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March 8, 19U3 Dear Dan: The Federal Open Market Conrnittee at its meeting on March 2 took favorable action on two recommendations that have a bearing on Treasury financing. These recommendations are (1) that the Treasury allot in full at a rate of j/S of 1 per cent all tenders for Treasury bills for $100,000 or less, continuing to allot larger tenders as at present to the highest bidders, and (2) that the Federal Reserve System replace directly with the Treasury its holdings of maturing issues of Treasury bills and certificates of indebtedness. As Chairman of the Federal Open Market Committee I am submitting the recommendations to you. There is also attached to this letter a memorandum which gives my interpretation of the reasons for the recommendations• I should appreciate your careful consideration of these matters» Sincerely yours, K. S. Eccles, Chairman, Federal Open Market Committee Honorable Daniel W. Dell, Under Secretary of the Treasury, Washington, D. C. Attachment. LMP:lel OFEH MARKS? c&mifsm MWMiffii©A?ioxs TO THE The Federal Open Market Comitte* reooasaeisds that the treasury allot in full at 4 rate of j/6 of 1 ptr c«nt all tead*r« for Treasury bills for $100*000 or less* i*rg#r tender* would eoatinu* to be allotted as at present to th© higMtt bidders. It hat been the view of the Federal Open Market Coaaaittee for sons ttae thai eJuouragsBeiit should be gitmn to the sale of Treasury bills to bank* outeide of Hew Tork City and Chioaga for th« pnr^o*e of iaduolog th«to out«14e baukt t# utllif* their ^xeess r**«rv««» At th* -|^r«80nt ti«Mi th«r# i» »Tid*a«« that in -Swr Yerk City and £hi®a&9 tha bill ajark#t i« at or near t>x© saturation point. In th« pa«t foar ws»k9 holdings of bills at b&saku ic th«*e «lti«* havw d««li»»d by ||0O millisn dollars. 7fc« Fea#ral t#««rr@ Sacks in th«s« four i»««ks iiavo tak*n 000 million dollars of additioisal bill«» an amo;mt «M|uai to tfr* iaer«*s« 1 B tha amount In tbo*« oiro\i®«tftn©ei additional «fffkrt(i shoyld b« and* to distribute b i l l s a»oac the outti4l« ba.ak«« fh* at?©TO proposal would bo of great assistant* ia tbat the Federal OpeB llarket l i M i t M i also r^com^tsds tbst the radaral K*»«rv» r»plao« dirMrtly with the Umamry it« holdlagu of ssaturiag Issues of ury b i l l s and iH'llftls^it of indWbtodnfreo* Uadwr prosnat oouditiona th X « f ' b i l l s ar« inor*asi»^ rapidly, aiai i t is generally i^H»«s.sar^ t o go into ssarkst to reylftgj ^oldiagft of ^a-turing bills* Furtiiear liaoreaaee in the System's an» in prog^et b««mu»0 of the oontimied iiioro*»« In the ejwunt of money i s €5iroiilation and i s n»(|ulr«d r««erre« a i depoeite ii^rease* TH* direot replaoe* tmmt of isattaritien vould in m vmj* ©ImEci® the amount that the System will add to i t s portrolio. replacement would avoid churning the market fat bills eaah week* It would avoid the illusion that bills are being tested la the market before they are sold to the Federal, an illusion based on the faot that a part of the bills each week are allotted is response to so-oalled underwriting tenderst the real underwriting is done by the System* and *ueh indirection has ae plaee at the present tiae. there is no question as to the legality of direot reolaoeses** There 1» a preeedent for it slnoe on two reeent oeeasions the Systea placed subscriptions for certificates for the amount of its holdings of the mturlog issues. Sinee replacement of maturing Issues direot with the treasury adds nothing te Federal Beserve Holding of geveraneat obligatiwu*, if is not inflationary, not even in the tease that speeliti oertlfloates to avoid overdraft* are inflatioimry inasmieh as they release funds to the nartot. COPY THE UNDER SECRETARY Of THE TREASURY WASHINGTON March 9, Dear Marriner: I have your letter of March 8, 19U3 advising me of the action taken by the Federal Open Market Committee on two recommendations with respect to the allotment of Treasury bills up to $100,000 or less, and permitting the Federal Reserve System to replace directly with the Treasury its holdings of maturing bills and certificates. We shall be glad to give every consideration to these two recommendations. Sincerely yours, (Signed) Honorable Marriner S. Eccles Chairman, Board of Governors Federal Reserve System Washington, D. C. Dan
@FedFRASER