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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 Saturday, April 3, 1937, at 10:15 a. m.



Eccles, Chairman
Harrison, Vice Chairman

Peyton (alternate for Mr. Day)

Morrill, Secretary
Goldenweiser, Economist
Williams, Associate Economist
Wyatt, General Counsel
Dreibelbis, Assistant General Counsel
Burgess, Manager of the System Open
Market Account
Mr. Carpenter, Assistant Secretary of the
Board of Governors

Mr. Thurston, Special Assistant to the
Chairman of the Board of Governors

was stated that in response to the call for this meeting

on April 1, Mr. Day had advised that it

would not be possible for

him to attend and that, accordingly, arrangements had been made for
the attendance of Mr. Peyton as alternate for Mr. Day.
Mr. Eccles read the following draft of a proposed statement
for the press:
"Developments which have recently manifested themselves
in the capital markets threaten to affect adversely the
orderly progress of economic recovery. In order to counter
act these developments, the Treasury and the Federal Reserve



"System have decided upon the following course of action, ef
fective as of Monday, April 5:
The Treasury will deposit with the Federal Reserve
banks $400,000,000 of gold certificates, issued against gold
which has been held inactive.
This action is taken in con
formity with the policy of the Treasury with respect to
acquisitions of gold, announced by the Secretary of the Treas
ury on December 22, 1936, after conferring with the Board of
Governors of the Federal Reserve System.
2. The Federal Reserve System will increase its holdings
of United States Government securities through open market
"The purpose of the combined action is to maintain an
orderly capital market which is essential for the restoration
of full employment, and for the effective utilization of the
country's productive resources."
He stated that during a conference this week with the Secretary of the
Treasury the latter had expressed the opinion that some action should be
taken to meet the current conditions in the Government securities market
and that a statement should be issued to the press regarding the action
determined upon.

Chairman Eccles said that on yesterday evening, with

Messrs. Goldenweiser and Thurston,

he had attended a conference with the

Secretary of the Treasury at which Messrs. Wayne C. Taylor, Assistant
Secretary of the Treasury, D. W. Bell, Acting Director of the Budget,
George C. Haas,

Director of Research and Statistics of the Treasury, and

H. E. Gaston, Assistant to the Secretary, were also present, that the
draft of statement set forth above was the result of that conference and
was satisfactory to the Secretary of the Treasury, and that, in the cir
cumstances, he (Chairman Eccles) would be willing to proceed in accord
ance with the statement.
Mr. Harrison inquired whether the statement was to be interpreted
as a suggestion or as a request from the Secretary of the Treasury to the
Federal Open Market Committee.

Chairman Eccles replied that it

was a


suggestion made in

an effort to determine upon a policy which might be

acceptable to all concerned.

He also said that the Secretary of the

Treasury would like to have the Committee reach a decision on the mat
ter as soon as possible today.
Mr. Harrison suggested that it
to be given consideration first
Committee would first

was important to decide what was

at this meeting; that is,

whether the

consider a recommendation of a program from the

Secretary of the Treasury or whether it

would follow its

usual proce

dure and consider what action should be taken by the Federal Open Mar
ket Committee in view of existing conditions.
Chairman Eccles said that the statement was not a recommendation
from the Secretary of the Treasury but something which was agreeable to
him and which was prepared with the understanding that it

would be pre

sented by Chairman Eccles for consideration and decision by the Federal
Open Market Committee.

Chairman Eccles then read a draft of a state

which had been prepared by the Secretary of the Treasury before

the statement above quoted was prepared, as follows:
"The Secretary of the Treasury and the Chairman of the
Board of Governors of the Federal Reserve System announce
the following actions:
The Secretary of the Treasury is transferring to
the Treasury's account with the Federal Reserve banks $500
millions of gold certificates against free gold now carried
in the Working Balance and in the Inactive Gold Account of
Gold certificates will also be issued against
the Treasury.
This action is taken in
further new acquisitions of gold.
conformity with the Secretary's statement of December 22,
1936, which declared that 'the Secretary of the Treasury,
after conferring with the Board of Governors of the Federal
Reserve System, announced that he proposes whenever it is
deemed advisable and in the public interest to do so, to
take appropriate action with respect to net additional ac
quisitions or releases of gold by the Treasury Department.'



The Open-Market Committee of the Federal Reserve
banks, beginning Monday, April 5, will make open-market pur
chases of Treasury securities for the account of the Reserve
banks in such amounts and at such times as may be desirable."
The Chairman said that the Secretary had stated that the pro
posed deposit of gold certificates with the Federal reserve banks was
not intended as a discontinuance of the policy announced in December of

currently sterilizing gold imports and that he had expressly stated
that further gold imports would continue to be sterilized.


Eccles also said that the Secretary had been insistent upon depositing
at least $500,000,000 of gold and finally agreed to reduce the amount
to $400,000,000; that the Secretary had expressed a willingness to again
sterilize that amount of gold after May 1,

1937, when conditions war

ranted such action; that he proposed the action for the purpose of let
ting the market know that the Treasury intended to do what it

could to

prevent a disorderly market; that he felt that the Federal Reserve Sys
tem had permitted a disorderly market to develop without taking ade
quate preventive steps; and that if

joint action could not be agreed up

on by the Federal Reserve System and the Treasury the latter would take
independent action.
Chairman Eccles referred to the decision reached by the execu
tive committee at its

meeting on March 22-23, 1937, that no emergency

existed and that, therefore, the committee had no authority to in
crease the amount of securities held in
McKee stated that,

the System portfolio.


although he was a member of the executive committee,

he had not been present at the meeting of the full Committee on March
15, 1937, at which time the executive committee was authorized to in
crease or decrease the System portfolio by not more than $250,000,000

in the event of an emergency,

and he inquired whether any member of

the full Committee, who was present at the time the action referred
to above was taken, believed that the executive committee,
ing at its

in decid

meeting on March 22-23 not to increase the System portfolio,

had misinterpreted the authority granted to it
on March 15.

by the full Committee

During the discussion which ensued in

Mr. McKee's inquiry, it

connection with

appeared to be the judgment of the members of

the Committee, with the exception of Chairman Eccles, that at no time
prior to this meeting had an emergency existed which would have jus
tified the executive committee, without further action by the full

in increasing the System portfolio.

he felt that the precipitous decline in

Chairman Eccles said

the prices of Government secur

ities was not at all justified, and that the situation had reached a
point where the System during this week should have purchased secur
ities and should have stated to the public that the action was being
taken to prevent a disorderly market.

He expressed the opinion that

such action would have been in accordance with the statements issued
by the Board when the increases in reserve requirements were announced.
Mr. Ransom referred to the fact that he had been in constant
touch with the Treasury Department during the entire time of Chairman
Eccles' absence and that during his conversations over the telephone
with Secretary Morgenthau and Mr. Taylor no intimation was given that
the Treasury was disturbed about action or lack of action by the Board
or the Committee.
In response to a request for an analysis of the present market
situation, Mr. Burgess stated that it

had appeared that the market



might stabilize at a rate of approximately 2 3/4%, but that the

market had been disturbed by various statements emanating from
Washington, and that the market was particularly sensitive.

He re

ferred to the long period during which prices of Government secur
ities were advancing and stated that during this period a substantial
speculative position had been created which was now being liquidated,
and that banks and certain other institutional investors had been
selling to realize profits on securities held.

He pointed out that

the strong market for Government securities had been based on (1) a
low rate of business activity and (2)

a large volume of available

funds; but that the publicity with respect to the possibility of in
flation, labor troubles, etc.,

as well as the budget situation, had

reacted adversely on the market.
Inquiry was made by Mr. McKee whether, if

the market should

show such strength as the result of any action taken in the open mar
ket by the System or by the Treasury as would result in an increase
in market quotations for Government securities,

the higher prices

would attract additional selling and, therefore, have an effect di
rectly contrary to that desired.

There was a discussion of this

point as well as the question how far the market might be expected to
go before there was a stabilization of the present movement.


Burgess stated that there had been considerable talk in the market
recently of a 3% yield for Government bonds,

that there was reason

to believe that substantial purchases would be made at that level,
and that orders were being placed in anticipation of reaching a 3%

Mr. Burgess said, however, that he did not feel that the



conclusion should be drawn from this that the market would be stabil
ized at that rate and he expressed the opinion that the fundamental

conditions in the market would determine finally the point to which
rates would go.

He also expressed the opinion that the market situ

ation would depend somewhat on the statements coming from Washington.

In response to a further inquiry, Mr. Burgess said that a certain

amount of instability in the market was to be expected until after
the adjustment of the May 1 increase in reserve requirements.

Chairman Eccles said that banks have been accustomed for a
long time to an extremely large amount of excess reserves, that by
the action of the Board this excess has been drastically reduced,
and that it

would take the banks some time to accustom themselves

to operating with a smaller amount of excess, as evidenced by the
fact that they had sold earning assets rather than reduce their bal

ances with correspondents,

He suggested that, in this situation and

in view of the fact that the Board had expressly stated that the
System would be in position to use open market operations to make
current adjustments in the credit situation, the System would be
justified in increasing the System portfolio in

recognition of the

fact that, because of the reluctance of banks to reduce their excess

there had been a larger amount of selling of Government

securities than was anticipated when reserve requirements were in

and that these offerings were coming into the market at a

time when the market was already disturbed by other factors and there
were practically no buyers.

He also pointed out that because of the

market situation new capital issues and refunding operations had



ceased at a time when recovery was far from being complete and he
stated that such a condition was contrary to the purpose of the
easy money policy which had been followed by the System and should
not be allowed to exist.
In response to an inquiry by Mr. Davis, Chairman Eccles
said the Secretary of the Treasury was not suggesting that the Sys
tem increase the System portfolio by any particular amount or that
the System buy bills, notes or bonds, nor was he asking for any com
mitment in that regard,

and, while the Secretary felt that a state

ment such as that proposed might have such a psychological effect as
would render unnecessary operations in any substantial amount, he
also felt that it

was essential that it

be made plain that the Sys

tem and the Treasury were prepared to take action to whatever extent
was necessary to prevent a disorderly market and that to accomplish
that purpose it

was necessary to make a bold gesture.

The deposit

of gold certificates by the Treasury, Chairman Eccles said, would
be accompanied by the use of trust funds to be invested in Government
securities if

necessary on the same basis of participation with the

Federal Reserve System as had been followed in the past.


Eccles added that the Secretary did not have in mind pegging the
market but, as stated in the Secretary's public statement on April 1,
to preserve an orderly market which would not be controlled by pri
vate interests, and to take off the pressure which the Secretary felt
was on the market at the present time because of sales of Government
securities by member banks to meet the increase in reserve requirements.
Chairman Eccles also stated that the Treasury was not in disagreement



with the action taken by the Board in

connection with the May 1 in

crease in reserve requirements but felt that the System had not used
the flexible means which it

stated would be available for use to

meet the temporary adjustment made necessary by the increase.
Mr. Ransom stated that he was of the opinion that at least
ten different reasons existed for the recent weakness in the bond
market and that he felt that, if
could use its

the Federal Open Market Committee

influence towards preventing disorderly conditions in

the market at a time when banks were adjusting themselves to the new
reserve requirements, he would favor that action.

He felt, however,

that there was a feeling on the part of the banks that the country
was approaching an inflationary situation and that the most effective
way of meeting existing conditions in the market would be through
more definite action by the administration toward balancing the
budget, meeting the labor situation and other conditions which he
thought were reacting adversely on the market.

Mr. Ransom also said

that he was disturbed by the possibility of any further action by the
System being interpreted as inflationary unless correctly explained.
Mr. Peyton said that, so far as his district was concerned,
he felt it

would be a mistake to issue a statement, as any statement

might have an effect exactly contrary to that desired.
that any action in

He preferred

the market should speak for itself, but said, how

ever, he would have no objection to issuing an explanatory statement
at the time the weekly report of condition of Federal reserve banks
was put out on Thursday, in the event it showed an increase in the
System portfolio.


There followed a discussion of the statement submitted by

the Chairman at the beginning of the meeting and possible amendments
thereto were suggested.
Chairman Eccles stated that he had advised the Secretary
of the Treasury that he would inform him today of the decision
reached by the Committee, and after that it was proposed to issue
a statement to the press as to the action to be taken.

was suggested by Mr. Harrison that the problem before

the Committee was a most important one and that if


were found

that a decision could not be reached today the Secretary of the
Treasury should withhold until tomorrow his decision as to what ac
tion he would take.
Upon inquiry by Chairman Eccles as to Mr. Goldenweiser's un
derstanding of the position of the Secretary of the Treasury, Mr.
Goldenweiser stated that he felt the Secretary had made up his mind
to act independently in

the event the Federal Reserve System did not

take action at this time or in the event any action taken was not
effective in preventing what he felt was a disorderly market,


that, while he would like to have the cooperation of the System in
any action taken, if

effective action were not taken he would use

the powers of the Treasury to bring about the condition in
ket which he felt was necessary.

the mar

The Secretary regarded the May 1

increase in reserve requirements, Mr. Goldenweiser said, as the sole
cause of the present condition of the market and, therefore,


that the System should enter the market through the purchase of


Mr. Goldenweiser stated that he was of the opinion that

would be a mistake for the Federal Reserve System to take no ac

tion and thereby be placed in

a situation where the Treasury felt

forced to act alone.

He felt that if

would be difficult if

not impossible for the Federal Reserve System

to discharge its

such a condition developed it

responsibilities in the field of domestic credit, and

that, inasmuch as there was economic justification for action increas
ing the System portfolio, he felt such action should be taken.


expressed the further opinion that cancellation of the May 1 increase
in reserve requirements, in view of the fact that there had been no
change in the economic picture since the Board's action of January 30,
1937, which would justify a reversal of policy, would be equivalent to
announcing that the Board had made a mistake, which he did not
feel was the case, whereas if

action were taken through the open mar

ket any securities purchased could be sold whenever the situation
made such action desirable.

In this connection,

he pointed out that

the cancellation of the May 1 increase in reserve requirements would
add approximately $750,000,000 to excess reserves which was probably
much more than would be necessary in

the present situation, and that

if the increase were rescinded in whole or in part it
tically impossible to use the power again.

would be prac

He thought that action in

the open market at this time was likely to be effective for the reason
that the motive of realization of profits which had influenced the
selling of securities had largely disappeared.

He also said that he

did not feel that an increase in the portfolio at this time would be



inconsistent in

any sense with the action of the Board of Governors

in increasing reserve requirements but would be in accordance with
the statement made by the Board at the time that its action would
place the System in a position to influence the credit situation
through the open market.


was suggested that one of the reasons

for making the increase in reserve requirements effective partly on
March 1 and partly on May 1 was to enable the Board to rescind the
latter increase if

that were found to be desirable.

Mr. Goldenweiser

said that he felt that the Board had not contemplated that it
reverse its


action on the May 1 increase unless there were a funda

mental change in

the economic picture which would justify a reversal

of policy and that the economic situation was fundamentally the same
at this time as when the action of January 30 was taken.
Chairman Eccles referred again to the fact that the recent
rather precipitous decline in the securities market had resulted in
stopping new capital financing and refinancing; expressed the opinion
that the situation had gone beyond what was contemplated when the
Board acted on the May 1 increase in

reserve requirements; and said

that he felt that an increase in the portfolio should be made to enable
the banks to adjust their position over the period of the increase.
Mr. McKee raised the question whether the rescinding of the
May 1 increase in reserve requirements would be regarded as an effec
tive means of meeting the existing market situation and this point was

together with the question whether if the System portfolio

were increased the System would be in a position to dispose of



securities at a later date.

Mr. Harrison asked whether,

were taken by the System to increase its





would be for

the purpose only of meeting the views of the Treasury or because of
some economic reason which would justify action and he suggested that
if for the former reason alone it
take such action as it

would be better to let the Treasury

felt was necessary rather then for the System

to take any action not felt to be justified by existing economic
Mr. Harrison also asked whether the object of the proposed
action was to level out the present market trend or to increase
security prices and Chairman Eccles said that he felt the market
had declined too far and too fast and that if it
until after May 1 it

would adjust itself.

could be stabilized

Upon inquiry by Mr. Harrison

whether purchases of securities for the System account should be in the
form of bonds, notes or bills, Chairman Eccles expressed the opinion
that, while the executive committee should not be restricted in that
regard, the purchases of bonds should be held down as much as possible.
In response to a request for his comments on the situation, Mr.
Williams said he found difficulty in
action at this time.

seeing any economic necessity for

He said action might be rested on the necessity

for continued easy money rates but that even if

there were some advance

in the low rates which had obtained the new rates could not be regarded
as high.

He felt that in

the present situation, if

the causes of in

flationary tendencies were not corrected, the System should possibly
even follow a policy of restraint.

He also expressed the feeling



that with the increase in prices and business profits a proportionate
increase in rates should be expected.

The System had been following

a policy, be said, of removing undue credit stimulation, and he ques
tioned whether the recovery movement was not going too fast and whether
at least a temporary slowing up would not be advisable.

He added that,

while any action taken for the purpose of stabilizing the securities
market would be explained as being for the purpose of preventing a
disorderly market, he felt that it

might be interpreted as a reversal

of the policy followed by the System in reducing excess reserves and
as a move to protect the market for Government securities.
Mr. Williams then referred to the action of the Treasury in
December in

adopting its

policy of sterilizing gold imports.

He said

that he had advised at the time that such action be not taken until
after the Board of Governors had increased reserve requirements and
now appeared that the Treasury acted too soon in that

that since it

connection he could see no good reason why the Treasury should not
reverse its



was his opinion that any action by the System

at this time to increase excess reserves would be embarrassing in the
long run, that it

would be better not to take any action in that direc

tion and that, without any thought of stopping recovery but in order
that it

might proceed in an orderly manner, he would favor some gesture

of restraint.

He added that action at this time should be toward bal

ancing the budget which would be more effective toward stabilizing
the bond market than anything else that could be done.
Chairman Eccles said that, while he had agreed as a compromise



to the procedure outlined in the statement which he presented at
the beginning of the meeting, he was opposed to the Treasury deposit
ing gold certificates and would rather attempt to meet the situation
by action through open market operations.

He referred to unfavorable

factors which had influenced the decline in the market and expressed
the opinion that open market operations were justified to cushion the
decline resulting from these factors and that it

was a responsibility

of the System to take the leadership in meeting this problem in the
domestic credit picture.
Reference was made by Mr. McKee to the question whether a can
cellation of the May 1 increase in

reserve requirements would be con

sidered as cooperation with the Treasury in meeting the problem before
the Committee and Chairman Eccles replied that the Treasury felt that
such action would be too inflexible in the present situation and that
open market operations or the deposit of gold certificates by the
Treasury would be a more satisfactory way to meet the problem.
Mr. Harrison asked whether, in

the event it

were decided to

increase the portfolio, it was Chairman Eccles' idea that the executive
committee should be instructed to buy securities on Monday regardless
of the condition of the market, and Chairman Eccles said that even if
the market were improved he felt the System should buy some bills in
any event and that, if

a statement were issued saying that action would

be taken to prevent a disorderly market,

the amount of securities pur

chased did not appear to him to be important so long as the action re
sulted in

a stabilized market.

Mr. Ransom reviewed various phases of the situation which he



felt should be given consideration and expressed the opinion that the
members of the Federal Open Market Committee would be justified in
cooperating with the Treasury in an effort to work out a satisfactory
solution of the problems under discussion.

During Mr. Ransom's state

ment Chairman Eccles withdrew from the meeting to answer a telephone
call from the Secretary of the Treasury.
There followed a discussion of the extent of the effect of
the May 1 increase in reserve requirements on the Government securities
market and Mr. Goldenweiser stated that, while he was in agreement with
Mr. Williams that the general policy of the System should be one of re
straint under present circumstances,

the System should ease the situa

tion resulting at least in part from the increase in reserve require
ments until the member banks have had an opportunity to adjust their
position, and that in view of the very large reduction in excess re
serves from approximately

$3,500,000,000 down to $500,000,000 such a

temporary policy over the period of adjustment would be justified.
During the discussion Chairman Eccles reentered the room.
Chairman Eccles said he had talked with the Secretary of the
Treasury over the telephone and had said that the question of action
to be taken by the Federal Open Market Committee was still
cussion and that it
one concerned if

was felt that it

under dis

would be in the interest of every

any decision on the part of the Treasury were deferred

until tomorrow in order to afford the Committee ample opportunity to
discuss the problem to a conclusion which would still

afford time to

issue a statement to the press for publication in the Monday morning


Chairman Eccles said that the Secretary agreed.
There followed a discussion of possible alternative actions,

including the Treasury taking action alone by the deposit of gold
certificates, the System taking action through open market operations,
and the rescinding of the May 1 increase in reserve requirements.
At 2:30 p.m. the meeting recessed and reconvened at 3:00 p.m.
with the same attendance as at the morning session.
Mr. Williams stated that, inasmuch as the Treasury had waited
three weeks before reaching a decision that action was necessary, it
would be advisable for it

to wait a little

longer to see if

ket would complete a natural adjustment which, if

the mar

the adjustment were

not too drastic, would be the most desirable solution.
The question was raised by Mr. Harrison whether the Secretary
of the Treasury would consider a program other than that presented by
Chairman Ecoles, to which Chairman Eccles replied that he did not know,
that the Secretary had expressed the feeling that the time for action
by the Federal Reserve System alone had passed, that, while he (Chairman
Eccles) had agreed to the program submitted this morning to the Federal
Open Market Committee,

he felt the Committee should have an opportunity

to present alternatives if


so desired.

Mr. Ransom suggested that the executive committee of the Fed
eral Open Market Committee meet with the Secretary for a further dis
cussion of the entire matter in the light of the considerations pre
sented at this meeting with a view to developing a program which could
be recommended to the Federal Open Market Committee.


was agreed



that the Chairman should ask the Secretary if he would meet with a
committee of the Federal Open Market Committee for the purpose stated.
At that point Chairman Eccles left the meeting to answer a
telephone call from the Secretary of the Treasury and upon his re
turn stated that the Secretary had agreed to meet with the executive

Thereupon it

was agreed that Messrs. Goldenweiser,

Williams and Burgess also should attend the conference with the
Mr. Davis suggested as a means of taking pressure off the
money market a reduction in the System buying rate on ninety-day
bankers acceptances from 1/2% to 3/8%.

Mr. Broderick suggested that

a lower discount rate might also be established on fifteen-day ad
vances to member banks secured by Government obligations.

The ad

visability of these actions was discussed briefly.
At 6:00 p.m. Chairman Eccles left the room to answer a tel
ephone call from the Secretary and upon his return said that the
Secretary had advised that he would like to see him (Chairman Eccles)
before meeting with the executive committee and that he would meet
with the executive committee tonight or tomorrow morning.

was agreed that Chairman Eccles should advise Secretary

Morgenthau that no decision had been reached by the Federal Open Mar
ket Committee, that it desired to have the executive committee dis
cuss the entire matter with him for the purpose of getting the back
ground of his views, that some of the members felt that no action
was necessary at this time other than the continuation of the present



policy of preventing a disorderly market, and that the Committee wished
to know what action he felt should be taken and what the objectives of
that action would be.
Thereupon the meeting adjourned with the understanding that
the members of the executive comittee would hold themselves in readi
ness to meet with Secretary Morgenthau and that the full Comittee
would reconvene tomorrow.