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•THE S E C R E T A R Y OF T H E T R E A S U R Y W ASHINGTON 25 Dear Tom: I have your letter of October 13* 1 9 ^ » in which you propose that: (l) short-term interest rates “ be raised in the near future, (2) the Treasury make pay-offs on Treasury bills at the rate of $100 million a week for a number of weeks, (3 ) the Treasury buy mar ketable securities for trust accounts, (H) the December 15 bond maturity be refunded in full, and (5 ) Treasury balances be drawn down to much lower levels than at present. Your letter indicates further that the Board will raise the discount rate to 1-3/*+ percent as soon as the market rate on certificates has risen above 1-l/U percent, and will continue to study the situation with respect to re serve requirements for the purpose of determining action which should be taken during the next few months* I see no important objections to the proposals in your letter relating to bill pay-offs and to the December 15 bond refunding. However, it should be noted that it will not be necessary to reach a decision on the December 15 refunding until November 22 or there abouts. As to bill pay-offs, the cash balance is not excessive and, accordingly, pay-offs can just as well be taken up a week at a time as they arise. With respect to the Treasury1s cash balances, bill pay-offs over a period of weeks will serve to reduce them. We shall be glad, however, to reduce the War Loan portion of our balances in an orderly fashion, if this continues to seem advisable. My feelings as to the proposal concerning the purchase of re stricted bonds for trust accounts is that trust funds should not be used for this purpose. The law provides, for example, that the Secretary of the Treasury shall be the Managing Trustee of the Federal Old-Age and Survivors Insurance Trust Fund. A procedure which would avoid any question as to the proper exercise of this fiduciary capacity would be to keep the operations of the Trust Fund from becoming involved in market support. Accordingly, the Fund should acquire marketable Government securities only on the oc casion of original offering of such securities to the general public — as was done during the War loans — or during periods when prices in the market are determined by normal demand and sup ply factors. On all other occasions, if trust fund operations are __ to be above criticism, investments should be confined to special crowlis sues bearing rates of interest set by the Congress. - 2 - With respect to your proposals for again increasing short-term interest rates — with certificates going to as high as 1-1/2 per cent and the discount rate to 1-3/^ percent — I have given this matter careful attention, both as regards the general economic situ ation and the Government^ fiscal and credit position. It appears to me that a move such as this would he unwise at this time. We should, it seems to me, permit the economy to finish its adjustments to the monetary measures which have already been taken; and, in the meantime, we should watch the situation carefully. Sincerely yours, John W. Snyder Secretary of the Treasury Honorable Thomas B. McCabe Chairman, Federal Open Market Committee Board of Governors of the Federal Reserve System Washington 25* D* C*
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