be required in the
performance of duties for, or pursuant to the direction of, the
Committee, no person shall disclose, or permit the disclosure
of, any unpublished information of the Committee to anyone,
whether by giving out or furnishing such information or copy
thereof, by allowing any person to inspect, examine or copy such
Unpublished
information or copy thereof, or by any other means.
information of the Committee shall include all information con
cerning the proceedings, deliberations, discussions, and actions
of the Committee and all information or advice coming to the Com
mittee or to any member of the Committee or any officer, employee
or agent of the Committee, the Board of Governors of the Federal
Reserve System, or any Federal Reserve Bank, in the performance
of duties for, or pursuant to the direction of, the Committee,
whether contained in files, memoranda, documents, reports, books,
accounts, records, or papers or otherwise acquired and whether
located at the offices of the Board of Governors of the Federal
Reserve System, the Federal Reserve Banks, or elsewhere:
Provided,
That it shall not include information which has been published
in accordance with paragraphs (a) and (b) of this section or
information which is available to the public through other sources.
(d)
Reasons for Nondisclosure.
The nondisclosure of un
published information of the Committee generally is required in
the public interest for one or more of the following reasons:
(1) Disclosure of unpublished information concerning poli
cies with respect to future open market operations which are
under consideration or have been adopted by the Committee,
and of unpublished information which might aid in anticipating
action by the Committee, would:
(i)
Interfere with the accomplishment of the objectives
of the Comittee's actions taken with a view to accommodating
commerce and business and with regard to their bearing upon
the general credit situation of the country;
(ii)
Permit speculators and others to reap unfair profits
or other unfair advantages by speculative trading in securities,
foreign exchange, and otherwise;
(iii) Interfere with the orderly execution of policies
adopted by the Committee;
(iv)
Result in unnecessary and unwarranted disturbance in
the securities markets;
-38(v) Make open market operations more costly to the Federal
Reserve Banks;
(vi) Interfere with the orderly execution and accomplish
ment of the objectives of policies adopted by other Government
agencies concerned with economic and fiscal matters; and
(vii) Cause misinterpretations and misunderstandings, with
possible resultant impairment of public confidence in the nation's
financial structure.
(2) The Committee's unpublished information includes much
that is furnished to it on a secret or confidential basis and its
disclosure would:
(i) Have the effects described in subparagraph (1) of this
paragraph;
(ii) Impede the necessary collection of information and ad
vice, much of which cannot be obtained except on a confidential
and voluntary basis; and
(iii)
Unreasonably and unnecessarily disturb and interfere
with individual privacy and confidential business relationships.
(e) Requests for Unpublished Information. Requests for
access to unpublished information will be granted only if it
clearly appears that disclosure of the information will not be
contrary to the public interest for any of the reasons set forth
in paragraph (d) of this section.
SECTION 271.4--SUBPOENAS
(a) Advice by Person Served. If any person, whether or
not an officer or employee of the Committee, of the Board of
Governors of the Federal Reserve System, or of a Federal Re
serve Bank, has unpublished information of the Committee and
in connection therewith is served with a subpoena, order, or
other process requiring his personal attendance as a witness
or the production of documents or information upon any pro
ceeding, he shall promptly advise the Committee of such serv
ice and of all relevant facts, including the documents and
information requested and any facts which may be of assistance
in determining wheter such documents or information should be
made available, and he shall take action at the appropriate
time to advise the court or tribunal which issued the process,
and the attorney for the party at whose instance the process
was issued, if known,
of the substance of this part.
-39(b) Appearance by Person Served.
Except as disclosure of
the relevant information has been authorized pursuant to this
part, any such person who has unpublished information of the
Committee and is required to respond to a subpoena or other
legal process shall attend at the time and place therein men
tioned and respectfully decline to produce any documents or
disclose any information or give any testimony with respect
thereto, basing his refusal upon this part. If, notwithstand
ing, the court or other body orders the production of any
documents, disclosure of any information, or giving of any
testimony, the person having such unpublished information of
the Committee shall promptly report the facts to the Comittee
for such action as the Committee may deem appropriate.
Upon motion duly made and seconded,
and by unanimous vote, the Committee's Rules
of Procedure were amended, effective immediately,
to place them in the following form, with the
understanding that the amended Rules would be
published in the Federal Register:
RULES OF PROCEDURE
As Revised Effective April 17, 1962
SECTION 272.1--BASIS AND SCOPE
This part is issued by the Federal Open Market Committee
(sometimes called the Committee in this part) pursuant to the
Administrative Procedure Act (60 Stat. 237; 5 U. S. C. 1001) and
the Federal Reserve Act (see. 12A, 48 Stat. 168; 12 U.S. C. 263).
It includes the rules specified by section 3(a)(2) of the
Administrative Procedure Act.
SECTION 272.2--COMMITTEE ACTION
The function of the Committee is the direction and regula
tion of open market operations which are conducted by the Federal
Reserve Banks. This involves the determination of the policies
which are to be pursued with respect to open market operations
by the Federal Reserve Banks with a view to accommodating com
merce and business and with regard to their bearing upon the
general credit situation of the country, together with considera
tion and action upon incidental matters relating to the manner
in which such operations are to be conducted. The discharge of
the Committee's responsibilities requires the continuous gather
ing of information and study of changing financial, economic,
4/17/62
and credit conditions and other pertinent considerations by the
members of the Committee and its personnel.
These activities
are closely interrelated with other activities of the Board of
Governors of the Federal Reserve System and the Federal Reserve
Banks and all relevant information and views developed by these
organizations are available to the Committee.
With this back
ground, action is taken by the Committee upon its own initiative
at periodic meetings held at least four times each year and
oftener if deemed necessary.
Attendance at Committee meetings
is restricted to members of the Committee and its official
staff, including the Manager of the System Open Market Account
and the Special Manager for foreign currency operations for such
Account, the Presidents of Federal Reserve Banks who are not at
the time members of the Committee, and such other advisers as
the Committee may invite from time to time. The Committee acts
through the adoption and transmittal of directives and regula
tions to the Federal Reserve Banks.
Operations in the System
Open Market Account are conducted pursuant to directives issued
by the Committee.
SECTION 272.3--NOTICE AND PUBLIC PROCEDURE
There ordinarily will be no published notice of proposed
action by the Committee or public procedure thereon, as described
in section 4 of the Administrative Procedure Act (sec. 4, 60 Stat.
238), because such notice and procedure is
impracticable,
unneces
sary, or contrary to the public interest for one or both of the
following reasons:
(a)
Nondisclosure of information is required in the public
interest for reasons stated in section 271.2(d) of this subchapter;
and
(b)
Expeditions and timely action, without the delay inci
dent to such notice and procedure, is required in the public
interest.
SECTION 272.4--EFFECTIVE DATE
Committee action ordinarily will be made effective on the
date the action is taken because the nature of the subject
matter and the action taken is such that the public interest
and the proper discharge of the Committee's responsibilities
so require.
4/17/62
SECTION 272.5--SUBMITTALS,
PETITIONS, AND REQUESTS
Submittals, petitions, and requests may be made to the
Committee at any time in the manner stated in section 271.1 of
this subchapter. They will be considered by members of the
Committee's official staff and, where appropriate, will be
brought to the attention of the members of the Committee for
consideration and any necessary action.
It was noted that no change had been proposed in the Committee's
Regulation Relating to Open Market Operations of Federal Reserve Banks,
as amended effective June 22, 1955.
However,
it
was understood that
the Regulation, in the following form, would be reprinted;
REGULATION RELATING TO OPEN MARKET OPERATIONS OF
FEDERAL RESERVE BANKS
As Amended Effective June 22, 1955
SECTION 1
Pursuant to the authority conferred upon it by section 12A
of the Federal Reserve Act, as amended, the Federal Open Market
Committee prescribes the following regulations relating to the
open market transactions of the Federal Reserve Banks.
The Federal Open Market Committee expressly reserves the
right to alter, amend, or repeal this regulation in whole or in
part at any time.
SECTION 2--DEFINITIONS
(a) Government securities. The term "Government securities"
shall include bonds, notes, certificates of indebtedness, Treas
ury bills, and other obligations of the United States, including
obligations fully guaranteed as to principal and interest by the
United States.
(b) Obligations. The term "obligations" shall include
all bankers' acceptances, bills of exchange, cable transfers,
bonds, notes, warrants, debentures, and other obligations,
including Government securities, which Federal Reserve Banks
are authorized by law to purchase in the open market.
-42-
(c) System Open Market Account. The term "System Open
Market Account" applies to Government securities and other
obligations heretofore or hereafter purchased in accordance
with open market policies adopted by the Committee and held
for the account of the Federal Reserve Banks.
(d)
Committee.
The term "Committee" shall mean the Fed
eral Open Market Committee.
SECTION 3--GOVERNING PRINCIPLES
By the terms of section 12A of the Federal Reserve Act, as
amended, the time, character, and volume of all purchases and
sales in the open market by Federal Reserve Banks shall be gov
erned with a view to accommodating commerce and business and with
regard to their bearing upon the general credit situation of the
country.
SECTION 4--FEDERAL OPEN MARKET COMMITTEE
(a) Functions. The Committee shall consider the needs of
commerce, industry, and agriculture, the general credit situa
tion of the country, and other matters having a bearing thereon
and consider, adopt, and transmit to the several Federal Reserve
Banks, regulations and directions with respect to the open market
operations of such banks under section 14 of the Federal Reserve
Act.
(b) Participation in System Open Market Account. The Com
mittee from time to time shall determine the principles which
shall govern the allocation among the several Federal Reserve
Banks of Government securities and other obligations held in the
System Open Market Account, with a view to meeting the changing
needs of the Federal Reserve Banks.
SECTION 5--CONDUCT OF OPEN MARKET OPERATIONS
Each Federal Reserve Bank shall engage in open market opera
tions under section 14 of the Federal Reserve Act only in ac
cordance with this regulation and the directions issued by the
Committee from time to time, and no Federal Reserve Bank shall
decline to engage in open market operations as directed by the
Committee.
Transactions for the System Open Market Account shall be
executed by a Federal Reserve Bank selected by the Committee.
Each Federal Reserve Bank shall make available to the Federal
Reserve Bank selected by the Committee such funds as may be
necessary to conduct and effectuate such transactions.
4/17/62
-43SECTION 6--PURCHASES AND SALES OF GOVERNMENT SECURITIES
No Federal Reserve Bank shall purchase or sell Government
securities, for its own account or for the account of any other
Federal Reserve Bank, except pursuant to authority granted by
the Committee or in accordance with an open market policy
adopted by the Committee and in effect at the time.
The Committee reserves the right, in its discretion, to
require the sale of any Government securities now held or here
after purchased by an individual Federal Reserve Bank or to re
quire that such securities be transferred into the System Open
Market Account in accordance with such directions as the Committee
may make.
SECTION 7--OTHER OPEN MARKET OPERATIONS
Subject to directions of the Committee and the following
conditions, each Federal Reserve Bank may engage in open market
operations other than the purchase or sale of Government secu
rities:
(1) Each Federal Reserve Bank, as may be required from
time to time by the Committee, shall report all such transac
tions to the Secretary of the Committee.
(2) Only acceptances and bills of exchange which are of
the kinds made eligible for purchase under the provisions of
Regulation B of the Board of Governors of the Federal Reserve
System may be purchased: Provided, That no obligations payable
in foreign currency shall be purchased or sold for the account
of the Federal Reserve Bank except in accordance with directions
of the Committee.
(3) Only bills, notes, revenue bonds, and warrants of
States, counties, districts, political subdivisions, or munici
palities which are of the kinds made eligible for purchase under
the provisions of Regulation E of the Board of Governors of the
Federal Reserve System may be purchased.
(4) No Federal Reserve Bank shall engage in the purchase
or sale of cable transfers for its own account except in accord
ance with the directions of the Committee.
Chairman Martin stated that the Committee's Economist, Mr. Thomas,
was planning to retire from active service with the Board of Governors in
-44the relatively near future and to accept an assignment outside the
Federal Reserve System.
Therefore, Mr. Thomas had asked to be relieved
of his duties as Economist of the Open Market Committee, effective at
the conclusion of this meeting.
Mr.
Shepardson stated that in the light of the foregoing develop
ment the Board of Governors had given consideration to the situation
from the standpoint of responsibilities of members of its staff.
recommended that Mr. Noyes,
He then
currently Associate Economist, be appointed
Economist of the Federal Open Market Committee to succeed Mr. Thomas and
that Messrs. Daniel H. Brill, Robert C. Holland, and Albert R. Koch be
appointed Associate Economists.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, the request
of Mr. Thomas to be relieved as Economist
was approved, Mr. Noyes was appointed
Economist to succeed Mr. Thomas, and
Messrs. Brill, Holland, and Koch were
appointed Associate Economists, it being
understood that all of these actions would
be effective at the adjournment of this
meeting and that Messrs.
Noyes,
Brill,
Holland, and Koch would serve in their
designated capacities until the election
of their successors at the first meeting
of the Committee after February 28, 1963,
unless in the meantime any one of them
discontinued his official connection with
the Board of Governors, in which event he
would cease to have any official connection
with the Federal Open Market Committee.
At this point Mr. Coombs was called into the meeting for discussion
of System operations in foreign currencies and related matters.
4/17/62
-45
Prior to this meeting there had been distributed to the Committee
a report on System Open Market Account and Treasury operations in foreign
currencies and on exchange market conditions for the period March 27-April 11,
1962, along with a supplemental report for the period April 12-April 16,
1962.
Copies of these reports have been placed in the files of the Federal
Open Market Committee.
There had also been distributed to the Committee, under date of
April 11, 1962, a copy of the Special Manager's reply dated April 10 to
an inquiry from Mr. Ellis, who had requested further information regarding
recent operations of the Treasury's Stabilization Fund in German marks.
There had likewise been distributed to the Committee,
of April 11,
1962, a memorandum prepared by Mr.
Cashier of the Bank of England,
sations with Messrs.
Young and
Roy Bridge,
under date
Deputy Chief
summarizing his understanding of conver
Coombs regarding technical aspects of a
possible swap arrangement between the Federal Reserve and the Bank of
England.
At the beginning of the discussion, Mr. Mills expressed himself
to the effect that, in light of developments with respect to the System's
program of foreign currency operations and his review of the minutes
pertaining to the discussions of such operations and related matters, he
had almost reached a point where he would be more inclined to delegate
greater authority for those operations to a subcommittee of the Open
Market Committee, in line with one of the alternatives that had been
discussed when the program was under consideration.
He had become
4/17/62
-46
increasingly apprehensive, from the standpoint of both the Federal Reserve
and foreign central banks that had or might become parties to transactions
with the Federal Reserve, about the involvement in this sensitive area of
as many people as were involved through the consideration of these matters
by the full Open Market Committee and the recording of the Committee's
deliberations.
The response made by Chairman Martin was to the effect that he
would suggest that the Committee feel its way along for the present on
an experimental basis, having in mind considerations such as Mr. Mills
had mentioned.
The Chairman then turned to Mr. Coombs, who commented in supple
mentation of the reports and other material that had been distributed to
the Committee since the March 27 Committee meeting.
Mr. Coombs noted,
among other things, that there had been no System foreign currency
operations during the period since the preceding meeting.
With regard
to his correspondence with Mr. Ellis on the Stabilization Fund operations
in German marks, he indicated that any further comments or questions by
members of the Committee would be welcomed.
He added that the Committee
might want to consider further whether, in the event of short-run
developments in the future comparable to those that had occasioned the
Stabilization Fund operations in German marks,
it would be thought
appropriate to employ the System's holdings of marks in a similar fashion
with a view to moderating temporary market pressures.
With regard to the Bridge memorandum, which was to be used by
Mr. Bridge in briefing Bank of England and British Treasury officials
4/17/62
-47
regarding a possible Federal Reserve-Bank of England swap arrangement,
Mr. Coombs indicated that he would appreciate having the view of the
Committee as to whether,
arrangement,
in further negotiations relating to such an
Federal Reserve representatives should hold firm to the
principle of swaps at flat rates, with sterling held by the Federal
Reserve placed on a parity earnings-wise with dollars accruing to the
Bank of England.
This would be in contrast to effecting swaps on the
basis of forward rates, with prevailing market rates of interest applied
to any sterling held by the Federal Reserve and dollars held by the Bank
of England.
After some discussion of this point, it was the unanimous view
that in any further negotiations Federal Reserve representatives should
continue to stand on the position they had taken.
Mr. Coombs also commented on developments with respect to the
possibility of a short-term swap arrangement involving the Federal Reserve
and the Swiss National Bank, an integral part of which might be, for
reasons that he indicated, a Swiss-U.S. Treasury arrangement of a
medium-term nature.
After responding to certain questions, he indicated
that he was not in need of instruction from the Committee at this
particular point.
He would propose to listen to any Swiss proposal,
consult with the U.S. Treasury, and report back to the Committee.
Mr. Coombs said that there had been some overtures from Belgian
authorities regarding the possibility of a swap or borrowing arrangement,
but that at this moment an arrangement with the U. S. Treasury seemed a
-48
4/17/62
somewhat more likely possibility than an arrangement involving the Federal
Reserve.
Mr. Coombs also commented that this week's Treasury statement
would show a reduction in U. S. gold stock of $75 million, and that
prospective orders indicated a further reduction of at least $35 million
by the end of the current month.
Since there had been no System foreign currency transactions
since the Committee meeting on March 27, 1962, no need existed for the
Committee to take action at this meeting to approve, ratify, and confirm
any such transactions.
The meeting then recessed.
4/17/62
-49The meeting of the Federal Open Market Committee held on
April 17, 1962, reconvened at 1:30 p.m. with the following attendance:
PRESENT:
Mr. Martin, Chairman
Mr. Hayes, Vice Chairman
Mr. Balderston
Mr. Bryan
Mr. Deming
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ellis
Fulton
King
Mills
Mitchell
Robertson
Shepardson
Messrs. Bopp, Scanlon, Clay, and Irons, Alternate
Members of the Federal Open Market Committee
Mr. Swan, President of the Federal Reserve Bank
of San Francisco
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hexter, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Brandt, Furth, Garvy, Hostetler,
Noyes, and Willis, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Coombs, Special Manager for foreign cur
rency operations, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Cardon, Legislative Counsel, Board of Governors
Messrs. Holland, Koch, and Williams, Advisers,
Division of Research and Statistics, Board
of Governors
Mr. Knipe, Consultant to the Chairman, Board of
Governors
Mr. Yager, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Messrs. Heflin and Francis, First Vice Presidents
of the Federal Reserve Banks of Richmond and
St. Louis, respectively
4/17/62
-50
Messrs. Eastburn, Ratchford, Baughman, Jones,
Strothman, Tow, Coldwell, and Einzig,
Vice Presidents of the Federal Reserve
Banks of Philadelphia, Richmond, Chicago,
St. Louis, Minneapolis, Kansas City, Dallas,
Mr.
and San Francisco, respectively
Sternlight, Manager, Securities Department,
Federal Reserve Bank of New York
Upon motion duly made and seconded,
the minutes of the meeting of the Federal
Open Market Committee held on March 6, 1962,
were approved.
Before this meeting there had been distributed to the members
of the Committee a report on open market operations in U. S. Government
securities covering the period March 27 through April 11, 1962, and a
supplementary report covering the period April 12 through April 16, 1962.
Copies of both reports have been placed in the files of the Committee.
In supplementation of the written reports, Mr. Rouse commented
as follows:
The money market has been generally comfortable during the
period since the last meeting of the Committee. Federal funds
traded for the most part at 2-3/4 or 3 per cent and dealers'
financing needs, which have been swollen by recent additions
to their inventories, have been met without undue difficulty.
(Incidentally, those inventories have reached quite high levels
recently, nearly up to last November's peak.) Yesterday, for
example, when dealers had to pay for their acquisitions of new
one-year bills, a financing need of more than $800 million was
readily accommodated, with the rate on Federal funds lower at
the close of the day than at the opening.
At the same time there has been a sizable expansion of the
reserve base in the recent period. According to the latest
estimates, total reserves in the first three weeks of April
have been averaging about $160 million above the 4 per cent
growth line calculated by the Board staff; during February and
March total reserves averaged about $40 million below that
guideline level.
4/17/62
-51The recent Treasury financing operation was successful.
The new 3-3/4 per cent bonds of 1968 moved to a premium of
nearly 3/8 of a point in when-issued trading, but with the
announcement of the steel price increase the issue fell back
to par as the entire market weakened. By yesterday it had
regained some of the earlier premium, and closed at par and
3/32. At this point it is still not possible to assess the
impact on the Government securities market of the decision
not to raise steel prices. At least initially, it appears
that the main effect is being exerted not so much by the
rescinding of the price rise but by the manner in which that
reversal came about -- which seemed to put a chill into the
equity market and thereby strengthened the bond markets.
Notwithstanding the good performance of the new Treasury
issue -- particularly in the adverse atmosphere that developed
just after the steel price increases were announced -- there
is
still
a question of whether this offering has provided a
significant test of the underlying strength of the market.
There had in fact been a widespread expectation that the
Treasury was going to take advantage of the recent favorable
atmosphere by selling a new offering of bonds, and the
expectation was that the amount would be larger than $1
billion and that the term might well be longer than the 6-1/3
year maturity that was chosen. By giving the market a smaller
and shorter offering than had been expected, there was naturally
a warm reception and accordingly not a very exacting test.
It thus remains to be seen how strong the market will be
when the Treasury presents its refinancing program toward the
end of this month. In the meantime there will be some further
opportunity to test the market -- first in reacting to the
somewhat better turn of recent business news and second in
responding to the rather large volume of corporate and tax-exempt
issues to be offered in the next few days. As you know, the
Treasury's May 15 maturities total $7.7 billion, of which $5.7
billion are publicly held, while the June maturity -- which
will probably be included in the forthcoming operation amounts to $4 billion, with $3.5 billion publicly held. The
System Account holds $1.8 million of the May 15 maturities and
$360 million of the June bonds. The Treasury will meet with
its advisory committees during the first part of next week and
expects to announce terms on Thursday, April 26.
Thereupon, upon motion duly made and
seconded, the open market transactions in
Government securities during the period
March 27 through April 16, 1962, were ap
proved, ratified, and confirmed.
4/17/62
-52Mr.
Noyes presented the following statement with respect to
economic developments:
The economic facts just beyond our reach, rather than
those we have at hand,
often seem to be most relevant to a
systematic appraisal of the current economic situation.
Today, when our immediate problem is one of characterizing
the degree of vigor of the current expansion, this seems
especially true. For example, an accurate evaluation of the
strength of markets for residential housing is especially
critical at this stage--and the starts figure for March is
expected at any moment, but is not yet available.
From the
data that is at hand on residential construction, the situation
certainly does not appear strong, but there is room for a
wide range of judgments as to just how weak it is. March
starts will throw some light on what is happening--but I
suspect it will be several months before we see a clear pattern
emerging.
By and large, the further improvement that is reflected
in the March data is reassuring. The one-point gain in
industrial production was broadly based and the recovery in
business equipment was especially gratifying. The increase
in personal income is also impressive.
In the retail area, sales of autos and Easter finery
appear to have been strong, both in March and in the first ten
days of April, despite rainy weather over much of the eastern
half of the country last week. On the other hand, if we
exclude autos, remaining retail sales showed very little
change from February to March, thus leaving some doubt as
to whether we have experienced a fundamental shift in consumer
buying enthusiasm or only another erratic jiggle.
Much the same sort of impression emerges from the data
on employment and unemployment. The small further decline
in unemployment from 5.6 per cent to 5.5 per cent is certainly
welcome--as is the 50,000 increase in nonfarm employment--but
these changes are hardly sufficient to provide a basis for a
substantially more optimistic appraisal of the outlook.
In the wake of one of the most widely noticed price
changes in history and its equally notorious recision, it
seems inadequate to say simply that prices have remained
generally stable in recent weeks, but this is, in fact, the
case. There are no signs of dominant upward price movements,
or of inflationary expectations in markets. Further evidence
of this general attitude is found in the fact that the stock
market has tended to drift downward, and markets for fixed
income securities have been generally strong.
4/17/62
-53-
Taken altogether, the economic picture is not ebullient,
but neither are there signs of weakening--if anything, it
looks a little stronger than it did three weeks ago.
The
major uncertainties are housing, which I mentioned at the
outset; capital expenditures, and consumer spendingespecially for durables other than autos.
With substantial additions to the civilian labor force
in prospect, more and more jobs will be needed to push
unemployment below the present 5-1/2 per cent rate. The
prospect that these jobs will materialize seems to rest
heavily on a revival of both residential and nonresidential
construction, and the collateral demands that would accompany
expansion in these areas. No one can say with certainty
whether this expansion will come--it depends on many factors,
some of a highly subjective nature. It does seem, however,
that the continuation of relatively easy conditions in
credit markets--especially the longer term market--would be
helpful to such expansion.
Turning again to housing for an example, there can be
little
doubt but that renewed lender enthusiasm for GI
mortgages had played an important part in the recent revival
of applications for GI guarantees; and further, that the
availability of homes under this relatively generous program
will attract some buyers who would not otherwise enter the
market. There also can be little doubt that favorable markets
for their securities are encouraging State and local governments
to move ahead with current programs and to push forward their
plans for other needed facilities.
The extent of the economy's response to changes in credit
cost and availability can never be precisely quantified, but
this does appear to be one of the times when the level of
water in the trough is likely to have some effect on the
amount the horses choose to drink.
Mr. Furth presented the following statement with respect to the
U. S. balance of payments and related matters:
Our international deficit rose in March to $360 million,
including net gold sales of $150 million. The figure was
higher than the combined deficits for January and February,
even after making allowance for the effect of the year-end
window dressing operations.
Fragmentary data for the first
if any improvement.
two weeks of April indicate little
We do not yet know the reasons for the size of the March
deficit.
In February, our trade surplus had been very large,
4/17/62
_54
with exports at a record annual rate of nearly $22 billion
(seasonally adjusted) and imports remaining at an annual rate
of $15-3/4 billion. We may suspect that the trade surplus
was not so large in March--a suspicion based on the consider
ation that some of the February increases in exports, such as
commercial aircraft, military goods, and agricultural products,
probably were of a temporary nature. Indicators of machinery
exports, however, remain encouraging.
Our capital outflow was lower than during the fourth
quarter of 1961, but it remained high even though the covered
interest-rate differential between New York and London showed
a sizable advantage in favor of New York. Japan again was
the largest single borrower, drawing mainly on commitments
made last year. The attractiveness of the New York market
for foreign borrowers, both as to trade credits and bond issues,
probably rests as much on its technical facilities, its freedom
from restrictions, and its depth, breadth, and resilience as
on the level of its interest rates. This makes it difficult
to eliminate an outflow of capital without destroying those
features that make the United States the financial center and
leader of the free world.
The international situation continues to present about the
same picture as for the last three months or so: continuing
boom in Continental Europe, little if any advance in other
industrial countries, and inflationary trouble in many less
developed areas. The German balance-of-payments surplus is
smaller than a year ago but many other European countries con
tinue to gain reserves.
German officials showed increased preoccupation with domestic
price and wage increases and the possibility of an international
deficit. Although Germany still
has a trade surplus of $1 billion
annual rate, even as cool-headed and internationally-minded men as
Minister Erhardt and President Blessing have been talking as if
Germany were about to become uncompetitive internationally. This
sort of talk could have serious consequences for our payments
situation: if Germany were to resume restrictive monetary policies,
we should again face the prospect of large movements of funds into
Germany,
including movements from the United States.
Moreover,
by pressing upon the dollar-mark exchange rate, such capital move
ments might well increase international market uncertainties
about the dollar.
On international gold and exchange markets, earlier improve
Only the gold
ments in dollar exchange rates have not continued.
market has been satisfactory, with the price slightly lower than
three weeks ago; even there, demand seems to have increased
these last few days.
-55Sterling remains very strong, in spite of the successive re
ductions in Bank Rate, and the United Kingdom continues to accumu
late dollars and to convert them into gold. Only a sale of gold
to the United States by a hard-pressed Latin American country
prevented our gold stock from declining further last week.
The German mark and the Swiss franc have quite recently moved
up, possibly in connection with the steel price flurry. The
Netherlands guilder was even stronger, perhaps in expectation of
a flow of dollars to the Netherlands resulting from the forth
coming increase in the capital of the Philips Lamp Corporation.
With the French franc and the Italian lira continuing
at the ceiling, all major European currencies are again
distinctly above par against the dollar, and we have been
disappointed in hopes that we could pick up a few currencies
at or below par to add to our small foreign exchange hold
ings for use on a rainy day.
Mr. Thomas presented the following statement with respect to
credit developments:
Banking and credit developments during the past three
or four weeks have shown some contrasts to those in the period
preceding the last meeting of the Committee. Reserve avail
ability and total bank credit have both increased more than
seasonally, whereas previously the reserve supply had been
more restricted. While time deposits at banks have continued
to increase, demand deposits have also increased, following
several weeks of little change or decline. Required reserves
have increased, after seasonal adjustment, and this demand
has kept the short-term money market under some pressure.
Yields on three-month Treasury bills continued to fluc
tuate within a narrow range, while yields on longer-term issues
Yields
declined further to the lowest levels since last summer.
on new issues of corporate bonds have recently been lower than
those on seasoned issues.
Yields on tax-exempt securities,
largely under the pressure of demands from banks, have remained
at the low levels reached earlier. Even mortgage rates have
tended to decline slightly, and FNMA has become a net seller
of insured mortgages.
It seems evident that some fundamental forces are working
toward reducing the general level of interest rates. The
decline in long-term and medium-term rates in recent weeks
has occurred notwithstanding some increase, though moderate,
in
economic activity and in borrowing.
New capital issues by corporations and by States and
local governments have been in relatively larger volume and
4/17/62
-56-
the calendar for April is large. The Treasury has reduced
its debt less than is usual for the first quarter of the year.
Bank loans did not show the usual seasonal decrease in the
first quarter of this year, notwithstanding a sizable increase
in December, and bank holdings of securities other than
Governments have increased more this year than in the same
period of any other year.
Steadiness in short-term Treasury bill rates, while other
rates declined, may be attributed in large part to the weekly
increases in the offerings of three-month bills, which have by
now aggregated over $1 billion. Federal Reserve policy of
combatting any tendencies for short-term bill rates to decline
has also been a factor. Recent increases in required reserves
have put some pressure on the market. Federal funds have
generally continued in the 2-3/4 to 3 per cent range, and
banks' lending rates to dealers have been at 3 to 3-1/4 per
cent, as dealers' holdings of bills have increased to
near-record levels.
With respect to the immediate situation, in the first
two weeks of April, according to partial data, total credit
expansion at city banks was negligible, following a substantial
increase in March. Business loans declined less than usual,
following a normal increase in March, while loans to finance
companies, which increased considerably in March, declined
more than usual in the first two weeks of April. Real estate
and consumer loans continued to increase, while loans on
securities declined. Holdings of securities other than
Governments showed a further sharp rise, while holdings of
Governments continued to decline.
Increases in time deposits seem to have slackened somewhat
in April, reflecting actual decreases at New York City banks.
U.S. Government deposits, which had increased in March,
declined sharply in the first two weeks of April. Private
demand deposits, however, increased in the last part of March
and have held the increase. This would indicate a seasonally
adjusted increase in the money supply after several weeks of
little change.
Bank reserves have been somewhat more plentifully
available relative to demands during the past three weeks than
they were during most of March.
At the same time seasonally
adjusted required reserves have increased substantially and
are now at a higher level than at any time, except temporarily
in the week ending January 4. At the same time total reserves
have increased even more and free reserves have been around
$450 million or more, compared with a March average of $375
million.
-57-
4/17/62
The Federal Reserve has supplied reserves through fairly
large open market operations, more than offsetting drains
from currency demands and foreign operations. Because of
increased reserve needs, these purchases by the System have
been possible without bringing about a decline in short-term
interest rates. This week System holdings are being reduced
largely through retirement of repurchase contracts. Moderate
purchases will be needed in subsequent weeks to cover expansion
in required reserves and varying drains on the supply of
reserves.
Continuation of interest rates, other than the shortest
money-market rates, at relatively low levels, notwithstanding
maintenance of a fairly steady level of short-term rates, has
a bearing upon the determination of current monetary policy.
Perhaps the most plausible explanation is an increase in
financial saving relative to borrowing demands. The unprece
dentedly large increase in commercial bank time deposits since
the first of the year has been accompanied by little reduction
in the rate of accumulation of other financial assets. Demand
deposits, to be sure, have declined somewhat more than usual,
and on a seasonally adjusted basis may be little larger than
they were in the first half of December. But this lack of
growth is hardly sufficient to account for the expansion in
time deposits.
The apparent increase in saving is consistent with the
slow rate of economic advance in the past few months. The
underlying causes of increased saving and a slower rate of
growth in spending for consumption and investment are matters
of judgment. In any event the situation is not one that
justifies
administrative increases in
prices of steel, nor
is it one that tends to stimulate over-investment or speculative
excesses.
Hence, any tightening of restraints on bank credit
expansion can still await definite indications that credit
and monetary expansion is becoming excessive.
Mr. Hayes presented the following statement of his views on the
business outlook and credit policy:
It would hardly be possible to comment on the business
situation without some mention of last week's dramatic steel
price episode, I am sure all of us felt that the price rise
announcement introduced important new uncertainties into an
already uncertain outlook. Certainly the decision to rescind
the price increase was a most welcome event, even though the
controversy pointed up various weaknesses in American industry not confined to the steel industry -- that still
cry for
4/17/62
-58-
solution. I am thinking of the need for greater investment
in the most modern equipment, for which the answer may lie
mainly in more enlightened tax policies.
But this is probably
not an area where monetary policy can make a very major
contribution. At the same time, we can breathe a sigh of
relief at the removal of what might well have been a strong
stimulus to a revival of inflationary tendencies in the
country's economy. At least this unfortunate episode had the
merit of focusing the attention of the entire country on price
stability as a vital national goal and demonstrating that this
goal enjoys widespread public support.
As we look at the business situation, apart from this
temporary disturbing element, we can find more definite signs
of improvement than were available at the last meeting.
Consumer buying, in particular, has strengthened markedly,
with both automobile and department store sales picking up
briskly in March and in the first
part of April. Industrial
production and construction contracts and permits also registered
further gains. However, even if economic activity accelerates
in the coming months, the unemployment situation will probably
remain a serious problem, especially since the recent decline
in the labor force will probably give way to a resumption of
growth in the labor force. Hard core unemployment has not
changed significantly in recent months, and actually rose
somewhat in March.
Turning to the statistics on credit, I am struck by the
large gain in total commercial bank credit both in March and
over the whole period since the February 1961 business trough.
The 8.2 per cent rise in that period was well above the
increases registered in the comparable phase of the 1954-55
and 1958-59 expansions, and the gap has been growing wider
each month. It is true that this disparity has been due
entirely to the behavior of investments and not to loan demand,
which has been at best moderate in the last month or so,
especially in the business loan category. Much of the recent
sharp rise in bank investments has consisted of other than
Government securities. The relatively modest rise of 2.4 per
cent in the money supply since the February trough should be
viewed in the light of the 16 per cent rise in time deposits
in the same period. The 7.3 per cent increase in total liquid
asset holdings of the public since the February trough is
somewhat greater than in the comparable period of each of the
two earlier expansions. Bank liquidity, as measured by the
ratio of liquid assets to deposits, remains ample both in New
York and outside of that city.
Meanwhile, the balance-of-payments situation remains
serious and shows further signs of deterioration. I realize
-59that coments along these lines have been a regular feature
of the New York Bank's presentation for many meetings past,
and there may be some members of the Committee who feel that
we are unduly alarmist. But the fact that the country has
so far avoided a major international payments crisis should
give no feeling of assurance that our warnings have been
inappropriate and our fears exaggerated -- for this country's
ability to withstand heavy deficits and accompanying gold
drains is not unlimited, and we have yet to see any convincing
evidence of a real turn in the tide. There is little comfort
in the first quarter deficit, which was at the annual rate of
about $2-1/4 billion, i.e., considerably more than that of the
first quarter of 1961. And I think it should raise a question
in the minds of the monetary authorities, particularly in view
of the fact that this deficit occurred in spite of a sizable
improvement in the merchandise trade balance in February.
Bank loans to foreigners and foreign capital issues in the
United States market are becoming an increasing element in
the payments drain. A Japanese loan and an International
Bank bond issue loomed large in the first quarter -- and
special transactions of similar and even greater manitude,
especially in the area of long-term official borrowings in
this market, are already planned for the second quarter.
of our officers had an opportunity recently to talk with
One
several officers of the foreign departments of New York banks
as to what lies behind the hectic pace of short-term capital
outflows in this country. My associate was impressed by the
virtual unanimity among these bankers on one point -- the
dominant role of the banks' relatively easy reserve position
in causing them to reach out for foreign loans.
Incidentally,
I have been interested to see that the recent statistics on
total reserves have indicated that they are well ahead of
the informal guideline of a 4 per cent annual growth rate
since November which has been discussed from time to time in
these meetings.
In our policy deliberations, we must naturally give
consideration to the Treasury's impending financing program,
which suggests the need for preserving an "even keel" during
a period commencing about a week from now and extending into
the latter part of May. While I feel that neither the length
of time available to us for near-term actionnor the present
state of the domestic economy would warrant any dramatic change
in policy at this meeting, I do believe that the ample liquidity
clearly visible in the economy, coupled with the recent signs
of a somewhat improved rate of business expansion, would warrant
our placing a little more emphasis on the very troublesome and
4/17/62
-60.
perplexing international aspects of our problem. With this in
view, I think we should seek a somewhat higher market rate
structure, with the 90-day Treasury bill
rate in the 2-3/4 to
3 per cent range -- preferably nearer the upper end of this
range. It would seem to me quite appropriate to permit free
reserves to average somewhat lower than they have in recent
months in order to achieve a moderately firmer rate structure
and a little
less feeling of ease on the part of the banks.
If the Committee should agree on such a policy, I would think
that the wording of the directive might be modified accordingly.
I should think it
would be desirable for the directive to take
cognizance of the steel price episode and the growing need to
encourage firmness in short-term interest rates. There would
seem to be no need at this time to consider a change in the
discount rate.
Mr. Bryan said that available figures for the Sixth District
were climbing upward quite uniformly but, like the national figures, did
not seem to indicate any boom.
As to monetary policy, Mr. Bryan said
be saw no reason for any essential change.
Total reserves were approximately
on the projected guideline at present and, beyond adjusting for seasonal
influences and allowing for some growth factor, he would make no change
at this time.
Neither would he recommend any change in the discount
rate.
Mr. Bopp reported that the economy of the Third District was
following the same general trend as the national economy.
In February
most of the indicators reflected either sluggish advances or actual
declines.
The limited information for March suggested that conditions
had improved.
Yet unemployment was still relatively high--9 of the
13 areas reporting in February had unemployment rates greater than the
nation's--and there was no evidence of vigorous growth in the Third
District economy.
4/17/62
-61
Similarly, the banking scene had been relatively placid.
had been in a comfortable reserve position.
still
Banks
Their time deposits were
going up rapidly and their demand deposits had stopped falling.
The most noteworthy development was a fairly sharp increase in business
loans which, so far, seemed to be faster than seasonal and faster than
the increase nationally.
Until recently, loans had been lagging behind
the United States.
The implications of this for policy seemed to him to be clear
cut, Mr. Bopp said.
The pace of economic expansion was not rapid
enough to risk any lessening of ease.
He would make no change in the
discount rate, and the current policy directive issued three weeks ago
was, in his opinion, still quite appropriate.
Mr. Fulton reported that the complexion of business activity in
the Fourth District had changed somewhat for the better in recent weeks
despite curtailment of steel production.
in consumer-related fields and employment.
Most of the brighter news was
Construction was up, with
the emphasis on residential building, not single dwellings but apartment
buildings with many small suites.
Mr. Fulton then commented on the steel situation, noting that
the recent price episode was distressing in the Fourth District and
that the implications for the future were not yet clear.
Some cooling-off
period might be necessary before an unbiased appraisal could be made.
Order cancellations and delivery deferments were said to be quite heavy,
with some companies reporting more cancellations than new orders.
-62
4/17/62
Inventories that had been built
up beyond current needs probably would
be liquidated before substantial new orders were placed.
Steel output
for the first quarter of this year was around 31 million tons, with the
second and third quarters estimated at 25 and 23 million tons,
respectively,
tons.
and the fourth quarter placed hopefully at 27 million
This would make a total of 106 million tons for the year, compared
with 98 in 1961.
Despite recent developments, the steel companies
apparently intended to go forward with their plans for plant and
equipment improvement.
One company that accounted for 2 per cent of
total steel tonnage was planning to spend around $140 million for
expansion, of which $100 million would be borrowed money.
This program
would increase capacity, enable greater flexibility of product mix, and
increase tonnage considerably.
At the same time, manpower requirements
would decline, thus illustrating the difficulty of the employment
problem.
Insured unemployment in the District showed a marked decline after
mid-March, but 8 of the 14 major labor market areas were still classified
as having 6 per cent or more unemployment.
Plant and equipment expendi
tures nationally were expected to be up about 8 per cent from 1961, but
one company in the District had indicated that its expenditures would be
divided about 60 per cent abroad and 40 per cent in the United States.
Department store trade in the District had improved recently, but
for the year to date was only about 1 per cent ahead of a year ago, com
pared with a national average gain of 3 per cent.
Bank loans had increased,
-63
4/17/62
but then declined again in
the latest week.
All in all, the District was
progressing, but not rapidly.
As to policy, Mr. Fulton concluded that the present posture con
tinued to be appropriate.
The degree of availability of reserves to the
banking system seemed suitable to the economic situation, and he would
contemplate free reserves of around $400 million.
a change in
He would not recommend
the discount rate, and in his opinion the existing current
policy directive was still appropriate.
Mr. Mitchell noted that this was a period when it was difficult
to judge the strength of consumer demand.
Data on housing starts for March
were not yet available, and in view of the date of Easter this year it
would probably be necessary to total the months of March and April to
understand what consumers were doing.
Although automobile sales were en
couraging,consumer behavior was still somewhat on the uncertain side, and
the reaction of the business community to consumer behavior was something
that could not be appraised at this time.
As to the international situation, Mr. Mitchell expressed the
view that there may have been a tendency at Committee meetings to "cry
wolf" too often.
The Open Market Committee has been fully alerted to the
potential seriousness of the problem.
In recent and current actions, the
Treasury and the Ccmmittee are bringing into being structural monetary
defenses against any sudden deterioration in the position of the dollar.
These steps should strengthen confidence as well as provide a backstop
for any adverse developments.
At the moment it seemed to him that the
-64
4/17/62
Committee's primary allegiance should be to the internal situation and
that whatever influence the Committee could exert should be directed to
ward encouraging expansion of domestic activity.
It was his conclusion
that the existing policy directive should be renewed and that the degree
of ease should continue to be about the same as at present.
Mr. King said that he would agree generally with Mr. Mitchell.
The covered interest rate differential was favorable to New York as against
London, but this did not appear to be having any marked effect, and he did
not feel that the situation argued strongly in favor of a larger differen
tial.
In summary, he felt it appropriate to continue monetary policy ap
proximately as at present.
While he was not entirely comfortable in this
position, he did not know of anything better to suggest.
Mr. Shepardson said that in his view the international situation
continued to be of serious concern.
It seemed to him that the prospective
figures on the Federal budget did not lend much encouragement from that
standpoint.
However, he did not believe that a change in monetary
policy would be constructive at this time.
As to total reserves, he
would prefer to stay within the 4 per cent growth line rather than to
run much above it.
Otherwise, the Committee might well continue for
the next three weeks on the present basis.
Mr. Robertson presented the following statement of his views:
It is gratifying to observe some moderate upward movement
in the latest readings of a number of business indicators.
Only further experience can show to what extent such movements
are more than an unseasonally good sequel to the depressing
-65
4/17/62
effects of an unseasonally bad winter.
In the meantime,
however, monetary policy has the chance to create a climate
of credit availability conducive to further business
expansion,
and I think it
should do so.
Any prospects for
near-term price inflation have certainly been dampened by
the steel price roll-back. Productive resources continue
underutilized, and the improvement in our balance-of-payments
position since last fall has lessened the constraints upon
policy from this quarter.
With free reserves moving back up to what I would regard
as more desirable levels, we have begun once more to achieve
some increase in money supply along with the continuing rise
in time deposits. We should not overestimate the stimulative
effect of the recent moderately higher free reserve figures;
the substantial advance shown in required reserves behind
private deposits in the latest two weeks was abetted by a
large but temporary shift of deposits from government to
Nonetheless, an underlying movement of
private hands.
monetary and credit expansion was apparent and took place
without untoward reaction upon money market interest rates.
All this evidence seems to me to argue for a continuation
of the somewhat easier monetary policy of the last three
weeks - with a free reserve target in the neighborhood of
$450 million.
A time like this also offers an opportunity to move
away from the fixation with short-term interest rates that
remains in the directive. The longer we preserve the
appearance of a stabilizing operation - if not an outright
peg - in the three-month bill
rate, the more difficulties
are likely to arise in eventually trying to move away from
Accordingly, I would suggest that we eliminate the last
it.
provision of the current directive relating to short-term
rates, and thus arrive at a directive to the Manager over
the next three weeks that speaks unequivocally of the reserve
availability he is
to foster.
With respect to the last clause in the first
paragraph of the
directive, which called for giving recognition to the need to maintain
a viable international payments system, Mr. Robertson said he was
unable to see how this clause was pertinent to the conduct of open
market operations.
The directive should call for recognizing the
-66-
4/17/62
country's adverse balance of payments, but in his opinion the balance
of the sentence was out of place.
Mr. Mills said nothing had occurred since the previous Committee
meeting to alleviate his concern about the plight that had developed
from what he considered to have been faulty policies,
relating
particularly to the stabilizing, or pegging, of the three-month Treasury
bill rate.
In exposition of his views, Mr. Mills presented the
following statement:
The monetary and credit policy sponsored by a majority
of the members of the Federal Open Market Committee over
many months past can best be described by the word "drift."
Allegiance to the concept of a free market has been implicitly
disavowed and a controlled money market has been substituted
that has an artifically produced interest rate structure as
its purpose. Financial markets are "drifting" without the
benefit of the kind of direction that should be forthcoming
from a current in interest rates developed out of natural mar
ket forces that serve to allocate available funds to their most
constructive economic uses.
The Committee will not be burdened with a repetition of
my previous adjurations of the need for policy changes. Suf
fice it to say that the difficulties of making corrective
policy adjustments will be compounded in proportion to the
length of time that the need for change is left unattended to.
As a case in point, the compacting of the interest rate curve,
as reflection of Federal Reserve System policy actions, has
undoubtedly been a cause of the unusually heavy dealer positions
in U. S. Treasury bills. Repeated public statements from
authoritative sources proclaiming an easy credit policy, and
accompanied by clearly observable policy intentions to peg the
floor for U. S. Treasury bill yields, has understandably encouraged
dealers to position U.
S. Treasury bills
in
very substantial
volume with the riskless speculation that the passage of
time will lower the yields of their longer-term holdings
as they approach maturity and permit their sale at a capital
gain. Similarly, repeated instances in which the System Open
Market Account has acquired longer-term U. S. Government
securities out of dealer holdings when it has been desired to
supply reserves without putting downward pressure on U. S.
Treasury bill rates has offered the dealers a certain and
profitable outlet for such securities. This is not a desirable
or becoming situation for the Committee to have been drawn
into.
Moreover, if
a still easier credit policy should
be ill-advisedly undertaken, the U. S. Government securities
dealers would automatically be tendered handsome windfall profits.
The inconsistencies and pitfalls of Federal Reserve System
policy actions can be traced in still
other directions. Com
mercial bank investments in longer-term fixed interest obliga
tions and in real estate mortgage loans in order to earn back
the cost of higher rates of interest paid on time and savings
deposits, and an extension of the maturities in their U. S.
Government securities investments for similar reasons, with
the encouragement of public officials, are reducing their
liquidity at a time when high loan-to-deposit ratios give
eloquent evidence of the undesirability of such actions. A
future change in Federal Reserve System monetary and credit
policy from ease to restraint under these circumstances can
go beyond any beneficial effects obtainable by locking the
commercial banks into their investments because of heavy
depreciation, and to the point of choking off an appropriate
degree of credit availability. This kind of development
would be aggravated still further if at such a juncture a
massive shift from time to demand deposits should occur, sub
jecting the commercial banks to the discipline of much higher
required reserves.
More moderate Federal Reserve System policy actions
aligned to the principles of a free market would have avoided
the existing and potential problems that have been detailed.
A crying need for policy changes continues. The approaching
and recurrent financing needs of the U. S. Treasury make their
adoption well-nigh impossible at the present time and also hinder
the kinds of actions called for by our balance-of-payments
problems. I believe, therefore, that there is now no choice
but to continue present policies for a further period, knowing
the dangers involved and, in the meanwhile, seeking every oppor
tunity for making realistic policy changes.
Mr. Clay commented that the real question concerning the domestic
economy continued to be the pace of its upward movement.
While it seemed
likely that expansion would continue in the months ahead, it was difficult
to construct a convincing case for a vigorous upswing despite the
improvement of recent weeks.
Analysis of prospective developments
-68
4/17/62
in the various sectors of demand did not point to the aggregate expan
sion in economic activity that would be necessary for a satisfactory
utilization of manpower and other resources.
This situation existed at
a time when several important measures of economic activity had shown
only modest improvement for many months.
The Committee had followed an expansionary monetary policy through
out the period of the current business upswing, and economic conditions
appeared to call for continuation of such a policy.
In view of the
moderate rate at which economic activity had been expanding for several
months, however, the Committee might well give particular attention to
encouraging some further downward movement in long-term interest rates.
The formulation of appropriate monetary policy for domestic con
siderations had been handicapped throughout the current business upswing
by the international balance-of-payments problem.
Policy with respect
to the Treasury bill rate for international considerations prevented
that rate from falling very low even during the recession and had been
a major factor in its level ever since.
Indirectly, that policy not
only had affected other short-term market rates but also had been an
important factor in the relatively high level of long-term interest
rates despite moderate Federal Reserve open market purchases of longer
maturities of Treasury issues.
Under present conditions in the domestic economy, Mr. Clay said,
it would appear desirable for long-term interest rates in the various
4/17/62
-69
sectors of the financial markets to decline to somewhat lower levels
for the added stimulus that they might give to important sectors of
economic activity.
Money and capital markets already had responded to
business and financial news by adjusting interest rates downward in
recent weeks, except for the 90-day Treasury bill rate that had been
influenced by Federal Reserve and Treasury operations.
Underlying
forces in financial markets might favor an extension of this tendency
without any added encouragement other than continuation of the current
degree of ease.
It was not possible at this time to gauge the strength
of the forces that were moving long-term interest rates to lower levels.
In his opinion, the Committee should view this development in long-term
interest rates favorably and should stand ready to give encouragement
through open market operations to a continuation of this trend.
This
development would be facilitated if purchases of coupon issues made to
offset Treasury bill sales, or to supply additional reserves, were made
in long maturities as distinct from short-term coupon issues.
In view of current economic developments, Mr. Clay recommended
no change in the Reserve Bank discount rate.
Mr. Scanlon said that Seventh District economic news since the
date of the previous Committee meeting had been almost uniformly good.
The opinion was firming that the year 1962 would see a continuous improve
ment in activity.
Some observers had a tendency to revise downward their
original projections for the year as a whole, but this was not universal.
-70
4/17/62
Increased strength had appeared in consumer buying, Mr. Scanlon
said.
As to steel, his comments would be generally similar to those of
Mr. Fulton.
Although the settlement of the steel price controversy had
resulted in some requests for deferment of deliveries, local sources
indicated that there was no rush to cancel orders.
Automobile sales
were up in March, and many firms had scheduled additional overtime.
outlook for the second quarter was for 1.8 million new car sales.
The
With
projections of 1.4 million and 1.56 million for the third and fourth
quarters, respectively, the total for the year would be slightly over
6.3 million, exclusive of about 340,000 imports.
If these estimates were
correct, new car sales would be about 14 per cent greater than in 1961.
Department store sales had been strong in recent weeks, and
construction contract awards for the first two months of this year were
17 per cent above the high level of a year ago.
There has been no great
change in residential building in the District despite the availability
of mortgage money and slightly lower interest rates.
Electric power use
by industrial firms showed little change from January to February, but
was far above the levels of a year ago in all centers.
As to banking developments,
business loans rose 5 per cent from
February to March, while consumer loans remained sluggish.
There was a
rise in mortgage holdings, affected by one large transaction at a Detroit
bank.
Interest rates continued easy, at approximately the same level as
in the early part of 1961.
Reserve pressures incident to the April 1 Cook
County personal property tax date had largely abated.
The basic reserve
4/17/62
-71
deficit of Chicago banks dropped from $371 million to less than $100
million in the past two weeks.
Over all, Mr. Scanlon said, the trend of business activity seemed
to be one of modest improvement.
In view of the absence of pressures
on manpower or plant capacity, and in light of the moderate nature of
credit demands, he would make no change in monetary policy at the present
time.
the first
Like Mr. Robertson, he had some question about the last clause in
paragraph of the current policy directive.
However,
he would
not be inclined to make a change in the directive at the present time.
Neither would he recommend any change in the discount rate.
Mr. Deming reported that despite adverse weather, Ninth District
economic trends seemed to be tracking those of the nation, perhaps showing
a bit more than national average strength.
With prospects for a more
orderly iron ore shipping season than had been characteristic
of the past
few years, a 60 to 65 million ton shipments total was estimated for this
year, perhaps 10 million tons more than last year but some 20 to 25
million tons smaller than the best years.
Still, if shipments this year
fulfilled expectations, the iron ore year would be the best in the past
five.
Mr. Deming noted that the Minneapolis Bank, following the lead of
the Richmond Bank, had developed a panel of strategically located bankers
and businessmen who were well informed on local conditions and gave the
Bank their opinion as to the course of economic developments in their
areas over the next several weeks.
as follows:
The results of a recent sampling were
-72Per cent
Stability at present levels
Some improvement probable
Improvement fairly certain
Some decline probable
In the first
9
51
36
4
quarter, Mr. Deming continued, city bank loans
increased more in dollar volume than in any other first
past 12 years.
quarter in
The gain in dollars, however, was approached in
the
the first
quarters of both 1955 and 1959, and in percentages those quarters showed
slightly bigger gains than the 1962 first
quarter.
seemed to be performing in about the usual fashion.
Loans at country banks
Loan-deposit ratios
at both classes of banks continued lower than the loan behavior would suggest,
simply because deposits had fallen far less than seasonally, reflecting
very strong time deposit gains.
time deposits in the first
At city banks the percentage increase of
quarter was larger than in any other district.
At country banks the gains had been about the same as the national average.
Turning to the national picture, Mr. Deming said he shared to a
degree some of the concern that had been expressed by Mr. Mills.
Taking
the conventionally defined money supply and time deposits combined, the
growth in the first quarter of this year was significantly larger than in
the first
quarter of any of the past 12 years.
This had added substantially
to bank liquidity; the decline in long-term interest rates might indicate
that banks had somewhat more money than they needed.
New York and Chicago
banks had representatives in the Ninth District hunting for loans, and it
had been inferred that they were also looking for loans abroad.
The
4/17/62
-73
current degree of liquidity, coupled with the pressure for higher earnings,
had evidently pushed the banks into somewhat more aggressive action, and
this could lead to some difficulty.
situation that had developed.
He was also concerned about the dealer
In view of the forthcoming Treasury financ
ing, along with the uncertainties in the current economic situation result
ing from the recent steel price episode, he would recommend no change in
monetary policy at the present time.
This recommendation did not make
him particularly happy, however, and he agreed with Mr. Mills that the
Committee should be
thinking about what changes in policy might be
made as soon as there was freedom to move.
He would not change the
current policy directive at this time, except perhaps to take account
of the forthcoming Treasury financing program.
While he had some sympathy
with Mr. Robertson's point about the clause in the first paragraph of the
directive that called for giving recognition to the need to maintain a
viable international payments system, he was inclined to feel that it
would cause more trouble to take the clause out than to leave it in the
directive.
He would not recommend changing the discount rate at this time.
Mr. Swan reported that the Twelfth District situation had continued
to improve, but that the latest figures reflected some crosscurrents.
The
Los Angeles-Long Beach area--the largest labor market in the Districtrecently was reclassified from an area of substantial unemployment to one
of moderate unemployment.
At the same time, however, it appeared from
incomplete figures that the unemployment rate in the Pacific Coast states
may have risen fractionally in March.
If so, this would reflect a slight
-74
4/17/62
decline in farm employment in Washington and, in California, a larger
increase in the labor force than in employment.
Automobile and department store sales had been strong.
In steel,
the District was not important compared to the Fourth and Seventh Districts,
but there was a lesser decline in production after the end of the wage
negotiations than nationally, probably reflecting differences in product
demands.
With more concentration in the Twelfth District on construction
steel, tin plate, and pipe, one would expect a seasonal pickup in any
event.
In lumber, the over-all situation had not changed much, but the
movement of new orders and output in Western pine was relatively favor
able compared to recent months, considerably more so than in the case of
Douglas fir.
In combination, there had been a slight upward price move
ment.
District banks were still
in a surplus position.
They continued
to be net sellers of Federal funds, and borrowings from the Reserve Bank
were nominal.
In the three weeks ended April 4, loans and investments of
weekly reporting banks increased.
There was a rather sizable increase
in holdings of other than U. S. Government securities, which was in
line
with the tendency on the part of some banks to go into State and local
government issues.
The dollar figures reflected some acquisitions of
shorter-term public housing securities, particularly by one large bank.
Mr. Swan commented that the over-all situation seemed to be one
of considerable uncertainty, even with the continuation of some improve
ment in business activity.
In the present circumstances, it
seemed to
4/17/62
-75
him that the System should not add to the uncertainties by making any
particular change in monetary policy.
Rather, it
should continue to
supply reserves in amounts somewhat greater than seasonally required.
Continuation of such a policy would suggest free reserves of around $450
million, with a bill
rate around or somewhat below 2-3/4 per cent.
The im
minance of Treasury financing would seem to support the maintenance of
an even keel, and in any event this would be consistent with his inter
pretation of what was required by the business situation.
He would not
recommend a change in the discount rate, and he would continue the
existing directive, with possibly a reference to the Treasury financing.
Like Mr. Robertson, he had some question about the clause in the direc
tive that called for giving recognition to the need for maintaining a
viable international payments system.
Mr. Irons indicated that there was continuing improvement in
several areas of the Eleventh District economy, with some signs of in
creasing capital expenditures.
Construction was at a record high in March,
with particular concentration in the major cities.
in March.
Employment was higher
As to retail sales, he would prefer to wait and look at March
and April together.
However,
recent coments by leading retail trade
people indicated that they were encouraged by the current level of depart
ment store sales.
The agricultural situation was generally favorable,
but crude oil production was still
down.
Altogether, while it was rather
difficult to distinguish seasonal from cyclical trends, conditions were
generally satisfactory.
Businessmen seemed to be satisfied, with no
4/17/62
-76
pessimism or great concern detected.
Business was good in all of the
major centers of the District, with Houston verging on boom conditions.
On the financial side
bank loans and investments were up, demand
deposits were down, and time deposits continued to rise substantially.
The banks reported a considerable degree of liquidity, and funds were
readily available to meet appropriate loan requests.
Banks were tending
to invest in longer-term securities in an effort to cover the higher
rates of interest paid on savings deposits.
Bank was nominal.
Borrowing from the Reserve
Sales of Federal funds had been averaging a little
higher than purchases, with all but a couple of the city banks being net
sellers more often than net purchasers.
As to policy considerations, Mr. Irons said he believed there had
been an improving business situation.
Activity appeared to be moving
Despite some un
ahead a little each month, and on quite a solid basis.
certainties, the economy seemed to be moving forward.
He was inclined to
feel that the providing of reserves may have been a little
side.
It
on the liberal
was his impression that banks, insurance companies,
and savings
and loan associations were looking hard and far to do something with their
money.
Further, he doubted whether additional reserves, if
supplied,
would be a strong stimulative force, and the balance of payments was still
a major problem, the importance of which should not be minimized.
However,
in the period ahead there would be Treasury financing, so he would suggest
that the Committee continue essentially the policy that it
had been fol
lowing, with a leaning toward slightly less ease if that could be accom
plished without overt or direct action.
If free reserves should drop
4/17/62
-77
to $250 million, he would not buy securities quickly to push them up to
$400 or $450 million; instead, he would wait for a day or so and see what
happened.
This was not to say that he was advocating a policy of less ease
at this time, with the Treasury coming to market and a number of uncertain
ties in the picture.
However,
would not be disturbed if
if
circumstances should so develop,
he
free reserves were to drop somewhat below the
levels at which they had been running.
Mr. Irons said he would not suggest changing the current policy
directive at this time.
He did not consider it
necessary to insert
language regarding the Treasury financing; everyone was aware of the
situation, and such reference would subsequently have to be deleted.
Further, he would not favor changing the directive in any way that would
seem to lessen the importance of the international situation.
He would
not recommend any change in the discount rate.
Mr. Ellis said he saw no changes in the regional or national
economic situation of such nature as to require extended comment.
Boston Reserve Bank's recent Regional Outlook Conference,
At the
there was a
tendency on the part of the participants to back away from the earlier
degree of optimism somewhat.
Their estimates for gross national product
in the fourth quarter were now around an annual rate of $570 billion.
Current evidence suggested that trade and service activities in New England
were probably stronger than manufacturing activities.
Automobile sales
and department store sales were well ahead of a year ago, and also ahead
of the comparable pre-Easter weeks in 1960.
4/17/62
Loan demand in the latter part of March caused the gain for that
month as a whole to be the largest in several years.
Reports for recent
weeks seemed to indicate some slowing down in the rate of growth of time
and savings deposits, which rate had previously exceeded the national
average.
Turning to policy, Mr. Ellis said that although he shared some
of the concern expressed by Mr. Mills regarding the degree of liquidity
of the banking system, he felt that the System could have done no less
than it
did if
it wanted to use monetary policy effectively.
He concluded
that the policy of recent months and weeks had quite properly been
stimulative.
While the banks had more reserves than they needed,
almost the definition of a stimulating policy.
Further, it
that was
would also be
appropriate, in his opinion, to continue the stimulating effect of mone
tary policy for the immediate future.
There was some evidence that the
next turn in policy might be in the direction of a little
this did not seem to be the time for such a change.
lines, it
less ease, but
In terms of guide
seemed appropriate to continue to support a growth trend of
around 4 per cent in total reserves, and to aim for free reserves in the
neighborhood of $400 million, with the short-term bill
rate at about 2-3/4
per cent and Federal funds in the same area.
On the directive, Mr. Ellis recalled that the phrase with respect
to maintaining a viable international payments system was introduced at a
time when the System was moving into foreign currency operations.
While
he held no particular brief for the specific wording, he considered it
4/17/62
-79
important not to weaken the recognition given to international aspects
of the current situation.
Like Mr. Irons, he would look with disfavor on
a general policy of injecting standard language into the directive in ad
vance of each Treasury financing and deleting the language thereafter.
Mr. Francis reported that Eighth District conditions had not changed
a great deal since the previous Committee meeting.
continued about level.
Total business activity
Manufacturing activity was up somewhat,
manufacturing employment had not gained.
but total
Bank debits for the first quarter
were about equal to the last quarter of 1961.
As in the nation, unemloy
ment was declining slightly, but over-all employment had not gained.
Construction contract awards were down somewhat.
Farm income was a little
better thus far this year than a year ago, primarily because of late
marketing of some of the 1961 crops and a slight increase in prices over
the comparable period a year ago.
Mr. Heflin said that business activity in the Fifth District
continued at a fairly high level, and without any indications of signifi
cant change.
There was no definite evidence of weakness, but at the same
time there were no real signs of any vigorous increase.
Construction
seemed to offer the best chance for improvement in the near future.
In
many parts of the District, building operations were delayed more than
usual by weather conditions from January through March.
In recent weeks,
however, some contractors had been offered more work than they were able
to undertake.
As soon as weather permitted, activity should increase
4/17/62
-80-
sharply, especially in the residential field.
tile
Recent data showed the tex
industry operating at a high and slightly rising level, but manu
facturers expressed slightly less optimism than a few weeks ago.
The
furniture industry also continued to operate at close to peak levels
the season, but the outlook vas a little
less certain than it
for
had been
earlier, perhaps due in part to the fact that the industry was awaiting
results of the spring furniture shows.
direction of production, employment,
In bituminous coal, the recent
and shipments had been moderately
downward, in contrast with earlier hopes and expectations.
Retail sales
had lagged because of adverse weather conditions and the lateness of
Easter.
The most recent data for department stores showed a significant
gain, but generally the improvement did not seem to be much more than
normal for the season.
While unfavorable weather had delayed some farming
operations, farm prospects generally were still
good.
Business loans at
weekly reporting member banks continued relatively weaker in the District
than in the nation as a whole.
Mr. Balderston said that for the period immediately ahead he would
favor continuing present policy and observing an even keel.
say that two points were puzzling to him.
The first
should be given to the rapid rise in time deposit.
He went on to
was how much weight
The money supply, as
usually defined, had increased only 1-3/4 per cent from a year ago, but
deposit turnover had risen 7 percent in the same period.
Presumably,
turnover had gone up, not only as against a year ago but also as against
the last quarter of 1961, because of the shift of deposits.
Thus, he was
4/17/62
-81
perplexed as to what weight should be assigned to demand and to time
deposits in studying the supply of money.
He was also perplexed as to
how much liquidity was seeping out to foreigners in the form of credit
from American banks.
The practice of requiring borrowers to maintain
compensating balances probably tended to offset some of the rate differ
ential.
He would like to continue to feed credit to the United States
economy for some time to come, but this was useless if any substantial
part of the credit being provided for domestic use was seeping out of
the country.
In any event, there appeared to be nothing to do for the
next three weeks except to maintain an even keel.
Chairman Martin commented that he was somewhat disturbed by the
liquidity side of the picture as it had developed.
However, he did not
feel that any substantially different monetary policy could have been
justified on the basis of what had transpired.
If loan demand had been
stronger, the liquidity situation would have been different, but it was
difficult to gauge such things.
It seemed clear to him,
the Chairman said, that in view of the steel
wage and price developments, maintenance of the status quo was justified
right now if such a policy ever was justified.
With regard to the current
policy directive, particularly the clause therein that called for giving
recognition to the need to maintain a viable international payments system,
he was interested in the comments that had been made.
Although he did not
coin the phrase, its intent had been clear to him, but apparently it was
not clear
to others,
This was typical of the difficulties encountered in
4/17/62
-82
trying to compose a directive.
He had thought that the clause clearly was
intended to recognize the need for an effort to keep the gold exchange
standard functioning, which was in line with the purpose of the System's
foreign currency operations.
To others, however,
the words apparently did
not spell out the intent effectively or perhaps did not suggest an
appropriate goal.
With regard to today's meeting, Chairman Martin said he did not
think there was need for a great deal of summarization.
Some minor points
could be made with respect to the comments around the table, but it
seemed
to him that essentially the Committee was talking about maintenance of the
status quo.
With possibly one or two exceptions, that appeared to be what
the Committee was advocating today.
The Chairman then inquired whether anyone wished to comment on this
statement of the consensus.
Mr. Mills suggested that a definition of the status quo might
comprehend free reserves of $450 million or of $400 million.
It was his
feeling that an appropriate interpretation would comprehend the lower of
the two levels.
This was a level that seemed to produce economic and
financial results such as the Committee had in mind.
Chairman Martin turned to Mr. Rouse and said he would assume that
the Account Management had not tried to push free reserves to $450 million
in recent weeks any more than it had aimed at $350 million in the pre
ceding weeks.
Mr. Rouse replied that this was correct.
There had been the matter
of Treasury financing and large associated flows of funds.
Also,
the
-83
4/17/62
reserve projections had on occasions been quite inaccurate,
been a complication.
and this had
As to facilitating the market flows of funds, he
had understood this to be in accord with the Committee's wish, which had
seemed to contemplate something of an atmosphere of resolving doubts on
the side of ease.
The Desk was concerned about the smoothness of the
money market, and this concern happened to result in a higher level of
free reserves.
He agreed that the $400 million figure would more nearly
reflect what he understood to be the temper of the Committee than the
higher figure,
if one were to aim directly at the level of free reserves
in conducting open market operations.
Messrs. Robertson and Mitchell indicated that they would prefer to
aim at $450 million rather than $400 million.
Mr. Hayes said that he regarded the Chairman's statement of the
consensus as accurate.
However, he would vote against the policy embodied
in that consensus because of the lack of emphasis on the deteriorating
international situation.
He found it difficult to accept Mr. Robertson's
statement that an improved balance of payments since last autumn had
lessened the need for attention to the international situation, since he
regarded the improvement as almost entirely a seasonal matter.
Looking at
developments against a year ago, he was concerned about what the balance
of payments might look like later this year.
With regard to Mr. King's
statement about the covered arbitrage differential on three-month bills,
admittedly it was presently in favor of New York against London, but he
did not think one could afford to lose sight of the fact that the whole
.84.
4/17/62
range of rates on credit had a bearing on the flow of funds.
to Mr. Mitchell's comment about the mounting of defenses,
With regard
he assumed this
had reference to monetary arrangements, including the System's program of
foreign exchange operations.
While these moves were highly desirable,
could not be expected to turn the balance of payments around.
they
In his
opinion, the Federal Reserve should try to do its part in every reasonable
way.
Chairman Martin commented that he could not forego this opportunity
to say once again that he regarded the balance-of-payments
serious.
situation as
While he did not want to say that there would be a crisis and
while he certainly was not suggesting that a crisis was necessarily around
the corner, the situation conceivably could end up that way.
time, it
At the same
was his conviction that changes in monetary policy of a minor
nature were not going to have any effect on that problem.
There was a risk
that the System ought to take in trying to promote the domestic economy.
On the other hand, the record should not indicate in any way that the
seriousness of the balance-of-payments problems was being minimized.
The Chairman inquired whether there were members of the Committee
other than Mr. Hayes who would like to express themselves as dissenting
from the consensus, and no comments were heard.
The Chairman then inquired
of Mr. Rouse whether the latter had any comments on the existing policy
directive, and Mr. Rouse replied in the negative.
Thereupon, upon motion duly made
and seconded, the Federal Reserve Bank
4/17/62
-85of New York was authorized and directed,
until otherwise directed by the Committee,
to execute transactions in the System Open
Market Account in accordance with the fol
lowing current economic policy directive:
In view of the modest nature of recent advances in the
pace of economic activity and the continued underutilization
of resources, it remains the current policy of the Federal
Open Market Committee to promote further expansion of bank
credit and the money supply, while giving recognition to the
country's adverse balance of payments and the need to maintain
a viable international payments system.
To implement this policy, operations for the System Open
Market Account during the next three weeks shall be conducted
with a view to maintaining a supply of reserves adequate for
further credit and monetary expansion, taking account of the
desirability of avoiding sustained downward pressures on short
term interest rates.
Votes for this action: Messrs. Martin,
Balderston, Bryan, Deming, Ellis, Fulton,
King, Mills, Mitchell, Robertson, and Shepard
son. Vote against this action: Mr. Hayes.
All of those present except the members and alternate members of
the Committee, Messrs. Swan, Francis, and Heflin, and Messrs. Sherman and
Rouse then withdrew from the meeting.
Chairman Martin referred to discussions from time to time in the
past regarding the publication of minutes of meetings of the Federal Open
Market Committee, noting that the question had been brought up again by
reason of the fact that the minutes covering all meetings held in calendar
year 1960 had been furnished to Congressman Patman as Chairman of the Joint
Economic Committee,
that he understood they had been seen by a number of
persons, and that in the course of time there would be published an analysis
of those minutes prepared by members of Mr. Patman's staff.
The suggestion
-86
4/17/62
had been made that it
would be desirable if
the Committee's minutes were to
be published so as to permit all interested persons to review freely the
record of policy discussions and decisions.
He then called upon Mr. Balder
ston for comment.
Mr. Balderston stated that he believed it
desirable to make the
minutes of the Federal Open Market Committee available to scholars for the
decade of the 1950s.
Specifically, he would propose that they be published
for the period 1951 through 1960 in the form approved by the Committee and
without additional interpretative coments.
He would include in the
published record the minutes of the meetings of the executive committee
for the period 1951 to June 1955 in which month that committee was abolished.
Mr. Balderston stated that he believed the Committee and the Federal Re
serve System were at a disadvantage in getting interested members of the
public to understand the goals of the Federal Reserve and how the System
sought to achieve them.
Some of the System's critics now had access to
information not available to scholars generally.
His view was that
scholars, whether favorable or unfavorable to the System, should have
access to the minutes so that they could make an objective analysis on
the basis of the record.
In response to a question from Mr. Deming as
to whether this called for publication of the minutes, or whether they
could be made available in some other manner, Mr. Balderston said that
he was thinking of publication so that they would be available not only
at the Federal Reserve Banks and at the Board's offices, but also in
college libraries.
In this way, teachers or students of finance or others
4/17/62
-87
would have ready access to them.
He also stated, in response to Mr.
Deming's question as to whether he was proposing regular publication from
here on out, that he did have such publication in mind.
Mr. Balderston
went on to say that this raised one of the critical points:
how much lag
there should be between the meeting covered by a given set of minutes and
their publication.
He had thought earlier in terms of a lag of three to
five years, but the fact that the minutes for 1960 were now available
to a limited group outside the Committee complicated the use of such a
lag period.
Mr. Deming said that he was not especially disturbed about making
available minutes for a past period but that he was disturbed about a
procedure that would commit release of future minutes.
He was thinking
of this particularly in terms of the foreign currency operations in which
the Committee had recently engaged.
Mr. Hayes stated that he granted the weight of some of the considera
tions that Mr. Balderston had brought up, particularly that making the
minutes available would provide a record that would permit a defense against
use of minutes out of context by those who already had access to them for
the year 1960.
Conceivably this could provide information that the
public should have and that might be useful in a number of ways.
On
the other hand, Mr. Hayes said that there were counter arguments,
some
of which related to a lag of time before release of the minutes and
some of which applied more or less permanently.
If
published, there
should be sufficient lag to avoid the danger of anyone reading into the
picture a position taken by the Committee currently or possibly one that
4/17/62
-88
would be taken in the near future.
Also,
if
it
were known that future
minutes would be released, there was some risk of hurting the atmosphere
of discussion at Committee meetings through inhibiting frank expressions
of view.
Everyone at a meeting should be free to take as frank a position
as he desired, Mr. Hayes said, and he should not be held to account too
strongly for views tentatively expressed.
While he could not see much
advantage to making the minutes available,
he did not believe that much
would be lost by doing so for the years 1959 and 1960.
On the matter of giving adequate information on System operations,
Mr. Hayes said that he was quite concerned about the sense of inadequacy
felt by many persons in the System on this point.
He wondered whether
the Committee should not tackle a more frequent publication of the policy
record, perhaps quarterly, and whether it
should not contemplate an article
in the Federal Reserve Bulletin at quarterly intervals similar to the
articles now published on a quarterly basis by the Bank of England.
Mr.
Hayes concluded his remarks with a statement that he was not enthusiastic
over publication of the Committee's minutes but, if the majority wished
to go ahead, he did not feel violently opposed to doing so.
Mr. Ellis stated that he was enthusiastically against making
the minutes of the Committee available to the public.
He questioned
whether they were of primary interest to monetary analysts.
persons already know a good deal about the policy actions.
These
From the
record of policy actions published annually they know the Committee' s
position and the reasons for that position.
The minutes would add
4/17/62
-89
information on the performance of individuals, and he doubted that this
would be of interest to the monetary economists.
His conclusion was
that the minutes would not be of substantial advantage to the true
monetary economist and he did not think the urge for access to the
minutes came from that source.
Those persons would much prefer more
timely analytical reports of actions of the Committee.
Also, as Mr.
Hayes had mentioned, there was the undesirable effect on Committee dis
cussions that could be anticipated in the event of a decision to publish
the minutes.
There would be a tendency for those at the meetings to
elaborate the statistical presentations and to compress discussion of
controversial matters, Mr. Ellis thought, which in many cases would
tend to distort the basic purposes of Committee discussions.
Once
the Committee started publishing the minutes, it would be extremely
difficult to reverse the process.
There would also be a tendency to
yield to requests for making the minutes available on a more nearly
current basis.
If there were logic in publication of the Committee's
minutes, then the same logic would lead to publishing minutes of other
actions on monetary policy such as on discount rates, reserve require
ments, margin requirements, and so on.
Mr. Ellis questioned that
publication of the minutes would offset the potential danger that he
thought would result--perhaps had already resulted--from access of
certain persons to the 1960 minutes.
He suggested that the best defense
for the System against misuse of materials made available was either to
make a direct response to any reports requiring comment, or to ignore the
4/17/62
-90
On the question of more information, Mr. Ellis said that he
attacks.
thought the Committee could move in that direction perhaps through
quarterly publication of the policy record, preparation of Bulletin
articles such as Mr. Hayes had mentioned, and provision of other informa
tion.
This procedure, in his opinion, would be more likely to provide
effectively for better public information.
Mr. Irons said that the comments by Mr. Ellis were quite convinc
ing.
On the other hand, while those objections might be valid, it
seemed to him that if
still
members of the Congress sought the minutes, the
Committee was likely to make them available.
The discussions of foreign
currency operations raised an additional problem, and he would look
upon those discussions as somewhat different from the minutes of the
regular Committee discussions.
If
the minutes were to be made available
at all, he would lean toward their publication for interested persons
generally.
He would be happier if
they were not made available, but if
the decision was to release them, his preference would be to make them
available for a period of perhaps the past ten years without resolving
now the question of what would be done in the future.
Mr. Swan expressed the view that a much better job of explaining
the System's position could be done through preparation of periodic
analytical material, perhaps on a quarterly basis, than by publishing
the Committee's minutes.
Such an article would necessarily be based
on policy record entries but would be in a different form.
He believed
that such periodic articles should be prepared regardless of what decision
-91
4/17/62
is
reached about publishing the Committee's minutes.
As to publication,
he felt that the fact the Committee had made one year's minutes available
to a Congresman on a confidential basis did not necessarily call for
publishing the minutes over a ten-year period.
He did not think that the
Committee should be in a position of trying to hide anything, but what was
needed was perspective.
For that reason, he would lean toward Mr. Balder
ston's thought of a lag of three years or perhaps five years between the
time of a meeting and any publication of the minutes for the meeting.
Mr. Deming expressed views similar to those of Mr. Ellis.
While
he did not feel strongly, he was concerned that any action taken might
create problems for the future if
lag interval.
it
implied publication with a short
He thoroughly agreed with the desirability of preparing
articles, perhaps at quarterly intervals, explaining the role of monetary
policy but, on balance, he would prefer not to publish the Committee's
minutes.
Mr. Scanlon stated that he, too, agreed with the views expressed
by Mr. Ellis and would prefer not to have a procedure adopted whereby
the minutes would be published regularly.
Mr. Clay's statement indicated agreement with the views expressed
by Mr. Ellis.
For one thing, a procedure for publishing the minutes
would bring about perhaps unconsciously a change in the nature of the
Open Market Committee's meetings.
Inevitably members would be conscious
of the record, and this would tend to inhibit expressions of views and
testing of views with the freedom now practiced.
Mr. Clay felt that a
4/17/62
-92
much better job of explaining monetary polley could be done by prepara
tion of appropriate periodic articles than by publishing the
minutes.
Mr. Heflin felt strongly that the Committee should not adopt
a policy of publishing the minutes as such.
Little would be accomplished
by such a procedure and if publication were undertaken it probably would
lead only to further demands for additional materials.
Mr. Mills stated that he would favor publication of the minutes
up through the year 1960 and, after discovering the reception accorded
His
those minutes, would deal with the question of future publication.
feeling was that responsible scholars who had the minutes at their
disposal would, in their own minds, be able to recreate the background
atmosphere in which policy decisions were reached.
He did not have much
sympathy with the idea of quarterly disseminations because they inevitably
would be slanted and biased to justify decisions recently reached by the
Committee.
Mr. Robertson stated that the views expressed by Mr. Mills were
essentially the same as his.
He thought that the Committee would be
forced to issue something whether it wished to do so or not.
would insist on disclosure regarding Committee discussions.
The Congress
In his
judgment, the Committee would be in much better position if it took the
lead.
His preference would be to make the minutes available here in
Washington, perhaps at the
National Archives, and at each Reserve Bank
rather than to publish amd distribute them generally.
course, be an appropriate lag.
There should, of
It would be preferable to have a longer
4/17/62
-93
lag than one year, but just how much was needed was a question.
The
minutes for 1960 having been made available, he could see no reason for
not making them available for all prior years, since, for example, 1951.
Mr.
Shepardson was inclined toward the issuance of a current summary
report of open market operations such as had been suggested by several
persons at this meeting.
On the question of publication of the minutes,
he felt that it would have been desirable if they could have been withheld.
However, those for 1960 had already been made available to a degree, and
other interested persons ought to have an equal opportunity to study the
This might assist in promoting objective discussion of
minutes.
same
monetary policy, although that, of course, was a matter that could not
be answered at this time.
respect to
He definitely would favor a time lag with
publication of anyother minutes, and he would leave until a
later time any decision as to what time lag might be applied in the future.
Despite
what he had just said, Mr. Shepardson expressed the hope that the
Committee could
handle the difficult problem of presenting the discussions
of monetary policy through some means other than publication of the minutes.
Mr.
King said that he believed a decision to publish the minutes
at this stage would be jumping the gun.
He would wait to see what kind
of a report might be issued by the Congressional committee that had avail
able the minutes for 1960 before deciding whether to publish or not.
forced to a decision at this time
If
Mr. King would release the minutes
for 1960, but his preference would be not to release even those minutes
at present .
4/17/62
-94
Mr. Mitchell said that the fundamental problem went back to the
kind of record wanted for the Committee's deliberations, and the question
whether publication of the minutes would result in a different record than
had been had in the past or than the Committee desired.
He felt that the
discussions in the minutes of the Committee would not be as free as they
are at present if
it were known that the minutes would be published.
The
kind of record that would grow out of minutes where there was a knowledge
that they would be made public after a lag might well look shallow at a
later period.
This certainly would be the case if publication was to be
with a very short lag such as one year, and less so as the lag became
longer.
While he would prefer not to publish the minutes, he would be
inclined to make available at the Reserve Banks and some place such as the
Board's offices or elsewhere in Washington a file of the minutes that
serious scholars could know were available for study and reference.
His
inclination was not to deny students access if they had an honest interest
in the subject matter, but he did not think that this called for reproduc
ing and distributing widely sets of the Committee's minutes.
Mr. Fulton expressed views favorable to periodic (quarterly) re
ports of Committee discussions.
He did not believe that publication of
the minutes would serve any useful purpose.
Mr. Bopp said that as far as inhibitions on future discussions
were concerned the Committee should remember that it
could not now make a
final determination as to what would be published in the future.
If
it
were decided not to publish at this time, the same question might still
4/17/62
-95
come up a year hence.
Thus, one could reason that the Committee would be
inhibited whether there was a decision today to publish or not to publish.
He had a great personal sympathy with publication of the minutes back to
the origin of the Committee.
In general, he felt that a time lag of five
year prior to publication would be desirable.
Mr. Bryan said that publication of the minutes should have a
minimum time lag of five years and anything shorter would be dangerous
as inhibiting discussions of the Committee.
This would be particularly
true in view of the foreign currency operations recently engaged in.
It
was out of the question to talk about having two sets of minutes, one
He
that could be made public and the other that would not be available.
did not believe that the fact that the minutes for 1960 had been made
available to the Congress called for publication by the Committee.
If
the Congress determined to make those minutes available, that was one
thing, but this need not be determinative for the Committee's action.
In the one case, the Congress would take the responsibility and in the
other the Committee would take the responsibility.
The fact that those
minutes might be released by the Congress should not frighten the
Committee into something that it might regret.
would be abdicating responsibility.
To take that course
Mr. Bryan said that he would favor
making the minutes available with a considerable lag of time, but not
otherwise.
Mr. Francis stated that the views expressed by Mr. Ellis repre
sented the position that he would take on this question.
4/17/62
-96
Chairman Martin said that until there was a more unanimous
point of view than had been indicated at this meeting it would be a
mistake to press the question of publication of the minutes to a vote.
Both sides of the question had been presented reasonably well today, and
as he had indicated earlier the views expressed by Mr. Ellis were
persuasive.
Chairman Martin went on to emphasize that from his standpoint
there were important considerations involved in this question.
Every
thing that Mr. Ellis had said was well taken but, having spent a good
deal of time in various libraries recently, he was convinced that there
was a great shortage of good material on the operations of the Federal
Reserve System.
Information on what the System had actually done was
woefully lacking.
Various individuals formerly connected with the System
had written things from their particular points of view, but this did not
meet the need for full information to enable students and others to know
what the Federal Reserve was doing in order that they might write
objective analyses.
Chairman Martin said that he, personally, would be opposed to a
quarterly analysis of Committee decisions on monetary policy of the sort
he understood several had suggested around the table.
Such a review pre
pared within the System for publication shortly after decisions were
reached and while they still were being put into effect could not avoid
being an apology for the Committee's actions.
One result would be to
make the position of the Chairman much more difficult than it now was.
4/17/62
-97
Any such analysis of monetary policy could hardly be expected to be
objective or to reach the problem that the System had to deal with.
He
regretted that the institutional life of the System, which he believed to
be in danger, could not be put in a light that the public would be able
to visualize, so as to see that intelligent and conscientious persons were
sitting around the table at frequent intervals analyzing the situation
and expressing different points of view as to what would be the most
suitable procedure to follow in carrying out the purposes of the Federal
Reserve System.
He believed that the minute record of these discussions,
even with some defects, was impressive as indicating both an attitude and
a procedure whereby the System was attempting to render the decisions for
which it
was responsible.
He did not believe that the System could put
out a quarterly report that would do what was needed.
Also, he had come
to the conclusion that quarterly publication of the record of policy
actions would not meet the need, and he felt that he had convinced a
former Chairman of the Senate Banking and Currency Committee that an
earlier proposal that the Committee publish its
at quarterly intervals would not be appropriate.
record of policy actions
This was not a one-man
operation, nor a one-bank operation, but it was a group of individuals
attempting to develop dispassionately a policy in the interest of the
whole economy.
It was this institutional problem that the System faced.
Even in the Congress relatively few members had an understanding of the
System or the way it
worked.
After further comments, Chairman Martin suggested that the
Committee continue to study the problem that had been discussed and
-98
4/17/62
that at a future time it explore further the means that might be taken
for dealing with this problem.
even if
it
In his judgment it
would be a mistake,
were possible to arrive at a favorable vote for publication,
to take such action at this time.
The points made against publication
of the minutes seemed almost unanswerable, but there should be some way
of presenting to the public the nature of the Federal Reserve System and
the way this group operated, the way its
meetings were conducted.
This
was a problem that all members of the Committee should continue to study.
Mr. Ellis commented that, in suggesting a quarterly article on
monetary policy or quarterly publication of the policy record, he had in
mind that this could be a vehicle for presenting to scholars and others a
current statement of actions taken by the Committee and that this would be
more useful to them than publication of the minutes.
Chairman Martin responded that the idea of a quarterly article on
monetary policy or quarterly publication of the policy record did not now
seem to him to be desirable.
It would be possible to give out some kind
of a statement every three months.
However, he did not think that
individual members of the Committee should be placed in the position of
having their votes on policy positions currently or very recently under
discussion made public.
He was against trying to conduct policy in a way
that would make spot news, and yet this was what would be sought with
frequent publication of the policy record.
In concluding this portion of the meeting, Chairman Martin stated
that in the absence of objection the question of publication of the minutes
4/17/62
-99
of the Federal Open Market Committee would be tabled.
No objection to
this procedure was indicated.
It was agreed that the next meeting of the Federal Open Market
Committee would be held on Tuesday, May 8, 1962.
Tentative dates for
following meetings were set for May 29, June 19, and July 10, 1962.
Thereupon the meeting adjourned.
Assistant Secretary
Cite this document
Federal Reserve (1962, April 16). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19620417
@misc{wtfs_fomc_minutes_19620417,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1962},
month = {Apr},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19620417},
note = {Retrieved via When the Fed Speaks corpus}
}