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Hareh 6,

Honorable ¥r*& M. Vijason,
Secretary of the Treasury,
Washington 2$ # D. C.
Deer Mr* Secretary*
I am enclosing herewith & memorandum concerning the
refunding of the April I oertifioate*.

Mr. Bartelt phoned t o

Mr. Fleer on March k regarding the opinion of the executive
eosmlttee on this question,

^r. Plser took the question up

with the executive e o m l t t e e , and i t was decided t o submit this
memorandum to you.

If we have any ether views with reference

to t h i s natter before the t i a e for announcement, we w i l l
municate the® to you.
fery taraly yours,

M. S. Secies, Chairwan,
Federal Open Mtrkot Couaaittee.


March 6, 19U6


In view of the favorable developments in the budget picture
since the Budget Message was issued, the executive committee of the
Federal Open Market Committee recommends that the Treasury on April 1
redeem for cash at least 2.5 billion dollars of the maturing certificates, instead of the 1*5 billion indicated in our previous recommendation.
Our present estimate is that between March 1 and December
31, 19l46# budget expenditures will total 3U billion dollars and receipts 32 billion, leaving a deficit of only 2 billion. We estimate
that a billion dollars of this deficit will be met by net sales of sonmarketable securities, •which will comprise an excess of net sales of
special issues and savings bonds over net redemptions of savings notes.
It, therefore, appears from these estimates that the Treasury's present
large cash- balances will be reduced by only about a billion dollars
during the balance of this calendar year.
On February 28 the cash balances totaled 23*6 billion dollars.
Unless the Treasury desires to maintain unnecessarily large balances,
it should redeem for cash 13 to 20 billion dollars of marketable securities by the end of December. Excluding the March retirement of nearly 3
billion dollars of certificates, notes, and bonds, this leaves 15 to 17
billion of additional redemptions during the remainder of the calendar
year. Of this total, about 5 billion dollars consists of bonds in June
and notes in December, leaving 10 to 12 billion of certificates that
could be retired. Since the small size of the May 1 certificate issue
indicates that none of this issue should be redeemed for cash, we feel
that at least 2*5 billion dollars of the April 1 issue should be retired. A further consideration in suggesting that the April cash redemption should be at least 2.5 billion dollars is the fact that an
exceptionally large proportion of the I4.8 billion of this Issue is
held by the banking system, 2.7 billion by commercial banks and 1*3
billion by the Federal Mmservm*