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FIFTIETH
Annua{ Report
OF THE
BOARD OF GOVERNORS
of the Federal Reserve System
COVERING OPERATIONS FOR THE YEAR
Period
Description
Purpose
lanuarymid-May
Reduced System holdings of U.S. Government securities and then increased them in line with seasonal
and moderate growth needs of the economy. Total
holdings rose about $470 million on balance, owing
mainly to net purchases of issues maturing in more
than 1 year. Member bank borrowing rose slightly to
a level of about $150 million in the first half of May.
To offset seasonal downward pressures on short-term interest rates
early in the period and to provide for growth in bank credit and
the money supply at a rate consistent with minimizing capital outflows in accordance with the policy of slightly reduced reserve
availability adopted at the December 18, 1962, meeting of the
Federal Open Market Committee.
Mid-Maylate-July
Reduced the degree of reserve availability slightly further. System holdings of U.S. Government securities
increased nearly $1.2 billion, about one-fifth representing net purchases of issues maturing in more
than 1 year. Member bank borrowing increased further, averaging $275 million over the period.
To achieve a slightly greater degree of firmness in the money market in order to minimize the outflow of capital while continuing
to provide reserves for moderate monetary and credit growth.
Mid-July
Raised the discount rate from 3 to 31h per cent.
Raised maximum interest rates payable by member
banks on time deposits (other than savings) and
certificates of deposit with maturities of 90 days to
6 months from 2Y2 to 4 per cent and with maturities
of 6 months to 1 year from 3V2 to 4 per cent.
To help reduce short-term capital outflows by firming U.S. short-term
money market rates and permitting member banks to compete more
effectively for foreign and domestic funds.
Reduced a little further the degree of reserve availLate-Julyability. System holdings of U.S. Government securiDecember
ties increased about $1.1 billion, of which more than
one-half represented purchases of securities with
maturities of more than 1 year. Member bank borrowing averaged about $325 million over the period.
To attain slightly more firmness in the money market, in the context
of a higher discount rate, with a view to minimizing the outflow
of funds abroad while offsetting seasonal reserve drains and providing for growth needs of the domestic economy.
Raised margin requirements on loans for purchasing
or carrying listed securities from 50 to 70 per cent
of market value of securities. Also increased retention requirements on proceeds of sales from undermargined accounts from 50 to 70 per cent.
To help prevent excessive use of stock market credit, which had increased sharply since July 1962, when margin requirements were
lowered from 70 to 50 per cent.
November
8
9
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
tions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration
the continuing adverse balance of payments position and its cumula
tive effects and the high level of domestic business activity, as well as
the increases in bank credit, money supply, and the reserve base in recent
months. At the same time, however, it recognizes the continuing under
utilization of resources.
To implement this policy in the context of a higher discount rate,
System open market operations shall be conducted with a view to attain
ing a slightly greater degree of firmness in the money market, while
accommodating moderate expansion in aggregate bank reserves.
duction index rose nearly 1 percentage point, to 126.5 per cent
of the 1957-59 average, from a June figure that had been re
vised upward, and the gains were widespread among industries
and market groupings.
The labor market also showed some improvement as non
agricultural employment rose further, factory hours of work
were maintained at high levels, and the rate of unemployment
declined slightly. The number of major labor market areas
classified in substantial labor surplus categories had been re
duced to the smallest total since mid-1960. Retail trade, which
had been on a plateau for some time, showed evidence of ad
vancing in both June and July, with sales in July more than
2 per cent above the May level. According to a recent survey,
consumer buying plans also had strengthened. Industrial prices
remained relatively stable on average, while stock market prices
had risen to the year's high and were close to the record high
of December 1961.
The impact of the mid-July increase in the Reserve Bank
discount rate, other monetary actions, and the President's pro
gram to deal with the deficit in the balance of payments had
now been reflected more substantially in the financial sector.
Treasury short-term bill rates had risen somewhat further and
were about one-third of a percentage point above the 3 per
cent level prevailing at the beginning of July. Other money
market rates had also risen, and Federal funds recently had
been trading quite consistently at 3 1/2per cent. In longer-term
markets yields on Treasury bonds remained practically un
changed at about 4 per cent for most issues, while yields on
new issues of corporate and municipal bonds had declined
several basis points. Although the volume of corporate and
municipal financing continued to be light, dealers had never
theless encountered some sluggishness in investor demand.
Bank credit, seasonally adjusted, declined substantially in
July following a large rise in June, but the average expansion
for the 2 months was about the same as that for earlier months
Votes for this action: Messrs. Martin, Hayes, Bald
erston, Irons, Mills, and Shepardson. Votes against this
action: Messrs. Bopp, Mitchell, Robertson, and Scan
lon.
2. Amendment of continuing authority directive.
The Account Manager suggested that under present conditions
the continuing authority directive to the Federal Reserve Bank
of New York, which had been amended on June 18, 1963, to
raise from $1 billion to $1.5 billion the limit on net changes in
the System Open Market Account in the period between Com
mittee meetings, might appropriately be changed to restore the
former figure of $1 billion. Accordingly, the Committee amended
Section 1(a) of that directive by inserting "$1 billion" and
deleting "$1.5 billion."
Votes for this action: Messrs. Martin, Hayes, Bald
erston, Bopp, Irons, Mills, Mitchell, Robertson, Scan
lon, and Shepardson. Votes against this action: None.
August 20, 1963
Authority to effect transactions in System Account.
According to preliminary figures on industrial production,
retail trade, employment, new orders, and private construction,
the domestic economy demonstrated somewhat more vigor in
July than had been generally anticipated. The industrial pro-
ANNUAL
REPORT OF BOARD OF GOVERNORS
this year. The seasonally adjusted money supply rose $900 mil
lion in July but increased only slightly further in the first half
of August, according to preliminary estimates. Time and sav
ings deposits increased considerably further in July and early
August, with the rate of expansion in time deposits acceler
ating after mid-July when the ceiling on time deposits with
maturities of 90 days to 1 year was raised to 4 per cent. Free
reserves averaged a little lower in the 4 weeks to mid-August
than in the preceding 4-week period.
International transactions in July apparently resulted in a
small surplus in the U.S. balance of payments. However, this
reflected advance debt repayments by two European countries
and reversal of midyear window-dressing operations of some
European banks; without these transactions, there would have
been a deficit of about $200 million to $250 million. Taking
the months of June and July together, and excluding special
Government receipts, the deficit was at an annual rate of about
$3.5 billion. Fragmentary data for early August indicated no
significant change. In the exchange markets the U.S. dollar
improved slightly vis-a-vis the Canadian dollar, weakened
against the Swiss franc, and was little changed against other
major currencies.
The discussion of open market policy for the period im
mediately ahead related essentially to whether the Committee's
directive should continue to call for System Account operations
with a view to attaining a slightly greater degree of firmness in
the money market or whether operations should be conducted
with a view to maintaining the prevailing degree of firmness.
Upon consideration of recent economic and financial develop
ments, including the increase in short-term rates during the
past several weeks, and in view of prospective large-scale
Treasury financing operations, it was the conclusion of the
Committee that it would be preferable for the present degree
of market firmness to continue unchanged for the time being,
pending further evaluation of System policy in the light of de-
FEDERAL RESERVE SYSTEM
velopments affecting the domestic economic situation and the
balance of payments. The following current economic policy
directive was issued to the Federal Reserve Bank of New York:
It is the Committee's current policy to accommodate moderate growth
in bank credit, while putting increased emphasis on money market condi
tions that would contribute to an improvement in the capital account of
the U.S. balance of payments. This policy takes into consideration
the continuing adverse balance of payments position and its cumula
tive effects and the high level of domestic business activity, as well as the
increases in bank credit, money supply, and the reserve base in recent
months. At the same time, however, it recognizes the continuing under
utilization of resources.
To implement this policy, System open market operations shall be con
ducted with a view to maintaining the prevailing degree of firmness in
the money market, while accommodating moderate expansion in ag
gregate bank reserves.
Votes for this action: Messrs. Martin, Balderston,
Bopp, Clay, Irons, Mills, Mitchell, Robertson, Scanlon,
Shepardson, and Treiber. Votes against this action:
None.
September 10, 1963
1. Authority to effect transactions in System Account.
Preliminary figures for August suggested no major change
in the domestic business situation, with prospects favoring a
continuation of an upward movement at a moderate pace. The
unemployment rate edged down, although at 5.5 per cent it
was not significantly different from a year earlier. It appeared
probable from incomplete information that industrial produc
tion in August had changed little from the July level, with
sharp declines in auto output-associated with the model
change-over-and in steel production approximately offset by
rises in other lines. Weekly data suggested that retail sales may
have risen slightly further. Scattered reports of price increases
for some industrial commodities were about balanced by re-
@FedFRASER