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March 11, The status of the discussions about Treasury financing may be Bunm&riied as follows* IB9U9B It is understood that the Secretary is agreeable to having a short and a long tap iseue along the lines suggested In the System*s memorandum. There iaay be further discussions about details of these obligations, but the general plan of haying additional non-jn&rketable issues with restricted negotiability and a guaranteed redemption value appears to be accepted* There seems to be agreement also that the amount of Treasury bills should be increased and that scene other short-time issue with a coupon (a note without rights or a oertlfieate of indebtedness) be introduced in order to meet the prof©renee ot interior banks* It is ex- pected that these short-tena obligations would be purchased principally but not exclusively by banks* It see&s to be agreed also that no addi- tional open-market long-term issues nt%d be offered until a time when there is evidence of an accumulated hunger for them in the market* Support There was general agreement th&t the Federal Reserve 5jystem should stand ready to support the SoTenment security mrket in accordance with a definitely formulated program* The System has already pledged its willingness to do so and the Treasury appears to accept this support as a part of its program. There remain details to be worked out* The concensus on yesterday afternoon seemed to be that the System1ft support should be directed toward the maintenance of average yields or prices on the two outstanding long-term taxable issues within a predetermined range* A separate minimum below which neither Issue will be permitted to fall may also be established at a somewhat lower point than the minimum for the average. The principal argument for allowing a range of fluctuation for the open-iaarket Issues was that otherwise they would in effect be demand obligations but i»uld ©arry a long-time rate, presumably of & l / 2 per cent. The existence of sueh an obligation would detract from the attrac- tiveness of the long tap issue, which would also carry a 2 l / 2 per cont rate but would have restrictions on negotiability and adjustments of interest to length of period held* There s t i l l are questions between the Treasury tmd the System as to the exact limits of the range to be adopted* Some believed that the range should be from par upj others that i t might wall go from 99 to 101, and s t i l l others that the range might be and should be wider* There seemed to be no serious obstacle to working out an agreement on that point* Warn, sueh an agreement will have been reached, then the Federal W»89rr* will have to be prepared to do whatever is necessary through open-market purchases, through action on reserve requirements, or otherwise to see to i t that the pattern of rates is sustained* there seemed to be agreement that no specifto amount of support needs to be Indicated in the agreement but that It should be in terms of the System doing whatever i s necessary to carry out i t s undertaking* Statement tbm Treasury1* attitude ms te have no public stateja»P,t on the program* There seamed to be no ««riou* ©bjaetion to thi* course on th« part ai* the System, The two new kinds of issues, of eourae, would befcrmounoedasi that s*y be enough. A c<aaffdtia«nt t*t, to the rate on money ajid &s to the lyute®1 a «upport ©ay well be l e f t to be our course ®. Froa the System* 0 point of view, agreement 00 the kiads ©f littles to be had and 9m the asatur© of the System1 • support Is a l l that Is a«@*fttfcry« la the Treasury th#re appeared to be a f««li&g th«t # over aad above that 4 the amount of rasorves, and partieulferly in Hew York, should be inore&se& by half a billion or so* there seems to be no occasion f*r this if the agree&eRt as to support and as to the character of the Issues Is earrled out, An Important point n this o&Ba«etlo)a Is that, If the general plan is put into effect, the Treasury would not have to offer a loafterm &p*f&~st&rket issue until such time as there Is evidence I s the market that the issue i s very amah wanted* the tap Issues and the short @p#a~ »ark*ta would take oar« of the situation in the l a t e r a l * Consequently, there would be so oec^sion for iudre&siia*; the aiaoant of excess reserves whose fuaetisa would appear to be to provide a cushion of free fuad* to guarantee UNI easy absorption of a long-terrr offering. 1% would app#»r that ^sis is the only field la whioh a olearer understaading and agreesest i s s t i l l to be worked out.
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