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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 Wednesday, March 1, 1944, at 10:10 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Sproul, Vice Chairman Szymezak McKee Ransom Draper Evans Leach Young Davis Peyton Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary, Mr. Goldenweiser, Economist Messrs. MacKenzie, Bryan, and Wheeler, Associate Economists Mr. Wyatt, General Counsel Mr. Rouse, Manager of the System Open Market Account Messrs. Piser and Kennedy, Chief and Assistant Chief, respectively, of the Government Securities Section, Division of Research and Statistics of the Board of Governors Messrs. Alfred H. Williams, Fleming, Leedy, and Gilbert, alternate members of the Federal Open Market Committee Messrs. Paddock and McLarin, Presidents of the Federal Reserve Banks of Boston and Atlanta, respectively Mr. Clerk, First Vice President of the Federal Reserve Bank of San Francisco Messrs. Sienkiewicz, Langum, Edmiston, Upgren, and Hardy, Vice Presidents of the Federal Reserve Banks of Philadelphia, Chicago, St. Louis, Minneapolis, and Kansas City, re spectively -2 3/1/44 Mr. Kincaid, Consulting Economist at the Federal Reserve Bank of Richmond Mr. Dolley, Economic Adviser at the Fed eral Reserve Bank of Dallas Mr. Morrill stated that advices of the election for a period of one year commencing March 1, 1944, of members and alternate members of the Federal Open Market Committee representing the Federal Reserve Banks had been received, that each newly elected member and alternate member had executed the required oath of office, and that it was the opinion of the Committee's Counsel on the basis of the advices received that the following members and alternate members were legally qualified to serve: Allan Sproul, President of the Federal Reserve Bank of New York, with L. R. Rounds, First Vice President of the Federal Reserve Bank of New York, as alternate member; Hugh Leach, President of the Federal Reserve Bank of Richmond, with Alfred H. Williams, President of the Federal Reserve Bank of Philadelphia, as alternate mem ber; C. S. Young, President of the Federal Reserve Bank of Chicago, with M. J. Fleming, President of the Federal Reserve Bank of Cleveland, as alternate member; Chester C. Davis, President of the Federal Reserve Bank of St. Louis, with R. R. Gilbert, President of the Federal Reserve Bank of Dallas, as alternate member; and John N. Peyton, President of the Federal Reserve Bank of Minneapolis, with H. G. Leedy, President of the Federal Reserve Bank of Kansas City, as alternate member. Upon motions duly made and seconded, and by unanimous votes, the following of ficers of the Federal Open Market Commit tee were elected to serve until the elec tion of their successors at the first meeting of the Committee after March 1, 1945: 3/1/44 Marriner S. Eccles, Chairman Allan Sproul, Vice Chairman S. R. Carpenter, Assistant Secretary E. A. Goldenweiser, Economist Messrs. John H. Williams, Kincaid, Langum, Edmiston, and Upgren, Associate Economists Walter Wyatt, General Counsel J. P. Dreibelbis, Assistant General Counsel Upon motion duly made and seconded, and by unanimous vote, the Federal Reserve Bank of New York was selected to execute transactions for the System open market account until the adjournment of the first meeting of the Committee after March 1, 1945. Mr. Sproul stated that the board of directors of the Federal Reserve Bank of New York had selected Mr. Rouse as Manager of the Sys tem open market account, subject to the selection of the Federal Reserve Bank of New York by the Federal Open Market Committee as the Bank to execute transactions for the System open market account and to his ap proval by the Federal Open Market Committee. Upon motion duly made and seconded, and by unanimous vote, the selection of Mr. Rouse as Manager of the System open market account was approved. Upon motions duly made and seconded, and by unanimous votes, the following were selected to serve with the Chairman of the Federal Open Market Committee (who, under the provisions of the bylaws, is also chair man of the executive committee) as members and alternate members of the executive com mittee until the selection of their suc cessors at the first meeting of the Federal Open Market Committee after March 1, 1945: -4- 3/1/44 Members John K. McKee Ernest G. Draper Allan Sproul Hugh Leach Alternate Members M. S. Szymczak R. M. Evans Ronald Ransom (To serve in the order named as alternates for Messrs. Eccles, McKee, and Draper, except that in the absence of Chair man Eccles Mr. Ransom will serve as the first alternate) C. S. Young Chester C. Davis (To serve in the order named as alternates for Messrs. Sproul and Leach) All of the members of the Committee were in agreement that there was no reason at this time for a change in the direction issued to the Federal Reserve Banks on June 28, 1943, with respect to the purchase of Treasury bills but that it would be desirable for the Com mittee to renew the direction. Thereupon, upon motion duly made and seconded, the following direction was ap proved by unanimous vote, with the under standing that resales of Treasury bills held by the Reserve Banks under option would be for immediate delivery when so requested by the option holder: Until otherwise directed by the Federal Open Market Committee, the 12 Federal Reserve Banks are directed to purchase all Treasury bills that may be offered to such Banks on a discount basis at the rate of 3/8 per cent per annum, any such purchases to be upon the condition that the Federal Reserve Bank, upon the request of the seller before the maturity of the bills, will sell to him Treasury bills of like amount and maturity at the 3/1/44 -5- same rate of discount. All bills purchased under this direction are to be held by the purchasing Federal Re serve Bank in its own account and prompt reports of all such purchases are to be made to the Manager of the Sys tem open market account. In taking this action, the Committee reaffirmed the position previously taken in discussions with representatives of the Treasury that the short-term rate on Gov ernment securities should be increased by the adoption of one of the alternative courses proposed by the System representa tives in such discussions, and the execu tive committee was authorized whenever an opportunity afforded in future discussions with the Treasury to urge appropriate steps to increase the short-term rate to a point more in line with the existing rates on longer-term issues of Government securi ties. Consideration was then given to the form of the direction to be issued to the executive committee with respect to transactions in the System account pending another meeting of the full Committee. was agreed that it It would be desirable to continue to exempt from the limitations of the direction bills purchased from dealers and that, in asmuch as the maturities of such bills were now approximately equal to the weekly purchases of bills for the account, the direction should also exempt from its limitations the redemption of maturing bills. Thereupon, upon motion duly made and seconded, and by unanimous vote, the fol lowing direction was approved with the un derstanding that the limitations contained in the direction would include commitments for purchases or sales of securities for the System account: -6- 3/1/44 That the executive committee be directed, until otherwise directed by the Federal Open Market Committee, to arrange for such transactions for the System open market account, either in the open market or directly with the Treasury (including purchases, sales, exchanges, replacement of maturing securities, and letting maturi ties run off without replacement), as may be necessary in the practical administration of the account, or for the purpose of maintaining about the present general level of prices and yields of Government securities, or for the purpose of maintaining an adequate supply of funds in the market; provided that the aggregate amount of securities held in the account at the close of this date (other than (1) bills purchased outright in the market on a discount basis at the rate of 3/8 per cent per annum and bills redeemed at maturity and (2) special short-term certificates of indebtedness pur chased from time to time for the temporary accommodation of the Treasury) shall not be increased or decreased by more than $1,500,000,000. That the executive committee be further directed, until otherwise directed by the Federal Open Market Com mittee, to arrange for the purchase for the System open market account direct from the Treasury of such amounts of special short-term certificates of indebtedness as may be necessary from time to time for the temporary ac commodation of the Treasury; provided that the amount of such certificates held in the account at any one time shall not exceed $1,500,000,000. Mr. Sproul stated that question had been raised by the Federal Reserve Bank of San Francisco whether, in the event the Federal Open Market Committee should establish a higher posted rate on Treasury bills, the existing rate of 3/8 per cent per annum would continue to apply on bills outstanding at the time of the change in the maturity of such bills. It rate until was his suggestion that, inasmuch as it was understood in discussions with representatives of the Treasury that in case the posted rate were raised the present rate would con tinue to apply to existing bills until they were redeemed, the Committee 3/1/44 take that position as a matter of record so that whenever inquiries were made at the Federal Reserve Banks the officers of the Banks would be at liberty to answer the inquiries accordingly. Upon motion duly made and seconded, Mr. Sproul's suggestion was approved by unanimous vote with the understanding that, since the action was merely a statement for the record of an existing policy, no publicity would be given to it. The statement relating to the relationships of the executive committee with the Treasury, which was read at the meeting of the Federal Open Market Committee yesterday, was read again as follows: "It has been customary for a number of years for members of the executive committee, at the request of the Secretary or the Under Secretary of the Treasury, to confer informally with the Secretary and with mem bers of the Treasury's staff on matters relating to Treasury financing policies and procedures. In these conferences the members of the executive committee from time to time have presented views and recommendations on behalf of the full Committee and at other times have presented their own views, either collectively or as in dividuals, but with the understanding in all cases that they were not meeting with the Treasury formally in their capacity of an executive committee. At times, however, the Secretary of the Treasury has referred to these con ferences as conferences with the Federal Open Market Committee or with the executive committee, rather than as conferences with members of the executive committee in their individual capacities. "The Federal Open Market Committee believes that is desirable that a more definite understanding be it reached as to the procedure to be followed in the future in such conferences. It would be preferable if the views and recommendations of the Open Market Committee and its executive committee, the Board of Governors, and the Fed eral Reserve Banks on important matters of financing policy -8 3/1/44 "were presented only in conferences with the Secretary and the Under Secretary of the Treasury by the Chairman and Vice Chairman of the executive committee. Such rec ommendations should be made in writing whenever practicable. It would also be preferable if such conferences could take place after consultations between staff members and by the Treasury with bankers and others. "Therefore, the Federal Open Market Committee author izes the executive committee to follow this procedure in the future in so far as it is practicable for it to do so." Chairman Eccles stated that he would like to suggest that Mr. Morrill be requested to expand the statement into a form that could be presented to the Treasury as a statement of the instructions of the full Committee to be followed by the executive committee in its relations with the Treasury and that, after the statement was approved by the executive committee, he (Chairman Eccles) and Mr. Sproul be au thorized to send or deliver it to Secretary Morgenthau. Mr. Leach asked whether the adoption of the statement would preclude conversations with, and recommendations to, the Secretary or Under Secretary of the Treasury by the individual Presidents. Eccles replied that it Chairman would not be expected that the Presidents or the members of the Board of Governors would express opinions or make recommendations on matters of financing policy on which the Open Market Committee or its executive committee would be expected to make recom mendations, but that the Presidents would be expected to continue to furnish the Treasury with information, whenever requested, as to the attitude of bankers and others in the respective Federal Reserve dis tricts with respect to any matters having to do with Treasury financing. -9Messrs. Peyton and Davis expressed the opinion that it would be embarrassing if the Presidents were put in a position in which they would not be at liberty to answer inquiries received from the Secretary of the Treasury, but in the ensuing discussion there was general con currence in the comment that, if the statement proposed by Chairman Eccles were adopted and the procedure outlined therein were under stood and carried out by the Treasury, the Presidents and members of the Board of Governors would not be likely to receive inquiries from the Treasury on matters of policy on which the Federal Open Market Committee or the executive committee would be expected to speak for the System, and that, therefore, occasions in which the Presidents would not be free to answer inquiries received from the Treasury should not arise. It was agreed that there could be no objection to the Presidents ascertaining at the Treasury's request, the views of bankers and others in their respective districts on any questions re lating to the financing program of the Treasury. Mr. Davis stated that it would be most helpful to the Presi dents who were not members of the executive committee if the committee would see to it that the Presidents were kept informed of discussions with the Treasury and of the conclusions reached by the executive com mittee with respect to Treasury financing and related matters. At the conclusion of the discussion, upon motion duly made and seconded and by unanimous vote, the statement set forth -10 3/1/44 above was approved in principle and the executive committee was requested to pro ceed in accordance with Chairman Eccles' suggestion. Mr. Sproul stated that during its 1944, the Presidents' meeting on February 26-28, Conference discussed the use by the Treasury of the present formula for subscriptions by commercial banks holding sav ings deposits and that it was agreed that the formula used during the Fourth War Loan Drive was generally satisfactory and should be con tinued in subsequent drives, but that, in addition to savings deposits, the formula should include the amount of outstanding certificates of deposit issued to individuals inasmuch as in some districts smaller banks carried savings of their customers in the form of these cer tificates. Mr. Sproul also said that it was understood by the Pres idents that this matter would be presented for consideration at this meeting and that he was referring to it at this time for that purpose. Following a discussion of some of the practical problems that might be faced in carrying the Presidents' suggestion into operation, unanimous approval was given to a motion, duly made and seconded, that the Committee express general approval of the recommendation of the Presidents and re quest the executive committee of the Open Market Committee to undertake to work out and present to the Treasury a procedure by which the recommendation could be made ef fective before the next war loan drive. Mr. Sproul said that it was noted by the Presidents at their conference that the situation with respect to evasive practices in volving loans to facilitate speculative purchases of Government -11 3/1/44 securities and indirect purchases of such securities by banks had improved considerably during the Fourth War Loan Drive, but that cer tain undesirable practices were still apparent such as the purchase of securities, particularly Treasury certificates, by banks through special arrangements with bank officers and directors and the ac quisition of securities through subsidiary corporations and the mak ing of loans on securities beyond the six-month period suggested by the supervisory authorities. It was the view of the Presidents, he said, that such practices were not desirable and that the procedure needed further clarification by the Treasury so that the Presidents might follow a uniform and consistent policy in dealing with member banks during subsequent drives. He also stated that for this reason the subject was referred by the Presidents' Conference to the Com mittee on Fiscal Agency Operations for review with Under Secretary of the Treasury Bell and report to the Conference. Chairman Eccles stated that, in view of the fact that the Fed eral Open Market Committee had some responsibility in connection with Treasury financing through the banks and that the practice referred to above resulted in padding subscriptions, the Open Market Committee might concur in the view expressed by the Presidents and request the executive committee to inform the Treasury accordingly. This suggestion was approved unani mously and, upon motion duly made and seconded and by unanimous vote, the ex ecutive committee was requested to pro ceed accordingly. -12- 3/1/44 In response to an inquiry from Mr. Gilbert, Chairman Eccles stated that the above action would not affect in any way the proposed discussions of this matter with representatives of the Treasury by the Presidents' Conference Committee on Fiscal Agency Operations. Mr. Sproul then read the following statement of the consider ation given by the Presidents in their conference to the redemption of war savings bonds by commercial banks and said that it was being brought to the attention of the Federal Open Market Committee for its tion only as it informa did not call for action by that Committee: "Consideration was given to the desirability of putting into effect as soon as possible a plan provid ing for redemption of war savings bonds by commercial banks in anticipation of the time when increased redemp tions will make such decentralized redemption necessary for the public convenience, and to avoid undue expansion and contraction of the redemption facilities of the Fed eral Reserve Banks. The question of compensation to banks for this service was raised but it was thought best to consider the matter of expense in the light of subsequent developments. "Without taking formal action, this subject was re ferred to the Committee on Fiscal Agency Operations with the understanding that the committee would discuss the matter with the Treasury, suggesting that the plan be put into operation as soon as practicable." Subsequently and in accordance with action taken at this meeting, the statement of procedure for presenting Federal Reserve recommendations to the Treasury in regard to important matters of Government financing was approved by the members of the executive committee in the form of a letter to the Secretary of the Treasury as follows: "In order to improve the procedure for presenting Fed eral Reserve recommendations to the Treasury in regard to 3/1/44 -13- "important matters of Government financing, the members of the Federal Open Market Committee have agreed unani mously that such recommendations should be presented to you through the Chairman and Vice Chairman of the Com mittee. "It was felt that this procedure would be helpful from the standpoint of the Secretary of the Treasury as well as that of the Federal Reserve, and that the Sys tem's responsibilities under the law in connection with open-market policy could best be met if, before reaching final decisions on financing matters, the Secretary of the Treasury were to give the Federal Open Market Com mittee, or its Executive Committee, an opportunity to consider the recommendations obtained from staff and outside sources before presentation of Federal Reserve views. It was agreed that, whenever practicable, Fed eral Reserve recommendations should be submitted in or following conferences between the Secretary and the Under Secretary of the Treasury and the Chairman and Vice Chair man of the Federal Open Market Committee, which should be held after staff meetings and after meetings with private bankers and others. "The considerations underlying the recommendation of this procedure may be summarized as follows: "The Federal Open Market Committee is a statutory body created by Congress and empowered to direct and regulate the open market operations of the Federal Re serve Banks. Under the law, the time, character and volume of these open market operations must be governed with a view to accommodating commerce and business and with regard to their bearing upon the general credit situation of the country. No Federal Reserve Bank may carry on open market operations except in accordance with the directions of the Committee. "Under existing conditions, the objectives of open market policy must be and are to provide the reserve funds required for the orderly functioning of our money and banking system and to maintain a general credit situa tion which will facilitate Treasury borrowing necessary to finance the war. The System has undertaken to main tain conditions in the Government security market which will be conducive to the continued success of Treasury financing on the present general basis of yields. The means of accomplishing these objectives are ordinarily the purchase and sale of Government securities in the 3/1/44 "open market. "The Federal Open Market Committee, in discharging its responsibilities, is, therefore, of necessity a par ticipant with the Treasury in the maintenance of the market for Government securities and in the problems of war financing. Its responsibility is that of a public body which has a greater concern than any group or per sons outside of the Treasury in the timing of Treasury offerings, the types of securities offered, and their terms and conditions because of the importance of relat ing current financing to credit and monetary policies. "It has been customary for the Secretary and Under Secretary of the Treasury to request the members of the Executive Committee of the Federal Open Market Committee to confer with them, or with members of the Treasury staff, on matters of financing policy and procedure. These have invariably been informal meetings with the individual members of the Executive Committee rather than formal meetings with the Executive Committee as such. In these conferences the members of the Executive Committee at times have given their individual views and recommendations, at times they have spoken for the Ex ecutive Committee, and at other times for the Federal Open Market Committee. In addition the Treasury at times has requested the individual views of Federal Reserve Bank presidents. "In view of the System's statutory responsibility and the importance of the matters involved, the Committee felt that the discussions with the Treasury should be on a more clearly defined basis, and that this would be accomplished by having the Chairman and Vice Chairman of the Federal Open Market Committee recognized as the appropriate representatives through whom to present all Federal Reserve recommendations, written or oral, to the Treasury on important matters of financing policy. It was felt also that better results would be obtained by presenting such recommendations in conferences with the Secretary and Under Secretary of the Treasury alone, after whatever conferences are held by the Treasury with others at the staff or technical level, and after whatever meet ings are held by the Secretary and Under Secretary with advisers or consultants, such as private bankers and Gov ernment security dealers, who are without direct public In making their recommendations, the responsibility. 3/1/44 -15- "Federal Reserve representatives would thus be able to take account of information obtained from these sources. "The Federal Open Market Committee authorized its Executive Committee, through its Chairman and Vice Chair man, in so far as it is practicable, to follow the pro cedure outlined above. If you so desire, Mr. Sproul and I will be glad to discuss this procedure with you at your convenience." Thereupon the meeting adjourned. .Secretary. Approved: Chairman.
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