The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Authorized for public release by the FOMC Secretariat on 3/17/2020
REC'D IN RECORDS SECTION
BOARD OF GOVERNORS
DEC 11 1961
FEDERAL RESERVE SYSTEM
WASHINGTON
December 8,
1961
CONFIDENTIAL (FR)
To:
Federal Open Market Committee
From:
Mr. Young
For your information there are enclosed:
(a) a collation
of comments made by eleven Presidents on the draft standing rules
and directives of the Federal Open Market Committee circulated under
my memorandum of September 6, 1961; (b) a checklist of specific
issues raised in response to the September 6 drafts; and (c) a
version of the September 6 draft of standing rules incorporating
editorial and minor substantive changes suggested by Committee
members and others and considered by the Secretariat to be noncontro-
versial.
The organization of the checklist parallels that of the
collation. The checklist is designed to aid in focusing consideration and discussion of the issues presented to the Committee on this
matter. Parts I and II of the checklist and collation are concerned
with the matters of basic importance for the December 19 meeting of
the Committee, including the questions of what disposition the Committee should make of its present operating policies and what
specific language should be employed if revised statements are to be
adopted.
Parts III and IV of the collation and checklist relate to the
issues concerning the Committee's current policy directive to the New
York Bank. While it would be desirable to reach a Committee decision
at the December 19 meeting concerning the desirability of splitting the
directive between a continuing and a current policy directive, it would
not be essential to resolve all of the issues raised in these two parts
at this meeting.
No questions are included in the checklist on the subject of
Part V of the collation, frequency of publication of the Policy Record,
on the grounds that this matter is deferrable until a later meeting.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-2-
The checklist also omits questions on the specific language of a
continuing authority directive. The comments made by the Presidents
on the September 6 draft of this proposed directive appear amenable
to incorporation in a revised version, which accordingly is being
prepared and will be sent to you in a few days.
Ralph A. Young; Secretary
Federal Open Market Committee.
Enclosures 3.
Authorized for public release by the FOMC Secretariat on 3/17/2020
CONFIDENTIAL (FR)
December 8, 1961
COLLATION OF SUGGESTIONS ON PROPOSED CHANGES
IN OPEN MARKET COMMITTEE PROCEDURES
Prepared by
the Secretariat,
Federal Open Market Committee
Authorized for public release by the FOMC Secretariat on 3/17/2020
CONFIDENTIAL (FR)
Collation of Suggestions on Proposed Changes
in Open Market Committee Procedures
At the Open Market Committee Meeting of September 12, 1961,
the Chairman requested that members and Bank Presidents not currently
serving on the Committee study a number of documents concerning
possible
changes in the Committee procedures and send their comments
to the Secretary for distribution to other members in preparation
for a later discussion by the Committee.
tributed was a memorandum by Mr.
Among the documents dis-
Young dated September 6, 1961,
entitled "Discussion of changes in the Committee's procedures,"
with three attachments consisting of draft texts of (I)
"Standing
Rules Governing Open Market Practice of the Federal Open Market
Committee,"
(II)
"Federal Open Market Committee's Continuing Author-
ity Directive to the Federal Reserve Bank of New York," and
(III) "Current Economic Directive" (in
four alternative forms).
The purpose of this memorandum is
expressed in
the replies received to date.
to collate the views
The memorandum is
organized in terms of a number of issues which are interrelated
in various ways but which,
it
is
believed,
are more or less separable.
1 Replies have been received from the following, under the
indicated dates: Mr. Allen, September 27; Mr. Bopp, November 22;
Mr. Bryan, November 24; Mr. Clay, November 13; Mr. Deming, Novem-
ber 24; Mr. Ellis, October 9; Mr. Fulton, November 30 Mr. Hayes,
November 3; Mr. Irons, November 1; Mr,
Mr. Wayne, October 11.
Swan, November 10; and
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 2 Not all of the replies expressed views on each of the issues
distinguished, which were not posed as such in the materials distributed, but (with two exceptions)
all
of the views expressed can
be classified under them and all substantive comments made in
replies are quoted here.
the
The two statements on other issues are
presented in a final section, headed "Other comments," which begins
on page 55.
The issues and their page references are as follows:
Page
I.
General issues relating to "Operating Policies" or Standing Rules"
a.
II.
Should the Committee adopt and publish any "standing rules"
regarding its general objectives and procedures at this time? ....
Language for Operating Policies, or Standing Rules ...................
a.
b.
III.
.
b.
3
7
General coverage and nature .........
.......
.............
7
Specific language for the standing rules ......................... 10
Preamble ..........................................
.......
, 11
13
...................................................
1
Paragraph
Paragraph 2 .................................................... 15
Paragraph 3 ...................................................... 17
19
........................
Paragraph 4 .........................
Paragraph 5 .................... "................................ 21
Paragraph 6 .................................................... 23
Paragraph 7 .................................................... 25
Paragraph 8 ................................................... , 26
New Paragraphs suggested by Mr. Fulton ......................... 27
Procedural issues relating to policy directives
a.
3
......................
28
Should the Committee's directives to the Account Management
be divided into a "continuing authority directive" and a
"current policy directive? ....................................... 28
What specific language should be employed in the continuing
authority directive? ............................................. 30
Preamble
*...................".....".................."........
31
Paragraph 1 .................................................... 32
Paragraph 2 .................................................... 35
Paragraph 3 .................................................... 36
Possible additional paragraphs ................................. 37
c.
d.
IV.
V.
Should a "statement of general policy position" be regularly
prepared as a supplement to the current policy directive? ........ 38
What procedures should the Committee establish for the
preparation of its current policy directives? .................... 11
Form of the current policy directives ,............................... 43
Frequency and lag of publication of the Policy Record
................
53
Authorized for public release by the FOMC Secretariat on 3/17/2020
-3I.
General issues relating to "Operating Policies" or "Standing Rules"
a . Should the Committee adopt and publish any "standing
general objectives and procedures at this time?
rules" regarding its
Six of the Presidents (Messrs. Allen, Bopp, Ellis, Deming,
Fulton, and Hayes) believe the Committee should not.
Mr. Allen:
"My suggestions . . . envision abandonment of
existing operating procedures and policies. Because the Committee
meets at three-week intervals I feel that there is no further need
for formal agreement on such procedures or policies, however desirable that may have been at one time.
Further, it seems needless to
make pious pronouncements annually which represent either a paraphrase of statutes or policies which the Committee at least occasionally
decides to disregard."
Mr. Bopp: "I am persuaded by the arguments that have been
advanced to eliminate the Standing Rules.
It seems to me undesirable
to build any 'boxes'that might inhibit the Committee from doing whatever it considers appropriate at any meeting because of fear that it
might violate a 'commitment' to the market.
"On the other hand, if most members of the Committee feel
strongly that standing rules are necessary, I would feel that the
rules should be used for internal purposes and not published. One
disadvantage of published rules is that any departure would require
a public announcement.
Another is that the Committee might refrain
from deviating from the rules in cases when it would be desirable
but not urgent to do so."
Mr. Ellis: "The FOMC faces the difficult problems of
adjusting its
actions to changing circumstances and seeking better
public understanding of its actions.
In this process we must avoid
oversimplification that results in distortion of understanding. Reliance upon any single set of rules or imposing limitation of Committee action through such rules in policy determination is dangerous
and risks denial of needed flexibility in adjusting policy to constantly changing conditions, the elements of which combine in shifting
proportions....
"I urge the Committee not to attempt at this time the
development and adoption of a set of 'standing rules' to replace
those suspended since February. The original purpose of the 'rules'
has been stated as helping to improve the functioning of the market
for U. S. Securities by leading to greater self-reliance. The
'rules' singled out certain Open Market Committee practices which
had been characteristic of the pegged market and which in varied
form had been continued during the early period after the Accord.
Suspension of the 'rules' in late February 1961 recognized new forces
Authorized for public release by the FOMC Secretariat on 3/17/2020
and different conjunctures of forces which required new working
procedures to accomplish the objectives of credit policy. Experience with the new procedures that followed suspension of the rules
has not been long enough to establish beyond reasonable doubt that
the new techniques make a positive contribution. Evidence is lacking
that the mechanical functioning of the market has been damaged.
Market reactions have probably been no greater than those which would
normally occur during a period of change characteristic of the last
six months.
At the same time, certain positive accomplishments of
credit policy can be cited.
"Under these circumstances it seems desirable that members
of the Committee will wish to continue study of the new techniques
against the framework of the market as it has now developed and
changed relationship of economic forces as may have evolved in the
last 10 years. Before any new set of 'rules' or policies is adopted,
the Committee should come into closer agreement on the matters of
principle in operations.
This reasoning leads me to conclude that
the Committee should not attempt at this time to develop and adopt
a sat of tstanding rulest to replace those in effect prior to February 20."
Mr. Deming: "After studying all of the suggestions concerning
the standing rules and trying my own hand editorially, I come, somewhat reluctantly, to the same conclusion reached earlier by Messrs.
Allen and Ellis
that the rules should be eliminated.
My reluctance
has little to do with the substance of the question; in general, I
concur in the position taken by Messrs. Allen and Ellis that the
rules are unnecessary and can prove to be administratively embarrassing
at times. Rather it reflects my feeling that we cannot take this
action gracefully. I have become convinced, however, that neither
maintenance of the rules, as is, nor rephrasing to make them more
broad can be accomplished with any more grace.
"Along with others, I have tried to explain the background
of the rules, have noted that the language itself makes plain that
they can be changed or deviated from at any time the Committee chooses
to do so, and have stressed the demonstrable fact that they have not
been rigid in application. I have noted that they are mainly technical operating matters, that there are technical operating reasons
for them and that short-term securities are the best instruments for
most central banking open market operations.
Progress toward outside
understanding and acceptance of the rules seems to me to have been
zero at best, and I am not at all sure that it has not been negative.
Therefore, I believe that it is hopeless to try to live with the rules
without change.
"It
seems to me that there are two major disadvantages to
amending the rules.
First, unless they are written in very broad
language they are subject to the same kind of attack as the present
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 5rules and, in fact, they may be limiting at times and thus force
hard-to-explain deviations; if they are written so broadly as to
escape these difficulties, they become almost meaningless as 'rules'.
Second, the difficulties involved in explaining the substance of
amended rules and the reasoning behind the changes would be at least
as great, and perhaps more so, than just eliminating the rules completely.
"Therefore, I believe that we should abandon the rules and,
at the proper time, say so publicly. I believe the action should be
taken before the end of this year so that it can be covered in the
Annual Report for 1961.
'Myown preference as to form of announcement would be a
tightly written article which would trace the background, rationale
and record of the resent operating rules, discuss the role of shortterm securities in central banking open market operations, note that
they have stirred up so much misunderstanding and controversy that
they no longer serve any particularly useful purpose, and that the
Committee, with its frequent meetings, no longer sees the need for
such a body of rules.
The article should be quite frank in approach
but not apologetic.
I see no reason why it should not appear, perhaps
in somewhat longer form, in the Bulletin as well as in the Annual
Report.
"In effect, the above comments apply to the first
five
'rules' in Attachment I.
If repurchases are covered in II, there
should be no need for Point 6 in any set of 'rules' anyway.
Point 7,
designation of the New York Bank, can be covered, as now, by action
at the organization meeting, and Point 8 should be left where it now
is in the 'Rules on Organization."
Mr. Fulton: "I am not clear about the desirability of
publishing the Standing Rules of the Committee at this time. We
should try to reach agreement on the Rules as soon as possible, and
then test to see if we can live with them for a period of six months
or so before they are published. It would be unfortunate to rush
into print with a set of rules that might be violated soon after
publication."
Mr. Hayes: "We are much attracted by Mr. Allen's suggestion
that there is no further need for a formal statement of operating
procedures. We agree with him that since the Committee meets at
three-week intervals there is no need for a formal published statement on operating rules.
The absence of a public statement would
not, of course, involve any relinquishment by the Committee of control over the general conduct of open market operations. The
Committee would still
be free to give the Federal Reserve Bank of
New York any kind of instructions it wishes.
The absence of a public
statement of procedures would leave the Committee's hands untied
Authorized for public release by the FOMC Secretariat on 3/17/2020
-6-
and permit it to take whatever actions future circumstances might
indicate as desirable without setting off the magnified and exaggerated reactions in the market and in the press that would
ensue if its
action were an exception to a published statement of
formal rules.
In view of the continuing problem posed by the imbalance in our international accounts, it seems to us especially
important for the Committee to retain the high degree of freedom to
act that would result from giving up a published statement of
operating procedures....
"In urging the adoption of Mr. Allen's suggestion that
there be no formal statement of operating procedures, we are not
attempting to evaluate the results of our operations outside the
short-term area in recent months. Nor can we attempt to predict
the extent to which, over the months and years ahead, the Committee
will find it desirable to operate in intermediate- and longer term
issues. Rather, we would emphasize that whether we like it or not,
international considerations are going to be highly important for
a long time to come, and they will require maximum flexibility on the
part of the System. Thus it seems important to us to retain full
freedom of action, preferably by having no published statement of
formal rules, or at least by casting any statement of rules in terms
broad enough to encompass whatever operations the Committee may wish
to conduct, with whatever frequency the Committee may wish to conduct them."
Five of the Presidents (Messrs. Bryan, Clay, Irons, Swan
and Wayne) imply that they take an affirmative position on this
issue.
Mr. Irons writes, "I would accept your draft statement
(of Standing Rules) with the following reservations . . . ."
His
reservations concern language, and are noted at a later point.
Messrs. Bryan, Clay and Swan similarly confine their comments to
specific language.
Mr. Wayne writes:
"Under this plan (for a division of statements into three
parts) the Committee would state its basic goals and purposes once
a year in the standing rules and then omit reference to them in the
current policy directive.
I believe that the inclusion of what
President Allen calls 'pious pronouncements' in the current directive
has done much to add to its complexity and obscurity."
**
*
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
-7-
II.
Language for Operating Policies,
a.
or Standing Rules
General coverage and nature
Suggestions
for revisions of the draft standing rules
circulated as Attachment I to Mr. Young's memorandum of September 6
are made by Presidents who feel there should be no standing rules
(with the exceptions of Messrs. Allen and Deming)as well as by
other Presidents, for use if a majority of the Committee favors
publication of rules.
The following general comments are offered:
Mr. Bopp: "If the Committee wishes to retain the standing rules,
whether published or not, I would in general favor wording as broad
as possible to accomplish the purpose at hand. As examples, I would
stress the broader objective of open market operations rather than
supplying and absorbing reserves; prefer to emphasize a wide latitude of operations in all maturities and then make the qualification
that most transactions ordinarily would be in short terms; incline
to have the Committee retain a free hand to engage in swaps and a
free use of repurchase arrangements."
"I find myself largely in agreement with the
Mr. Bryan:
letter
of Mr. Irons.
The suggestions that Mr. Irons has made for
changes in the draft proposal of standing rules all strike me as
excellent, with one exception.
(Note: The exception is cited
below.) ....
"Absent from Mr. Irons' letter are several suggestions
that I regard as objectionable. He does not:
"(1)
Eliminate from the statement on standing rules the
reference to bank reserves as an objective of open market operations;
"1(2) Eliminate the reference to the maturities in which
operations of U. S. Government securities are to be conducted;
"(3) Weaken in any way the present prohibition against
dealings in issues involved in a Treasury financing operation; or
U. S.
"(4) Remove the present 15-month maturity limitation on
Government securities held under repurchase agreements.
"I like two of Mr. Irons' suggestions:
these are his support
in Rule 2 of a statement that would define in terms of some precisely.stated number of months just what 'short-term issues' are, and his
Authorized for public release by the FOMC Secretariat on 3/17/2020
-8
-
insertion in Rule 5 a statement that would permit swaps only upon
the authorization of the Committee."
Mr. Ellis:
"If . . . a substantially similar series of
rules as outlined in your memorandum is to be continued, it would
be preferable to have them as brief as possible and not involve
taking positions to which exceptions may have to be made. Any
statement of policies adopted by the Committee should be pointed to
what we want open market operations to accomplish in terms of credit
policy and using them to make such policy effective. Necessarily,
such a statement will have to be broad and general.
"It would also seem to be logical that rules which may be
adopted should be made a part of the Regulation Relating to Open
Market Operations of Federal Reserve Banks, rather than appearing
in portions of the minutes of Open Market Committee meetings which
are published in the Annual Report of the Board of Governors. These
rules seem in essence to be policies or working procedures and are
thus generally similar to Regulation A which outlines the guiding
principles or working procedures for carrying out the discount function.
Placing the 'rules' in the 'Regulation' would cover open market operations in a suitable complement to Regulation A.
"Even though the Committee may decide not to publish its
policies as suggested above, it will need to consider the relationship between its published Regulation and Rules on Organization and
Information and Rules on Procedure (as amended June 22, 1955) and
the policies to be spelled out in the committee minutes. For example,
would the Committee intend through adoption of Rule #8 to modify
its Sec. 2, Par. (c) published statement on 'Rules on Organization'
as to frequency of meetings? This reasoning leads to the conclusion
that the Committee might well adopt as a general practice an annual
review of its
entire set of rules and procedures to ensure their
continued applicability and compatibility.
"Turning specifically to the language of Attachment I,
I realize that the present formulation of the rules represents a
compromise in wording as will any which may be developed in the
future.
For this reason, I am limiting my comments below to examples of the way in which the concepts should be broadened and generalized."
Mr. Hayes:
"If, however,
the Committee should wish to
retain such a statement, we would urge that
the language of the
statement be sufficiently broad to avoid giving an impression to
the Congress and the public that the Committee has tied its hands in
any way regarding the broad objectives of open market operations and
the procedures used to implement those objectives....
Authorized for public release by the FOMC Secretariat on 3/17/2020
-9"The draft of operating procedures contained in Attachment I to your memorandum of September 6 seeks to introduce a
greater degree of flexibility into our open market practices. But
it seems to us that the draft does not go far enough in that direction to avoid the kind of Congressional and public misunderstanding
and debate which, as the Chairman has pointed out, has often obscured a real understanding of the substance of System policies
over the past few years. In fact it would still leave the System
boxed in as it has been in the past."
Mr. Clay: "In formulating our views as to the appropriate
of
these operating procedure rules and the directive, we also
content
have reviewed the replies of Presidents Ellis, Hayes, Fulton, Wayne,
Allen and Irons.
Their recommendations adopted a broader, less
limited approach to the formulation of the operating procedure rules
This broader approach we favor
than is contained in Attachment I.
very strongly. At present, the need for such an approach appears
most clearly on the ground that international considerations now
and for the foreseeable future dictate it. Our reasons for favoring a flexible approach are not confined to the balance of payments
problem, however, but rather reflect our conception of the role and
scope of monetary policy for the domestic economy as well.
'While a draft of operating procedure rules modifying
Attachment I might be worded in various ways, the draft included in
Mr. Hayes' statement of November 3, 1961, accords quite well with
our views with two exceptions . . . . (Note: The exceptions relate
to paragraphs 3 and 4, and are cited in the next section below.)
"It is preferable to confine the specific details of how
operations shall be conducted to (the continuing authority directive)
rather than to include them in the standing rules of the Committee."
Mr. Swan: "We visualize the Standing Rules as being a
statement of broad principles, subject to quite infrequent changes,
and not incorporating operating procedures."
Mr. Wayne: "With the exception of paragraph 2, I agree
with the draft of the standing rules as given in Attachment I."
A number of suggestions are made for deleting particular
paragraphs in
the draft standing rules, and for moving paragraphs to
some other document.
These are cited below together with sugges-
tions for revisions of language.
**
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 10 -
b.
Secific language for the standing rules
The paragraphs of the September 6 draft standing rules are
quoted below (following the numbering and line spacing of Attachment
I to the September 6 memorandum) together with the proposals for
modification of each paragraph and supporting arguments for the proposed modifications.
The statement that a President "concurs" in the
draft wording of a particular paragraph may reflect either a positive
assertion to that effect or the absence of a proposal for revision.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
11
-
Preamble
Line
1
2
3
4
5
6
7
8
9
10
11
As provided in section 12A of the Federal Reserve Act and in
the Regulations of the Federal Open Market Committee, open market operations of the Federal Reserve Banks are conducted "with a view to accommodating commerce and business and with regard to their bearing upon the
To implement this governing
general credit situation of the country."
principle as well as
to help achieve and maintain a high level of
economic activity and employment, sustainable growth, stability of the
price level, and a strong position in the world economy, the Committee
adopts the following standing rules regarding open market practice, subject
to change by the Committee at any time:
Messrs.
Clay, Hayes and Wayne concur in
the draft wording.
Suggestions for revision:
Mr. Ellis:
Redraft, broadening to include ideas from foreword to
Regulation A.
Mr.
Fulton:
Lines 10-11:
and restate
Delete phrase beginning "subject to..."
as new paragraph 9.
Mr. Irons:
Lines 8-9: Replace phrase, "the price level" with phrase,
"price levels."
Line 9: Replace phrase, "strong position in the world
economy" with phrase, "sound international position of
the dollar."
Mr. Bryan:
Concurs in Mr.
Mr.
Swan:
Irons'
second suggestion, but not the first.
Lines 6-7: Replace phrase, "as well as to help," with
phrase, "by helping to."
Line 9: Concurs in Mr. Irons' suggestion.
Supporting Arguments:
Mr. Ellis: "In its present form, the preamble in Attachment I must be considered as a formulation of basic objectives of
the System. Taken in conjunction with Rule #1 as written, it is
inconsistent with a statement of System objectives which appears as
a foreword to Regulation A. Paragraphs (a) and (b) say in part:
'This (discount) function is administered in the light of the basic
objective which underlies all Federal Reserve credit policy, i.e.,
the advancement of the public interest by contributing to the greatest
extent possible to economic stability and growth. The Federal Reserve
System promotes this objective largely by influencing the availability
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
12 -
and cost of credit through action affecting the volume and cost of
reserves available to the member banks. Through open market operations and through changes in reserve requirements of member banks,
the Federal Reserve may release or absorb reserve funds in accordance
with the credit and monetary needs of the economy as a whole.'
"A redrafting the preamble broadened to include some of
the ideas in Paragraphs (a) and (b) of Regulation A or at least some
reference to the fact that the Committee is interested in both availability and cost of credit in the markets seems essential. If changes
along these lines are accepted, Rule #1 becomes unnecessary."
Mr. Fulton: "...the phrase 'subject to change by the
Committee at any time' has been deleted, and restated as a separate
item (item 9) to give this point added emphasis."
Mr. Irons. "It seems to me that the suggested statement
with respect to the international position of the dollar, while
certainly broad enough is not quite as broad in all of its implications as the statement in your draft, namely 'a strong position in
the world economy.'"
Mr. Swan: "'by helping' is inserted to make clear that
the principle governing open market operations is consistent with
our national economic objectives rather than apart from them."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
13 -
Paragraph 1
Line
1
2
3
4
Open market operations are conducted to supply or
absorb bank reserves consistent with the credit and monetary
needs of the United States, in the light of both the domestic
economy and international developments.
"Mr.
Wayne concurs in the draft wording.
Suggestions for revision:
Mr. Bopp:
Mr.
Ellis:
Mr.
Fulton:
Would stress the broader objective of open market operations, rather than supplying and absorbing reserves.
Delete, if proposed redraft of preamble is accepted.
Line 1: Insert "primarily" after "conducted."
Line 1: Insert "primarily" after "conducted."
Lines 2-4: Replace second part of sentence, beginning
with phrase, "the credit and monetary....." with the
following:
"...the monetary and credit needs of the United States,
in order to foster the broad objectives of monetary
policy described above."
Mr. Hayes:
Replace whole paragraph by:
"Open market operations are conducted to promote appropriate monetary and credit policies in the light of
both domestic and international developments."
Mr. Clay:
Mr. Irons:
Concurs in Mr. Hayes' suggestion.
Line 2:
Insert after "reserves" the following:
"or for such other purposes as the Committee considers..."
Or adopt this whole alternative paragraph:
"Open market operations shall be conducted for the
purpose of carrying out the domestic and international
objectives of monetary and credit policy."
Mr. Bryan:
Mr.
Swan:
Concurs in Mr. Irons' first
suggestion.
Does not favor eliminating reference to bank reserves.
Line 1: Insert "primarily" after "conducted."
Lines 3-4: Replace the phrase, "both the domestic economy and
international developments" with the phrase, "the above
principle."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
14
-
Supporting arguments:
Mr. Ellis:
"Rule #1 as worded can be accepted as an
accurate description of the Committee's policy only if we interpret
it to mean that supplying 'reserves consistent with the credit and
monetary needs . . .' also means supplying reserves in such a way
as to affect interest rates consistent with credit and monetary needs.
For example, the record of policy actions covering the Open Market
Committee meeting of February 7, 1961, contains the following sentence:
'This policy called for providing reserves to the banking system to
meet the needs of the current business situation, and also avoiding
direct downward pressure on short-term interest rates, or even permitting them to rise, in view of the relationship of the short-term
rate structure to the balance-of-payments problem.
"This excerpt and others like it in other portions of the
record substantiate the view that the System is concerned with something more than simply to supply or absorb bank reserves. We must
continue to be interested in levels of interest rates as an explicit
part of open market policy. This being so, the language suggested
in Rule #1 is an insufficient statement of the basic reason for open
market operations.
As a minimum, the word 'primarily' should be
inserted following the word 'conducted'. . . ."
Mr. Fulton: ". . . the word 'primarily' has been inserted. .
since we are now concerned, in part, with the effect of our operations
on the bill rate. The end of the sentence has been rephrased to
refer back to the broad objectives of monetary policy described in
the preamble, in order to avoid re-emphasizing our concern with
international developments. It might appear to some readers that
we are giving the international situation too much weight, in the
event that the Standing Rules are published."
Mr. Hayes:
.
"...we suggest that the objectives of open
market operations be phrased in broader terms than 'to supply or
absorb reserves'....The proposed statement (in Attachment I) implies
a considerably more narrow approach to operations than the Committee
has actually been following, for the cost as well as the availability
of credit has always been a matter of Committee concern; over the
past year the Committee has been paying particular attention to
short-term interest rates because of the balance of payments situation.
We note that Mr. Ellis makes essentially this same point in
his letter on these matters."
Mr. Irons:
"There are times when Open Market operations may
be conducted for purposes other than absorbing or supplying bank reserves.
During the past several months, in our attempt to prevent too great a
decline in short-term rates, we have engaged in operations which were
not conducted for reserve reasons. I think it is a mistake to set up
a rule as rigid as the statement in your Attachment."
Mr. Swan: "The change (on lines 3-4) would relate operations
to the principle already stated."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 15 Paragraph 2
Line
1
2
3
4
5
6
Open market operations are transacted in United States
Government securities and, as authorized, in prime bankers'
acceptances.
Although operations in Government securities are
ordinarily conducted in short-term issues, the Committee may
authorize transactions in all maturities when desirable because
of economic or financial conditions.
Suggestions for revision:
Mr. Bopp:
Would emphasize a wide latitude of operations in all
maturities and then make qualification that most transactions ordinarily would be in short terms.
Mr. Ellis:
Delete rule. Alternatively:
Line 2: Delete "as authorized."
Lines 3-6: Replace whole second sentence with:
"Most operations in Goverment securities are conducted
in short-term issues."
Mr. Fulton:
Mr. Hayes:
Delete second sentence.
Replace whole paragraph by:
"Open market operations are conducted in United States
Goverment securities and in prime bankers' acceptances;
ordinarily the bulk of operations is conducted in
short-term Government securities."
Alternatively, adopt Mr. Ellis's proposed paragraph.
Mr. Clay:
Mr. Wayne:
Concurs in Mr. Hayes' proposed paragraph.
Replace whole paragraph by:
"Open market operations may be conducted in United States
Government securities of any maturity and, as authorized,
in prime bankers' acceptances.
Market conditions and
practices, however, will usually require that the bulk of
operations be confined to short-term securities."
Mr.
Swan:
Mr. Irons:
Mr. Bryan:
Concurs in Mr. Wayne's proposed paragraph, with the further
deletion of "as authorized" from the second line.
Possibly define "short-term" in the rule.
Concurs in Mr. Irons' suggestion.
Would not eliminate the reference to the maturities in which
operations are to be conducted.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
16 -
Supporting arguments:
Mr. Ellis: "The Committee presently seems to believe that
operations in maturities other than short-term serve a constructive
Under these circumstances it can adopt the proposed wording
purpose.
of Rule #2 only by simultaneously acknowledging that the rule does
not apply at present by virtue of special. circumstances. Why not
solve this issue by not adopting any new rule on this subject until
we can operate under it straightforwardly? Alternatively, it might
be worded
....
"
(Note:
proposed wording cited above.)
Mr. Fulton: "...the reference to short-term securities has
been removed, since it may be misunderstood by the public as a carryover from our earlier 'bills-only' philosophy. If this change is
made, however, the Committee would presumably wish to direct the
account manager at each meeting as to the Committee's broad preferences with respect to maturities."
"For reasons well stated by Messrs. Ellis and
Mr. Hayes:
Wayne we suggest a recasting of the second paragraph.... The wording .
suggested by Mr. Ellis would also be acceptable to us."
Mr. Wayne:
"With regard to paragraph 2, I feel strongly
that a change is in order, as I indicated in my letter to you of
March 20, 1961.
As the draft is now worded, it would not substantially
change the present situation. The words 'may authorizer mean that
the Desk could not conduct operations outside the short-term field
If that authorization is not
except on special authorization.
permanent, the making and rescinding of it would almost certainly
Further, the changes might well excite
involve extended debate.
undue concern and speculation in the market when they become known
either through rumors or from open market operations. In my judgment,
the situation should be reversed; the authorization to deal in
longer-term securities should be permanent and any limitation on it
should be by special action. In addition, as I said in my letter
of
March 20, the statement as it now stands in the draft would almost
certainly lead critics of the System to charge, with justification,
that the System still
clings to 'bills usually."'
Mr. Irons: "The only suggestion I have with respect to
your statement of Rule 2 is that 'short-term issues' should be defined in the Rule. I have no fixed number of months in mind, but
I would be agreeable to a continuation of the 15 months or less that
we have used, or, on the other hand, I would be willing to lengthen
the period to, perhaps, 18 to 20 months.
In any event, it would
avoid confusion and contribute to clarity if the definition were
included."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
17 -
Paragraph
3
Line
2
3
4
5
Open market operations are not for the
purpose of fixing or pegging the price of any issue of
If conditions in the market for Government
government securities.
securities should become disorderly, the Committee will take
appropriate corrective action.
Messrs. Bryan and Ellis concur in
the draft wording.
Suggestions for revision:
Mr.
sentence.
(Note: Second sentence becomes
list.)
proposed
his
in
4
paragraph
Delete first
Fulton:
Mr. Irons:
Possibly insert at end of first
Line 3:
sentence:
"although such operations may tend to influence
rates of interest."
Mr. Bryan:
Does not concur in Mr.
Mr. Hayes:
Line 5:
Replace with:
Irons' suggestion.
"such action as it
Mr. Swan:
Concurs in Mr. Hayes' suggestion.
Mr. Clay:
Line 3:
deems appropriate."
Insert at end of first sentence:
"although such operations influence rates. "
Line 5:
Mr. Wayne:
Concurs in Mr. Hayes' suggestion.
Line 3:
Insert "United States" before "Government."
Supporting arguments:
Mr.
states that
Fulton:
"The first
sentence of your item 3, which
open market operations are not for the purpose of fixing
or pegging the price of any issue of government securities has been
deleted; we are now in effect substantially influencing the rate on
Treasury bills."
Mr. Irons: 'I have no criticism with respect to (rules 3
and 4). Rule 3 does introduce the question, perhaps obliquely, of
the effect of Open Market operations on interest rates. I don't
object to your statement of the Rule, but I wonder whether it might
be desirable to insert between the first and second sentences of the
Rule, something to the effect -- (Note: The suggestion is quoted above).
I do not feel strongly on this point, but thought it might be considered."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
18 .-
Mr. Hayes:
"The declaration against 'pegging' in
paragraph 3 . . . is an essential operating policy. We consider it
important for the Committee to reiterate this policy in its minutes
if the Committee is not to continue a published statement of operating
procedures. If the Committee is to have a published statement, we
believe it should not contain a fixed commitment to 'correct' disorderly conditions (which the market might interpret to mean that
the System would necessarily buy heavily, possibly to an extent
equivalent to pegging), since the best course might conceivably be
to let the market correct itself with little or no help from the
System.
The language we suggest leaves the door open for any kind
of role--major or minor or none at all--that the System may wish to
play in the case of disorderly conditions."
Mr. Swan: "We would agree with Mr. Hayes that 'such action
as it deems appropriate' is preferable to 'appropriate corrective
action.'"
Mr. Clay: "...we favor the inclusion of a phrase, somewhat
along the lines suggested by Mr. Irons....."
(Note: The suggestion
is quoted above.)
"We also agree with....the modification of the statement on disorderly market conditions so as to remove any fixed commitment as to
the specific action to be taken...."
Mr. Wayne:
"I have one general but minor comment which
applies to all three documents.
The first
time a reference is made
to Government securities the words used are 'United States Government
securities'.
In formal documents of this type it might be well to
use the term 'United States Government securities' in all instances."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
19 -
Paragraph 4
Lines
1
2
3
4
6
During Treasury financings,
conducted in
open market operations are
such a manner as to change as little
as possible
the
conditions prevailing in the money markets.
Consequently, open market operations are not conducted
in (a) maturing issues, (b) when-issued securities, or (c)
comparable issues available in the market.
Messrs. Bryan, Irons and Wayne concur in the draft wording. Mr. Bryan
would not "weaken in any way the present prohibition against dealings
in issues involved in a Treasury financing operation."
Suggestions for revision:
Line 4:
Mr.
Ellis:
Mr.
Swan:
Mr.
Fulton:
Mr. Hayes:
Mr. Clay:
Insert "generally" after "operations."
Concurs in Mr. Ellis's suggestion.
Line 4: Insert "usually" before "not conducted."
Line 6: Replace with "issues of comparable maturity
outstanding in the market."
(Note: Paragraph is numbered 5 in his proposed list.)
Lines 2-3: Replace "the conditions prevailing in the
money markets" with "prevailing market conditions."
Line 4: Replace "consequently" with "generally."
Insert after "operations": ", except those involving
repurchase agreements,".
Line 4: Insert "generally."
Line 6: Replace with "issues available in the market
comparable in maturity to the new securities offered."
Supporting arguments:
Mr. Ellis:
"This rule, as written, may require exceptions
from time to time and this may justify inclusion of a qualification
from the outset. Insertion of the word 'generally' after open market
operations in line 4 will permit departure from usual practice when
necessary.
The justification for this is that the Committee should
be in a position to consider jointly with the Treasury the market
impact of its issues and the aspects of market performance that involve credit policy as well as debt management. The course of action
should be determined by the Committee in particular instances rather
than freezing its position and requiring the formality of amendment,"
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 20 -
Mr. Fulton: "Section 5 (in his list)
refers to the
before
the
word
'usually'
I have inserted
'even keel' policy.
listing the things we will not do, since it may be necessary under
certain circumstances, now that we are dealing in other than bills,
to operate in maturity ranges comparable to those designated in the
new Treasury financing."
Mr. Hayes:
"We believe that insertion of the word
'generally' in the second sentence of paragraph 4 of Attachment I,
as suggested by Mr. Ellis, would provide a desirable degree of flexibility
in the Committee's approach to Treasury financing operations
without weakening the principle that such operations must stand the
The limitation contained in paragraph (b)
full test of the market.
of the operating procedures adopted in the past, regarding transactions in issues involved in a Treasury financing operation, has
consistently been construed as not applicable to repurchase agreeWe think that this exception
ments with respect to such issues.
should be explicit in the second sentence of paragraph 4."
Mr. Clay: "...we assume that the intended meaning of
item (c) in paragraph 4 would be more correctly reflected in some
such wording as...."
(Note:
Suggestion quoted above.)
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 21 -
Pararaph 5
Line
1
2
3
4
Open market operations involving concurrent purchases
and sales of securities of different maturity for the primary
purpose of altering the maturity composition of the System's
portfolio are ordinarily not undertaken.
Messrs. Ellis and Wayne concur in the draft wording.
Suggestions for revision:
Mr.
Would incline to have the Committee retain a free hand
to engage in swaps.
Bopp:
Delete whole paragraph.
Mr. Hayes:
Delete paragraph from standing rules.
Mr.
Clay:
Mr.
Fulton:
Replace paragraph with:
"The Committee avoids 'swap' transactions with
others undertaken off the open market."
(Note:
This would be the final sentence of a
proposed new paragraph 3,
Mr. Irons:
quoted below.)
Line 4: Replace with, "portfolio, or for other reasons,
are undertaken only upon the authorization of the
Committee."
Move paragraph to continuing authority directive.
Mr. Bryan:
Mr.
Swan:
Concurs in Mr. Irons' suggestions.
Eliminate paragraph from standing rules.
it in continuing authority directive.
Possibly include
Supporting arguments:
Mr, Hayes:
"We note that the limitation of paragraph 5 . .
would not apply to transactions which are not for the primary purpose of altering the maturity composition of the System's portfolio.
Thus the paragraph would not apply to transactions for the purpose
of influencing short-term interest rates (such as those under the
special authorization). This distinction, however, may be too
sophisticated to convey clear meaning to the general public; we
would prefer to see this paragraph deleted from the standing rules.
This would not in any way reduce the Committee's control over swap
transactions; yet it would avoid tying the Committee's hands. For
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 22
-
example, in view of the opinions expressed by several members of
the Committee, and by the Manager, that an increase in the propor-
tion of Treasury bills in the System portfolio would be desirable,
it would be useful for the Committee to have complete freedom to
act if there should be future opportunities to switch some part of
the System's large holdings of short-dated coupon securities into
Treasury bills."
Mr. Clay: "We also agree...with the deletion of the
'swaps' paragraph from the standing rules."
Mr. Fulton:
Mr.
(See below, "New Paragraphs Suggested by
Fulton."
Mr. Irons: "This Rule, as stated, applies only to one
purpose for which 'swaps' might be undertaken. We believe that
your statement of Rule 5 should be broadened by making the last line
of the Rule read as follows: (Note: Suggestion quoted above).
"...we would remove your Rule 5 and Rule 6 from the
Standing Rules and include the two Rules as stated in the Continuing
Authority Directive....This change would shorten the Standing Rules
and we believe would place the substance of Rules 5 and 6 in proper
position in the Directive to the New York Bank."
Mr. Swan:
"We would eliminate the entire item from the
Standing Rules since it
seems to us to be a matter of procedure....
"While we suggest that item 5....should more appropriately
be incorporated in the Continuing Directive, we have some question
even here unless 'concurrently' is further defined, since we are in
fact in the position of altering the maturity composition of the
System's portfolio on occasion, not for its own sake, but in connection with efforts to prevent short-term rates from declining."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
23
-
Paragraph 6
Line s
1
2
3
4
6
7
8
9
10
Repurchase arrangements
may be entered into with nonbank dealers from time to time to supply
temporary reserve funds to the market. To this end, Government
securities having remaining maturities of 15 months or less and prime
bankers' acceptances may be purchased from nonbank dealers subject to agreement for their resale within 15 calendar
days.
The repurchase rate is normally the discount rate
at the Federal Reserve Bank of New York, but may be as low as the
average issuing rate on the most recent issue of three-months Treasury bills.
Suggestions for revision:
Mr. Bopp:
Would combine with draft paragraph 3 of continuing
authority directive.
Mr. Deming:
Not needed; repurchases should be covered in continuing authority directive.
Move up to follow paragraph 2, or alternatively, move
to "standing authorities" (continuing authority?) and
publish in Regulation.
Mr. Ellis:
Mr. Fulton:
Line 1:
Replace "arrangements" with "agreements."
Delete "from time to time."
Line 2:
Lines 2 and 5: Replace "may be" by "are."
Lines 7--10:
Replace last sentence by:
"The repurchase rate is determined on the basis of
conditions prevailing in the money markets, but is
not less than the average auction rate on the most
recent issue of three-month Treasury bills."
Mr. Hayes:
Replace paragraph with:
"Repurchase agreements in Government securities and
prime bankers' acceptances may be entered into with
nonbank dealers from time to time to supply reserves
to the market on a temporary basis."
Mr.
Clay:
Mr. Swan:
Concurs in Mr. Hayes' proposed language.
Concurs in Mr. Hayes' proposed language, except for the
further deletions of "from time to time" and "to the
market."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-24-
Mr. Irons:
Line 2: Delete "from time to time."
Move paragraph to continuing authority directive.
Mr. Bryan:
Concurs in Mr. Irons' suggestions.
Mr. Wayne:
Line 3:
Insert "United States" before "Government."
Supporting arguments:
Mr,
Ellis:
"Rule #6
dealing with repurchase agreements
concerns the release of reserve funds at a price and, if the first
two rules are to be preserved, should be placed as Rule #3 which
will associate it with other operations affecting availability and
cost of reserve funds.
An alternative would be to consider repturchases as part of the standing authorities and together these
materials would be carried in an appropriate place in the 'Regulation.'"
Mr. Fulton: "Item 6...is
placed in the present tense to
conform with the other Standing Rules, and the phrase 'from time to
time' in your draft is eliminated to avoid the implication that we
engage in repurchase agreements only occasionally.
"The reference to the discount rate at the Federal Reserve
Bank of New York as 'normally' the repurchase rate seems to me to
be false and misleading, at least over considerable periods of time.
I have tinkered with the idea of using the discount rate at New York
as the upper limit
for the repurchase rate and the bill
rate as the
lower limit, but that, too, is misleading since the repurchase rate
has seldom, if ever, been set above the discount rate. That is, if the
Desk tries to set a repurchase rate above the discount rate, the
dealers' clearing bank would presumably carry the dealers and obtain
the needed reserves at the discount window. I conclude that the best
we can do is state that the rate is determined on the basis of-conditions prevailing in the market, but that in no case is it below the
rate prevailing at the last auction of three-month Treasury bills."
Mr. Hayes:
"...we would prefer to see the details on
repurchase agreements omitted from the standing rules and left to the
proposed continuing authority directive."
Mr. Swan: "eliminate the rest of item 6 (i.e., sentences 2
and 3) since it
appears more appropriately in Attachment II."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
25
-
Pargraph 7
Lines
The Federal Reserve Bank of New York is
1
selected as the
2
3
Federal Reserve Bank to execute transactions in the
open market pursuant to directions issued by the Committee from
4
time to time.
Messrs. Bryan, Fulton, Irons,
wording.
Swan and Wayne concur in the draft
Suggestions for revision:
Mr. Bopp:
Lines 3-4: Replace phrase beginning, "directions issued..."
with "authorizations and directions issued by the Federal
Open Market Committee." Use revised language as new
paragraph 1 of continuing authority directive.
Mr. Clay:
Delete from standing rules and include elsewhere.
Mr. Deming:
Mr. Ellis:
Not needed; point can be covered by action at the
organization meeting.
Delete from standing rules and include in
Rules on
Organization and Information and Rules on Procedure.
Mr. Hayes:
Delete from standing rules and combine with continuing
authority directive.
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 26 -
Paragraph 8
Lines
2
The Committee will meet at least once a month, but other
meetings may be held at the call of the Chairman.
Messrs. Fulton, Swan and Wayne concur in the draft wording.
Suggestions for revision:
Mr. Clay:
Mr.
Deming:
Mr.
Ellis:
Delete from standing rules and include elsewhere.
Not needed; point should be left in Rules on Organization.
Delete from standing rules and include in
Rules on
Organization and Information and Rules on Procedure.
Mr. Hayes:
Delete from standing rules; covered by Rules of Organization and Information and by Committee's By-Laws.
Mr. Irons:
Delete from standing rules.
Mr. Bryan:
Concurs in Mr. Irons' suggestion.
Supporting arguments for paragraphs 7 and 8:
Mr. Ellis: "Both of these statements seem out of context
in relation to the preamble and the content of the other trules.'
They seem more adapted for presentation in the presently published
Rules on Organization and Information and Rules on Procedure.
In fact, as mentioned above, Rule #8 seems to modify a parallel
statement in the published Rules on Organization."
Mr. Hayes: 'We agree with Mr. Ellis that paragraphs 7
and 8 of Attachment I seem out of context in the standing rules, and
should be provided for elsewhere. Paragraph 7, for example, might
be combined with the continuing authority directive. The subject
matter of paragraph 8 is covered by section 2(c) of the Committee's
Rules on Organization and Information, and by Section 5 of Article I
of the By-Laws."
Mr. Irons: "We would not include in
statement regarding Committee meetings."
the Standing Rules a
Mr. Swan: "We have included (paragraphs 7 and 8) as
written, as we believe they are less appropriate in the standing
directive than in the Standing Rules."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 27
New Paragraphs Suggested by Mr.
Fulton
3.
All transactions in United States government securities,
except certain exempt transactions indicated below, are conducted in
the open market and at prices and yields prevailing in the market
at the time purchases and sales are made.
Exempt transactions include
exchanges of maturing United States Treasury securities with the
United States Treasury incident upon exchange offerings, and transactions with or for the account of foreign central banks.
The Committee avoids 'swap' transactions with others undertaken off the
open market.
9.
These rules may be changed or revoked at
any regular or
called meeting of the Federal Open Market Committee.
Supporting argument for new paragraph 3:
"Item 3 in the attached draft grows out of an earlier
suggestion by Mr. Wayne. In effect, it rules out 'off-the-market
swaps', and restricts transactions to purchases and sales in the
open market at going market rates.
There remains the problem of
how to handle exchanges for maturing Treasury obligations and transactions with foreign central banks.
these exceptions should be phrased."
*
*
*
Perhaps you can suggest how
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 28 III.
Procedural issues relating to policy directives
a. Should the Committee's directives to the Account
Management be divided into a "continuing authority directive" and
a "current policy directive?"
Five presidents expressed and five implied approval of
this proposal.
Mr. Deming:
"I am in agreement with those who believe
the present directive should be split into two parts...."
that
Mr. Ellis: "Separation of the continuing authority
directive from the current economic directive would be a major step
toward improvement of the general framework of our working procedures.
It should lead to a better public understanding of Committee actions.
It also clears the way for improved expression of the Committee's
current economic directive....
"The policy record clearly reveals the two reasons that
have moved the Committee to change clause (b)--changes in recognition
of different economic conditions and changes to accompany monetary
policy moves.
The record also shows, however, that because only a
single phrase was to be changed, reluctance to signify any change
in policy sometimes
conditions.
delayed explicit recognition of changed economic
"An explicit two-part directive should permit the Committee
to recognize the course of economic activity over the cycle. It
would also facilitate expression of the Committee's objective in
terms of change in the relative degree of ease or restraint. Such
an improvement seems possible. As stated in the Broida memorandum,
'If the nature of the consensus can be succinctly summarized in
the record it is not clear why it cannot also be reflected in the
directive. '"
Mr. Hayes:
"We are in accord with the proposal for
separating the directive into a continuing authority directive and
a current policy directive. This separation, it seems to us, would
be preferable from a procedural standpoint."
Mr. Swan: "We believe a separate continuing Directive
(Attachment II) is desirable since there are certain items which
change so infrequently as to be inappropriate to incorporate each
meeting into a current directive, but which should not be in the
Standing Rules as they are, for the most part, limitations on
operations."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
29
-
Mr. Wayne: "I prefer dividing the statement of procedures
and authorities into three parts: . . . . (B) The second part would be
the continuing authority directive to the New York Bank.
(C) The
third part would be the current policy directive to the New York
Bank."
Messrs. Bopp, Bryan, Clay, Fulton and Irons imply approval
of this split by confining their comments on the draft proposals to
matters of content.
On the other hand, Mr. Allen offers a proposed
form of a directive which incorporates into one document, of a type to
be adopted at each meeting, material which is
divided between the
continuing and current directives in the drafts distributed.
**
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 30 b. What specific language should be employed in the
continuing authority directive?
Messrs.
Clay and Irons concur in the draft of this
directive, except that each would add material from the draft
standing rules, as noted above.
directive,
the first
(unnumbered)
Mr. Allen proposes a single
paragraph of which includes
material of a type included in the draft current economic directive,
and the next two paragraphs of which (numbered 1 and 2) correspond
approximately to the paragraphs with those numbers in the draft
continuing authority directive.
Mr. Ellis offers this comment:
"Here again, I urge consideration of placing these
continuing authorities in the 'Regulation'
with annual review of
all such regulations rather than publication through the Annual
Report of portions of the minutes of our March meetings.
'Incidentally, I prefer 'Mr. Allen's proposed wording to
that in
Attachment II
and believe
that the section dealing with
repurchase agreements should be included as part of this material."
Mr. Bopp favors a four-section continuing authority
directive.
He writes:
"If the standing rules and the directive were to be eliminated, a certain number of technical matters would remain. It would
seem appropriate that all authorizations and instructions of a continuing nature be incorporated in the equivalent of Attachment II.
It might be well for these authorizations to be reviewed annually,
probably at the March meeting. With these purposes in mind, I
suggest the following changes in Attachment II:
"Section 1 would be similar to No. 7 under Attachment I,
namely....(Note:
Proposed language is quoted above.)
"Sections 2 and 3 would be similar to the present Sections 1
and 2 of Attachment II; however, in the interest of clarity, I prefer Mr. Allen's wording.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
31
-
"Section 4 would cover authority to execute repurchase
agreements similar to that included in Section 6 under Attachment I
and Section 3 under Attachment II.
A combined authorization
covering repurchase agreements might be stated as follows:"
(Note:
Proposed language is quoted below.)
Other Presidents make suggestions for specific language
changes and modifications of coverage.
The paragraphs of the draft
are cited below (following the format of Attachment II) with the
proposals for change in each and the supporting arguments.
Preamble
Line
1
2
3
4
5
During periods between meetings of the Committee, the Federal
Open Market Committee, with a view to
implementing its current economic policy directive
instructs the Federal Reserve Bank
of New York:
No suggestions for revision in this language are made.
The paragraph is omitted from Mr. Allen's proposal and is not referred
to in the proposal Mr. Bopp describes.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
32
-
Paragraph 1
Line
1
2
3
4
5
6
7
8
9
To make such purchases, sales, or exchanges of Government securities and, as authorized, prime bankers'
acceptances (including replacing of
Government securities that mature, or allowing
such securities to run off without replacement)
for the System Open Market Account in the open market or,
in the case of maturing securities, by direct exchange
with the Treasury, as may be necessary
to carry out the Committee's current policy
10
directive.
11
12
cf the Bank to increase or decrease the aggregate amount
of Government securities (including forward commitments)
13
held in the System Account, other than such special shorttarm certificates of indebtedness as may be purchased for
the temporary accommodation of the Treasury under the
provisions of (2) below, is limited to 1 billion during any pericd between meetings of the Committee,
except as otherwise authorized.
Government securities
shall be purchased and sold at prices determined in
the market and bankers' acceptances at market discount
rates.
14
15
16
17
18
19
20
21
The authority
Messrs. Clay, Deming and Irons concur in
the draft wording.
Suggestions for revision:
Mr. Allen:
Replace whole paragraph with the following:
"To make (a) such purchases and sales of prime bankers'
acceptances and (b) such purchases, sales or exchanges
of United States Government securities (including
replacement of maturing securities, and allowing
maturities to run off without replacement) for the System
Open Market Account in the open market or, in the case
of maturing securities, by direct exchange with the
Treasury, as may appear necessary to effect the afore-
mentioned judgment, provided (a) that the aggregate
amount of bankers' acceptances held at any one time by
the Federal Reserve Bank of New York shall not exceed
$75 million, and provided further that such holdings shall
not be more than 10 per cent of the total
of bankers'
acceptances outstanding as shown in the most recent
acceptance survey conducted by the Federal Reserve Bank
of New York and (b) that .the aggregate amount of securities
held in the System Account (including commitments
for the purchase or sale of securities for the Account)
at the close of this date, other than special shortterm certificates
of indebtedness purchased from time to
time for the temporary accommodation of the Treasury, shall
not be increased or decreased by more than $1 billion;".
Authorized for public release by the FOMC Secretariat on 3/17/2020
-33
Messrs. Bopp and Ellis:
Mr. Fulton:
-
Concur in Mr. Allen's proposal.
Replace whole paragraph with the following:
"To engage in open market operations in United States
government securities and, as authorized, in prime
bankers' acceptances, as provided in Sections 2 and 3
of the Standing Rules Governing Open Market Practices
of the Federal Open Market Committee.
The authority of
the Bank to increase or decrease the aggregate amount of
United States government securities held in the System
Open Market Account (including forward commitments),
other than special short-term United States government
certificates of indebtedness identified in Section 2
below, is limited to $1 billion during any period between meetings of the Committee, except as otherwise
authorized."
Mr.
Swan:
Mr. Wayne:
Line 2: Omit "as authorized."
Line 3: Omit "of"
Lines 18-21: Omit final sentence.
Line 21: Insert:
"Holdings of bankers' acceptances are
not to exceed $75 million, or 10 per cent of total
bankers' acceptances outstanding."
Lines 1-10:
Replace first
sentence with the following:
"To buy, sell, or exchange United States Government
securities and, as authorized, prime bankers' acceptances
in the open market for the System Open Market Account to
the extent necessary to carry out the Committee's current
policy directive.
This includes replacing United States
Government securities which mature by direct exchange
with the Treasury or allowing such securities to run off
without replacement."
Lines 18-21:
Replace last sentence with the following:
"United States Government securities and bankers'
acceptances shall be purchased and sold at prices prevailing in the market at the time purchases and sales
are made."
Mr. Hayes:
Concurs in Mr. Wayne's proposal, with these modifications:
Replace "and, as authorized, prime bankers' acceptances"
with "and of prime bankers' acceptances in amounts as
authorized,".
Make clear that transactions in bankers' acceptances
are for the account of the New York Bank.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
34
-
Supporting arguments :
Mr. Allen:
"It will be noted that the suggested directive
Exhibit A, does not
restrict the maturities of United States Government
securities which the Federal Reserve Bank of New York would be authorized to buy and sell.
Thus it would eliminate the need for the
special authorization which a Committee majority has approved at each
meeting since February.
"It will be noted also that I have included in the suggested
directive authorization for the Federal Reserve Bank of New York to
buy and sell bankers' acceptances.
The inclusion of such authority
in
the directive seems more appropriate
than the current annual auth-
orization, for the reason that we presumably operate in acceptances as
a part of open market operations authorized by Section 14 of the
Federal Reserve Act."
Mr. Fulton: "(a) The preamble states that the Federal
Reserve Bank of New York is to conduct open market operations with
a view to implementing the Committee's 'Current Economic Policy
Directive'.
It,
therefore, seems unnecessary to repeat this proviso in subsequent sections of the directive, and accordingly this
has been omitted.
"(b) The attached draft of Section 1 of the Continuing
Authority Directive attempts to simplify the phraseology by referring
back to the appropriate Standing Rules.
If we can agree upon those,
there seems to be no good reason to repeat them here."
Mr. Swan:
"While we do not feel strongly about this, we
question whether this sentence (that is, the last sentence of the
draft paragraph 1) is necessary in view of item 3 of the Standing
Rules. In any case, it is on a somewhat different level than is the
rest of the material in the Continuing Directive."
(With respect to the proposed added sentence on the dollar
limit for bankers' acceptances:)
"This limitation it seems should be
in this directive along with other dollar limitations prescribed."
Mr. Wayne: "The first
two sentences of this section seem
unnecessarily complex and obscure, while the last sentence appears
to be vague and ambiguous.
I prefer the following statement of the
paragraph (Note: the statement is quoted above) which, to me, seems
clearer and more direct without changing the substance:"
Mr. Hayes:
"...we have some preference for Mr. Wayne's
rewording of paragraph 1...except that it should be made clear that
transactions in bankers' acceptances are conducted for the account
of the Federal Reserve Bank of New York. We would suggest..."
(the language change noted above.)
Authorized for public release by the FOMC Secretariat on 3/17/2020
--35-Paragraph 2
Line
1
2
3
4
5
6
7
8
9
10
To purchase directly from the Treasury for the account
of the Federal Reserve Bank of New York (with discretion,
in cases where it seems desirable, to issue participations
to one or more Federal Reserve Banks) such amounts of
special short-term certificates of indebtedness as may be
necessary from time to time for the temporary accommodation of the Treasury: provided that the total amount of
such certificates held at any one time by the Federal
Reserve Banks shall not exceed in the aggregate $500
million, except as otherwise authorized
Messrs. Clay, Deming, Hayes,
draft wording.
Irons, Swan and Wayne concur in
the
Suggestions for revision:
Mr. Allen:
Line 10:
Mr. Fulton:
Line 1:
Delete "except as otherwise authorized."
Replace
"purchase" with "acquire."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 36 Paragraph 3
Line
To supply reserves to the money market on a
1
2
3
4
5
6
7
8
9
10
11
12
13
14
temporary
basis, when consistent with the current policy directive,
by purchasing for the account of the Federal Reserve Bank
of New York from nonbank dealers
Government securities having a remaining maturity of
15 months or less or prime bankers' acceptances, under
resale agreements maturing in up to 15 calendar days.
The rate on such agreements will normally be the discount
rate of the Federal Reserve Bank of New York, but in no
event shall it be a rate below (1) this discount
rate
or (2) the average issuing rate on the
most recent issue of three-month Treasury bills, whichever
is the lower.
Messrs. Clay, Deming, Swan concur in the draft
wording.
would not remove the present 15-month maturity limitation
Mr. Bryan
on secur-
ities held under repurchase agreements.
Suggestions for revision:
Mr. Allen:
Delete the paragraph.
Mr. Bopp:
Replace paragraph with the following:
"Repurchase arrangements in Government securities and prime
bankers' acceptances may be entered into with nonbank
dealers in order to help carry out the Committee's
policy directive. Purchases made under this authorization shall be (a) limited to Government securities and
bankers' acceptances having remaining maturities of
X months or less, and (b) under resale agreements maturing
in up to 15 calendar days.
The rate on such agreements
will normally be the discount rate of the Federal Reserve
Bank of New York, but in no event shall the rate be below
this discount rate or the average issuing rate on the most
recent issue of 3-month Treasury bills, whichever is the
lower."
Mr. Fulton:
Line 2: Insert "Committee's" before "current," and
"economic" after "current."
Line 4: Insert "United States" after "dealers."
Line 7: Replace period with comma
Lines 8-14: Replace with the following:
"subject to the restrictions set forth in
Section 6 of the Standing Rules Governing
Open Market Practices of the Federal Open
Market Committee."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 37 Mr. Hayes:
Lines 5--6: Remove reference to maturity or increase
limit to 24 months.
Mr. Wayne:
Line 5:
Insert "United States" before "Government."
Note: Mr. Irons' and Mr. Ellis's suggestion that paragraph 6 of the
standing rules be moved to the continuing authority directive might
imply some modification of the draft of this paragraph.
Supporting arguments:
Mr. Allen: "...I
have not included in the suggested
directive authority for repurchase agreements in bankers' acceptances
and securities; these could continue subject to annual authorization."
Mr. Fulton: "In your version of Section 3, Attachment II,
certain restrictions are placed on the determination of the repurchase rate that differ from Rule 6 of the Standing Rules as stated
in Attachment I. The revised draft simply refers back to the appropriate section of the Standing Rules."
Mr. Hayes: ". . . we would suggest that the limitation
on repurchase agreements to securities maturing in 15 months be
broadened by removing reference to maturity or at least by increasing
the maturity limit to 24 months. While repurchase agreements under
almost any set of circumstances would be limited to short-term
securities, the 15-month dividing line is perhaps too narrow."
Possible additional paragraphs
Additional paragraphs or other language revisions for the
continuing authority directive are implied by the suggestions, noted
earlier, for moving certain material from the standing rules.
These
are Mr. Irons' suggestion to include in the continuing authority
directive the draft paragraph on "swaps," a suggestion also made by
Mr. Swan but with some questions, as noted; Mr. Hayes' suggestion
to include here the substance of paragraph 7 of the draft rules;
and, perhaps, Mr. Clay's suggestion to include "elsewhere" paragraphs 7 and 8 of the draft rules.
**
*
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
c.
38 -
Should a "statement of general policy position" be
regularly prepared as a supplement to the current policy directive?
Mr. Hayes recommends supplementing the directive with a
"Statement of General Policy Position," a proposal to which Mr.
Deming sees no objection. Mr. Allen also proposes supplementary
language.
Mr. Hayes:
"While we thus favor the elimination of
clause (b) as used in the existing directive, we believe that it
would be desirable for the Committee to formulate and to vote upon
a statement of policy broader and more general in scope than the
instruction to the New York Bank as to the relative degree of ease
or tightness which we believe should constitute the directive. We
thus suggest that the Committee experiment with a procedure similar
to that suggested by Mr. Irons in his letter to you of February 28,
1961.
Under our proposal, the Secretary of the Committee and the
Manager of the Account would draft, immediately after each meeting,
a statement of the general economic policy position of the Committee
as it developed out of the discussion. This statement, which would
be as brief as is consistent with accuracy and clarity, would be
reviewed by the Chairman (or by whoever may have presided in his
absence) and then distributed that same day to each member of the
Committee (by wire in the case of the Reserve Bank Presidents).
The Committee members could then, within a day or two, indicate
their approval of the statement, offer suggested changes, or
register dissents. A statement of the Committee's policy position
would appear, along with the current policy directive, in the
policy record for each meeting. We envision that a draft of the
policy record would be prepared and circulated at the same time
as the draft of the minutes. The Committee would thus have before
it a few days after
each meeting a draft of the minutes and a
draft of the policy record entry, with the latter containing not
only the current policy directive but also the general statement
of policy position revised in accordance with suggestions made by
members on the initial draft of the statement which would have been
dispatched (by wire in the case of the Presidents) on the afternoon
of the meeting.
At the following meeting the Committee, having
reviewed and commented upon the above material, would formally vote
on the general statement of policy position and would approve the
minutes. Any dissents or supplemental statements a member may
wish to record with respect to the statement of policy position
could readily be presented in the subsequent text of the policy
record. The entire procedure outlined above, it should be added,
could be explained in the general introduction to the policy record
for each year.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
39 -
"The general policy statement we have in mind might at
times be as short as a single sentence. More often it would take
three or four sentences to express the main points integral to
current policy.
We believe that a statement of this
kind would
provide a much more flexible format than clause
(b)
has been for
communicating to the Congress and the public a summary statement
of what policy is
and how it has developed.
As an example of what
we have in mind, we include as Enclosure B a re-write of how the
first
part of the policy reccrd entries for the meetings of June 6
and June 20 might have looked had our proposal then been in effect."
His enclosure B consists of the two illustrative directives,
quoted later, plus the following illustrative policy statements:
"Statement
of General Policy Position
(for the meeting of June 6, 1961)
"It is the policy of the Committee to encourage further
expansion in bank credit and the money supply as a means of giving
additional stimulus to the economic recovery which is clearly
underway but which is not fully assured. This policy recognizes
that despite the gains in activity that already have been achieved
since the recession low, there remains a large volume of unused
labor and other resources and there is no evidence of upward pressure
on prices. At the same time, the Committee recognizes that in view
of the persisting problem of the balance of payments, it is necessary
to continue to pay close attention to international financial developments."
(for the meeting of June 20,
1961)
"It is the policy of the Committee to stimulate the
developing, but incomplete, business recovery through the encourage-
ment of further expansion in bank credit and the money supply. The
Committee believes that further expansion in current levels of
liquidity is desirable in view of the persistence of a large volume
of unemployment and excess capacity, and that in view of these un-
used resources and the related absence of upward pressure on
prices, such expansion poses no present inflationary danger. At
the same time, the Committee recognizes the importance of giving
continued attention to the balance of payments problem of the
United States."
These illustrative statements are accompanied by the note:
"To be followed by the usual summary review of economic
and financial developments."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
40
-
Exhibit B attached to Mr. Allen's letter is an illustrative
policy record for the meeting of September 12, 1961.
It consists of
the illustrative directive (including the numbered paragraphs quoted
above) followed by these three paragraphs:
"In determining that it would be appropriate for essentially
the same degree of ease in the money and credit markets which had
prevailed since the last meeting of the Committee to continue for a
further period, the Committee was influenced primarily by the state
of the domestic economy, the Treasury's financing program, and the
international situation.
"The over-all expansion in economic activity had continued,
but without acceleration, and there was as yet no evidence that
consumer spending or expressed intentions to spend would dramatically increase.
Unemployment remained at 6.9 per cent of the labor
force.
Business loans, which normally increase in August and early
September, had thus far risen in no more than seasonal proportions.
Note was taken of the increased liquidity in various sectors of
the economy, financial institutions in particular, and of the need
to be alert to market developments on the expansionary side which,
if they developed, might require prompt re-evaluation of monetary
policy.
"The Treasury's financing program, which called for the
raising of $5 billion in cash between the date of the meeting and
mid-October, and the serious state of international problems, were
also factors in the Committee's decision that no change in the
existing degree of monetary and credit ease was in order pending
further developments."
Mr. Deming: "Should this form be adopted (that is, a
simple directive along the lines of Mr. Allen's suggestion, without
use of quantitative guides) I would see no objection to having a
'general policy position' stated and voted upon also, as outlined
by Mr. Hayes. As a matter of fact, the 'general policy positions'
might be used for the complete policy record in the Annual Report,
if a published explanation of policy, as noted below, were to be
done....
"This (that is, avoidance of quantitative guides in the
directive) does not mean that the policy explanation need avoid
using these (and other) indicators. In fact, I think that the
policy explanation should use such indicators but should put them
in better perspective and should make clear that no one indicator
(or several) can serve as an absolute guide to or explanation for
Authorized for public release by the FOMC Secretariat on 3/17/2020
policy at all times. The essence of my argument is that a full,
authoritative, current and readable policy explanation would go
a long way in dispelling the kind of criticisms now being made of
the directives and the policy record. Mr. Swan makes this same
point in his letter and I agree with him almost completely."
*
d.
*
*
*
*
What procedures should the Committee establish for
the preparation of its current policy directives?
Messrs. Ellis, Wayne and Fulton suggest having alternative
possible policy directives prepared in advance of the meeting,
whereas Messrs. Irons, Bryan, Deming and Hayes recommend preparation
of a draft directive after the meeting, subject to the approval of
the full Committee.
Mr. Ellis:
"At the present time, when it appears to the
Chairman at the outset of a meeting that it might be appropriate to
consider some change in the language of the directive, he has suggested phraseology that has been referred to him by the Secretary.
This has proved to be an advantage to those who wish to discuss
changes in language during the go-around. It seems possible that
this technique might be elaborated to the Committee's advantage.
"Thus the Committee may wish to consider the advisability
of inviting the Secretary, perhaps in collaboration with the Manager,
to prepare in advance of the meeting a suggested statement of the
main directive and one or two alternatives of the second part of
These statements could be mailed to the
the economic directive.
offices on the
members of the Committee in time to reach their
Friday preceding the meetings. They could serve as a basis for
discussion within staff groups in the various banks in their preparation for the meeting.
"One advantage of this approach is that each participant
in the meeting would have before him a suggested wording of the
directive upon which he could base his comments. He could seek
He could suggest
either to make it more specific or less specific.
This
modification of relevant magnitudes cited in the directive.
approach could provide a focus for discussion which would add
definiteness to the consensus at the termination of the meeting.
It would leave with the Committee the responsibility for determining
the directive.
Authorized for public release by the FOMC Secretariat on 3/17/2020
42 -
"It seems that no more than three alternative wordings
would be sufficient to cover the range of views that the Committee
might wish to express at various times.
By having the alterna-
tives carefully worded in advance, the Committee would not be forfeiting its right to decide the course of policy, but would have
before it some materials which would sharpen debate."
Mr. Wayne:
"To facilitate action by the Committee in
deciding on a directive, it might be well to have the staff submit
draft copies of several versions of possible current policy directives
along with its memorandum on economic conditions and which would be
consistent with the analysis in that memorandum."
Mr. Fulton: "In general, I like Mr. Wayne's suggestion
that the staff
submit draft copies of several versions of the cur-
rent directive along with its economic report for consideration by
the Committee.
If the Committee is to give more complete directions
to the Federal Reserve Bank of New York, which I favor, the Board
staff will necessarily play a more important role."
Mr. Irons:
"Such a directive (that is, of the type he
proposes) would be written following the Open Market Committee meetings by the Secretary of the Committee and the Manager of the Account.
These officials would be guided by their observations as to what had
been said in the meeting, together with a summarization of the consensus as presented orally at the meeting by the Chairman. Such a
written directive could be approved the afternoon of the meeting by
the Chairman of the Committee and forwarded to the members."
Mr. Bryan:
"Let me ...
indicate general agreement with
Mr. Irons' suggestion that the directive be written after each
meeting by the Secretary of the Committee and the Manager of the
Account, and after approval or amendment by the Chairman, forwarded
to the members of the Committee. I believe there is nothing more
futile
than nineteen men trying to edit
a directive around a table
at a meeting.
Incidentally, if we ever attain clear, quantitative
directions to the Desk, the present hairsplitting shifts of linguistic emphasis in the directive will be reduced to a lesser and more
proper importance, and we shall have a better guide to when a change
of language is called for."
"I do not favor the suggestion that two or
Mr. Deming:
prior to a Comthree alternative directives be prepared by staff
mittee meeting. I do favor Mr. Irons' suggestion that the secretary
and manager be charged with drawing up the formal directive, and,
if it is to be used, the 'general policy position', after the meeting,
I should think this work could be done quickly and probably could be
In fact, it should
made available on the afternoon of a meeting.
not be too difficult to arrange affairs so that the Committee
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 43 -
reconvened briefly after lunch to pass formally on the statement
or statements at the time.
It seems clear that a formal vote
should be taken on the directive, and perhaps on the policy
position, and I think this could be done more easily and efficiently at a meeting than by mail."
Mr. Hayes' comment is made in conjunction with his
recommendation for material to supplement the directive, and is
quoted above.
*
IV.
*
*
*
*
Form of the current policy directive.
Attachment III to Mr. Young's September 6 memorandum, on
the current policy directive, was headed "Alternative Suggestions
as to Formulation," and carried the note:
"Other suggestions will,
of course, occur to members of the Committee."
No Presidents ex-
press a preference for Alternatives A or B of Attachment III.
Messrs. Fulton and Wayne lean toward Alternative C, Messrs. Bryan,
Clay and Ellis toward Alternative D, and Mr.
combination" of C and D.
Swan prefers "some
Messrs. Allen, Bopp, Hayes, Irons and
Swan offer suggested forms other than those included in
with Mr. Deming concurring in Mr. Allen's suggestion.
the draft,
These pro-
posals are cited below following quotation of the comments made on
this issue.
Mr. Allen: "In an effort to suggest procedures which
might meet with the approval of a majority of the Committee I enclose
two exhibits, both based on the Committee meeting held September 12,
Exhibit A is a suggested directive to the Federal Reserve
1961.
Bank of New York which I believe could have been issued at the conclusion of that meeting....
Authorized for public release by the FOMC Secretariat on 3/17/2020
-44-
"Let me repeat that I have prepared the enclosures in an
effort, among other things, to meet what I construe to be the
present attitude and conviction of a majority of the Committee,
and at the same time to offer forms of directive and policy record
which would be understandable to the layman."
Mr. Bopp:
"The record of policy actions, in addition to
meeting the statutory requirements, affords the best opportunity
for informing the public about the Committee's policies and the
conduct of open market operations.
The record of each meeting
should give a clear, concise analysis of business and financial
developments considered in reaching a policy decision. In case of
significant differences of opinion as to policy, the differing views
should be explained
briefly.
"Instead of a 'directive' to the Manager of the Account,
I suggest that the record give a concise statement of the consensus
agreed upon at each meeting. The consensus should include a brief
appraisal of the economic situation together with the Committee's
intention as to policy for the interval before the next meeting,
similar to alternative (c) under Attachment III.
Using alternative
(c) as an illustration, the consensus might be stated as follows:
(Note: Suggested language is quoted below). To meet the requirement of a recorded vote and to afford an opportunity for recording
dissenting views, a vote could be taken on policy as stated in the
consensus.
"This method of handling the consensus and the recorded
vote would avoid the danger of leaving the reader of the Annual
Report with the impression that such a brief published directive
covers the Committee's instructions to the Manager of the Account.
The discussions and the minutes of the meetings serve as a much
better 'directive' than one or two sentences which necessarily must
be in very general terms."
Mr. Clay:
"As to the form and content of Attachment III
--
the Current Economic Directive -- several considerations are involved.
Some of the ambiguity in past directives probably arose from a lack
of agreement among the Committee members, and efforts to be comto arrive at a consensus.
pletely explicit may make it more difficult
But a lack of specific directions shifts the responsibility of inter-
pretation to the Trading Desk and may subject the Desk to criticism
Attempts to be specific also are hampered
which it should not bear.
by the fact that individual members of the Committee differ in the
measures through which they express their choices -- using free
reserves, interest rates, credit expansion, and other terms that
cannot be interchanged.
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 45 -
"Despite these difficulties, the Committee should strive
to develop methods of expressing their objectives in as unequivocal
More progress toward this end would be made
a form as possible.
if further directives followed the general pattern of Alternative D
The type of detail that could be incorporated
in Attachment III.
in the subordinate directive would have to be learned by experimentation over time and indeed might vary from time to time according
to the circumstances prevailing.
By reason of the unforeseeable
developments that repeatedly occur, the details of the subordinate
directive would need to be viewed as targets for the manager to pursue
rather than as inflexible goals."
Mr. Deming: "My comments with respect to the form of the
current economic directive should be taken against the background of
the f ollowing points:
"(a)
I agree with Mr. Broida that the problem is not one
of communicating instructions to the Desk, but of communicating to
the public, and that the form and content of the directive and the
policy record should be aimed at this end.
"(b)
I do not agree that the language or the form of the
(b) clause, as used at present, is as meaningless or as absurd as
some critics contend. I have given apparently well received and
understood talks on Federal Reserve policy using the (b) clauses as
a framework on which to hang discussion of policy. It is true, of
course, that the clauses were given more meaning by being explained
against the background of economic and financial developments and
credit policy actions than if they had been presented standing
alone, but the significant point to me has been that no one has
raised questions about language. Until the recent comments on the
Open Market policy record appeared I had heard no adverse comment
on (b) clause wording outside the Committee (or the System) itself.
"(c)
The above should not be taken to mean that I think
the current economic directive is perfect.
Of course, I think its
language can be improved. I believe, however, that the key to
better understanding lies in more full explanation of policy, either
in the policy record or in special articles, or both, rather than in
the directive.
"My feeling then is that the directive should be simple,
general, and brief. I rather like the form suggested by Mr. Allen.
That form would imply more frequent changes in directive than have
occurred in the past, but I see no objection to that. I think it
would offer the advantage of presenting a somewhat more definitive
policy on which to vote than does the present form....
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 46 -
"What I partidularly want to avoid is a directive couched
in terms of a guide or guides such as free reserves, money supply,
total reserves, federal fund or bill rates, or the like.
I simply
do not believe that any one indicator is going to be good enough to
use all of the time and I fear that should we attempt to use one
(or more) in the directive itself, we will spend a great deal of
time subsequently trying to explain why we did not get quite the
precise results that these apparently precise indicators would
imply we sought. I also feel that an attempt to write directives
in specifics would push us uncomfortably close to mechanistic policymaking."
Mr. Ellis:
one thing in common.
"The four alternatives presented ...
all have
Each one has a phrase, sentence or paragraph
describing the economic situation, followed by a statement of the
direction policy is to take. Whichever alternative is accepted
will be a constructive move.
However, alternative 'D' offers the
best opportunity to improve on the clarity of instructions to the
Account Manager. Unless the consensus can be stated more explicitly,
'The entire burden of determining how much and what reflects more
ease or more restraint is placed on the Manager,' as stated by Karl
Bopp in his March 1st memorandum."
Mr. Fulton:
"Of the four, I rather
like Alternative
C,
since it is short, flexible, and easily understood, without going
into quantitative detail. I would, however, add a sentence about
bill rates or the maturity preferences of the Committee, although
somewhat more general in nature than that
contained in Alternative
D.
For example, at the last
meeting, the Committee might have expressed a preference for a bill rate somewhat higher than the average
level prevailing since the last meeting of the Committee.
Since we
are providing reserves on balance during the current period, this
would imply a maturity preference, namely, that open market operations be conducted in other than bills, to the extent possible.
"I am hesitant about stating precise targets for free
reserves, the level of bill rates, etc., in the Economic Policy
Directive. We talk about these targets freely among ourselves,
which is all to the good, since we know the limitations of these
figures and mentally attach ranges of error to them.
On the other
hand, we might be leaving ourselves open to criticism by those who
may not understand the fragile nature of our targets and estimating
procedures if quantitative goals were compared, upon publication,
with the results actually achieved. For this reason, among others,
I prefer Alternative C to Alternative D, since the former states
the directive in general qualitative terms ('about the same degree
of ease as obtained since the last meeting,' 'slightly easier,' and
so on). The same would apply to statements about the bill rate
('about the same,' 'slightly higher,' etc.). Also, this form of
directive gives the Account Manager more room to maneuver on a dayto-day basis towards the common objective."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 47 -
Mr. Hayes: "As far as the current policy directive is
concerned, we believe that it should contain the instruction that
is most useful to the New York Bank in the day-to-day conduct of
operations--the instruction as to the relative degree of ease or
tightness that the Committee wishes to have maintained in the market
during the period until the next meeting. We note that Mr. Allen's
suggested directive consists of this kind of instruction. At the
same time, we believe that the Committee should not seek to include
in the directive a statement as broad and as tightly compressed as
Clause (b) has typically conclause (b) of the existing directive.
sisted of a statement so general in scope and so abbreviated in form
that, as Messrs. Broida and Knipe have demonstrated, the Committee
has had difficulty in making the statement an effective vehicle for
conveying to the public a record of changes in policy over time.
This difficulty was also pointed up recently by the criticism of
the Record of Policy Actions for 1960 made by the Joint Economic
Committee and its
staff."
"We believe that if a change is made from the
Mr. Irons:
present type clause (b) directive and statement, an attempt should be
to the
made to spell out a current economic directive in some detail
Manager of the Account. We continue to believe that a directive of
the type included in our memorandum of February 28, 1961 may have
I am not sure how much improvement we can effect in
possibilities ...
making our directive concise, nor am I confident of being able to
reduce a directive to some sort of precise formula. If there is to
be any change, I lean to the side of appreciably more detail rather
than less."
"Turning to the current economic directive, I
Mr. Bryan:
again find myself in complete agreement with Mr. Irons' view that
out such a directive in more detail.
an attempt should be made to spell
Of the four alternative formulations found in Attachment III, I like
It is the only formulation,
best of all
alternative 'D.'
four illustrations,
containing quantitative instructions.
among the
"As I see it, the need for stating instructions in
quantitative terms, within a range of latitude suitable to the
practical administration of the Account is now, and has been for a
long time, one of the most important problems confronting the Committee. I regard the successful solution of this problem as imperative; I believe that, unless the problem is successfully resolved,
the survival of the Committee in its present form, and with its present
power, is gravely and needlessly endangered.
"It is clear that the relationship of the Agent Bank and of
the Manager to the Committee is a fiduciary relationship, and it is
subject to the general canons governing a fiduciary and his principal.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
48 -
Among the responsibilities of a principal in such a situation is
not only that of making his instructions to his agent reasonably
clear, but also that of giving instructions within the limit of
the means available to the agent. If the instructions are not
clear, or if they lie beyond the means at the agent's disposal,
then the agent has an adequate defense against misadventure, all
to the discomfiture of the principal.
The agent, quite aside from
the requirement that he faithfully discharge his fiduciary responsibilities, has an even greater responsibility:
the responsibility
of being able to demonstrate that he has done so, and this responsibility is the more demanding in a public trust than in a private
trust. Implicit in this is the responsibility, discharged every day
in private fiduciary relationships, of refusing instructions that
are excessively vague, meaningless, or beyond the means at the disposal of the fiduciary.
"I
thus believe that the Committee, as principal, owes it
to itself and to its Agent Bank and Manager to make its instructions
not only clear but also within the means disposed by the Bank and
the Manager. I also believe the Agent Bank and the Manager have
the responsibility--inadequately realized, I think--to accept no
instructions that are unnecessarily vague, meaningless, or beyond
the means disposed by the Bank and the Manager.
"The Committee, I strongly feel, has tended to avoid clear,
quantitative instructions because it has failed to draw a distinction
between means and ends. Although most of the things that we wish
ultimately to influence, our ultimate purposes or ends, can be stated
in quantitative terms, many of them cannot be so stated. Even when
they can be stated in quantitative terms, the combinations and
permutations of such items as price levels, employment, interest
rates, and so on through a long list, are so many as to make an instruction, weighing all items, impossible. More than that, many of
our purposes or ends are qualitative, not quantitative: ease, tightness, and so on through a long list, which I spare you. These things,
despite an element of reality,
defy adequate and meaningful definition,
and they are unreasonably vague, sometimes meaningless, and not
always proportionately responsive to the means governed by the Committee and at the disposal of the Agent Bank and Manager.
to remember is that the Com"What the Committee has failed
mittee has control over but one means, whatever its ultimate purposes;
that is, it controls bank reserves. Unless it gives its instructions
in terms of a quantitative reserve concept, from time to time modifying
the instructions in accordance with its view of the attainment or
nonattainment of the final purposes or ends it has in mind, then in
my judgment the Committee cannot decently hold the Agent Bank and the
Manager responsible for the fulfillment or non-fulfillment of the Committee's instructions.
What is equally important, the Agent Bank and
Authorized for public release by the FOMC Secretariat on 3/17/2020
-
49
the Manager, while they may have an adequate defense in the ineptitude
of the instructions given by the Committee, are deprived of the positive
proof to the Committee and the Congress, when such instructions are
given in vague and qualitative terms, that they have followed the
Committee's intent. This will ultimately be a disaster, I feel sure.
"I lay the chief responsibility for this situation on the
Committee, where the authority and power vests, but I believe some
responsibility lies with the Agent Bank and, to a much lesser extent,
with the Manager. They should have the keenest awareness of the
canons of fiduciary responsibility; they should give the Committee
the greatest aid and assistance in developing a basis for clear,
quantitative instructions within the means that are disposed by the
open market operation; they should cease their eternal yowling for
greater discretion.
"As I have said, I regard this matter of quantitative
instructions, and a clear distinction between means and purposes or
ends, as imperative.
Unless we solve it, we shall one day be confronted with an explanation to the Congress of what we intended, all
without being able to say what we did in fact intend; the Agent Bank
and the Manager, after our retreat into vague generality, will one
day be confronted with the task of explaining whether it fulfilled
as the fiduciary the wishes of the Committee, without being able to
explain."
Mr. Swan: "Turning to the current directive (Attachment
III),
we would strongly prefer some combination of alternatives 'C'
and 'D'.
For example, to the first sentence of 'C' we would add a
sentence as shown in our Attachment III
relating
to the comparative
degree of ease or tightness, and would then go on to specify what
particular quantitative variables appear to fit. These variables
would not, of course, necessarily remain the same from one meeting
to the next. Despite their limitations, however, free reserves have
been more generally mentioned as a quantitative policy guide than
have any other one measure.
"Similarly, in view of the concern over international flows
of funds, the 91-day bill rate has received much attention in recent
months.
"There are, of course, other important quantitative
variables, such as the Federal funds rate, the rate of growth of
the money supply, required and nonborrowed reserves, and the level
of member bank borrowings. However, we would prefer to avoid trying
to specify too many quantitative guides, especially in view of our
imperfect knowledge of how they are related.
"Nevertheless, we believe it would ordinarily be desirable
to specify at least two quantities in the directive so as to give
explicit recognition to reference points which are to some degree
now available to the Manager in the consensus."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 50 Mr. Wayne:
"I strongly favor abandoning the present
system
with its cumbersome and ambiguous clause (b)....
"I
favor a current policy directive which is
short and clear and with a format allowing a brief statement of
the reasons underlying the directive.
Perhaps alternative
'C' ...
would meet these requirements."
The newly suggested forms for directives are as follows:
Mr.
Allen:
(Illustration for meeting of September 12, 1961)
"It is the Committee's judgment that essentially the same
degree of ease which has prevailed in the money and credit markets
since the last meeting of the Committee should continue until the
next meeting or until the Committee determines otherwise, and the
Committee directs the Federal Reserve Bank of New York until otherwise directed by the Committee:"
(This is followed by paragraphs 1
and 2, quoted earlier.)
subthere is still
that
"In view of the fact
Mr. Bopp:
stantial unemployment and under-utilization of resources, it was the
consensus of the Committee that open market operations should be
directed toward maintaining about the same degree of ease."
Mr. Hayes:
(Illustration for meeting of June 6, 1961)
"Until the Committee otherwise directs, operations should
be designed to maintain approximately the same degree of ease as has
prevailed recently, resolving any doubts on the side of further ease
and clearly avoiding any lessening of the availability of reserves."
(Illustration for meeting of June 20, 1961)
"Until the Committee otherwise directs, operations should
be designed to maintain substantially the same degree of ease in the
market as has prevailed recently, with the understanding that any
doubts arising in the operation of the System Open Market Account
would continue to be resolved on the side of ease."
Mr. Irons:
(Excerpted, together with an explanatory note, from his
letter of February 28, 1961
recent letter quoted above.)
to which he refers in his
Authorized for public release by the FOMC Secretariat on 3/17/2020
"Policy Directive
As is explained in the accompanying letter, the
"(Note:
substitute policy directive set forth below attempts to establish
a more logical form for the directive, while at the same time preserving the basic form of earlier policy directives. Thus Clause (a)
sets forth what might be viewed as the basic objectives of monetary
and credit policy, regardless of the phase of the business cycle.
Clause (b) sets forth the current translation of the long-run
objectives in terms of the existing economic situation; that is,
the current phase of the business cycle (an economic recession) is
reflected in the statement. It is contemplated that Clause (a)
would seldom, if ever, be changed, but that Clause (b) would be
changed several times throughout a business cycle. Clause (b) would
be followed by a fairly specific 'instruction' to the New York Bank,
which would be designed to translate the broader policy objective in
Clause (b) into specific terms for guidance of the Account.
The
final paragraph would contain any special authorizations for the
succeeding period until the next meeting of the Committee. In this
example, the special authorization to deal in securities of more than
15 months maturity is included.)
"The Federal Open Market Committee directs the Federal
Reserve Bank of New York to make such purchases, sales, or exchanges
of securities, as authorized in the operating policies and standing
directives of the Committee adopted on March
, 1961, as may be
necessary with a view:
"(a)
to relating the supply of funds in the market to
the needs of commerce and business in order to
promote the highest sustainable rate of economic
growth, continuity of employment opportunities,
and reasonable stability in price levels, and
"(b)
to encouraging monetary expansion for the purpose
of fostering recovery in economic activity and
employment, while taking into consideration current and prospective international developments.
"In furthering these objectives, the Federal Reserve Bank
of New York is instructed, until the next meeting of the Committee,
to maintain approximately the same degree of ease in the money market
as has prevailed since the last meeting of the Committee, as re-
flected in the availability of bank reserves, short-term interest
rates, and the general tone and feel of the market. Such degree of
ease would in general be reflected in net free reserves averaging
approximately $400 to $500 million; member bank borrowing from
Reserve Banks in the range of $50 to $150 million; rates on 3-month
Treasury bills fluctuating between 2.40 and 2.60 per cent; and a
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 52
Federal funds rate ranging between 2 per cent and the existing
discount rate. These instructions contemplate that the Federal
Reserve Bank of New York will assume sufficient leeway to meet
day-to-day situations of unanticipated tightness or ease, when
necessary, as reflected by the tone and the feel of the market.
"During the period until the next meeting of the Committee,
the Federal Reserve Bank of New York is authorized to purchase, sell,
or exchange for securities of more than 15 months maturity, and up
to 10 years maturity, in effectuating the goals of monetary and
credit policy; provided that the net amount of purchases, sales, or
exchanges for such securities is not to exceed $500 million."
"In view of the fact that there is still sub-
Mr. Swan:
stantial underutilization of resources, despite the healthy upward
movement of the economy, the Committee directs that open market
operations be undertaken to encourage bank credit expansion.
Over
the next three weeks, operations should be designed to maintain a
degree of ease about the same as that prevailing since the last
meeting. This implies a range of $500 to $550 million of free reserves and a money market condition producing a 91-day bill rate of
between 2.25 and 2.50 per cent."
*
*
*
*
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 53 V.
Frequency and lag of publication of the Policy Record
Messrs. Wayne, Fulton and Bopp favor quarterly publication
of the Policy Record, with a lag of one quarter, but Mr. Swan takes
a contrary view.
Their comments, and Mr. Deming's, are as follows:
Mr. Wayne:
on policy actions.
'I have two suggestions concerning reports
"(1) The draft of the policy record should be written
by staff members as soon as feasible after the close of the period.
This should be a succinct and clear statement of the reasons for
adoption of the directive and, in line with President Allen's suggestion, might well include the directive, either verbatim or in
substance.
The Committee should then approve the draft, with such
modifications as it prefers, so that it could be entered into the
policy record.
"(2) I favor publication of the policy record each quarter,
with a lag of one quarter. There are several possibilities for publication but I would favor a quarterly paper in the Federal Reserve
Bulletin. This would be a comprehensive and authoritative but compact summary of national monetary and credit developments, into which
would be woven the account of the policy changes. If this method
should be chosen, every effort should be made to maintain the highest
possible level of competence and lucidity in the preparation of
this paper.
The staff member charged with preparing it should maintain a running account during the quarter to be covered.
Shortly
after the end of the quarter he should put it into shape for a
thorough review and appraisal by all members of the Committee and
all presidents of Federal Reserve Banks who are not members.
'I see no valid reason for the present long delay in
publishing parts of the policy record. Publication along the lines
described above would not only end one of the persistent and potent
criticisms of the System but would also provide all parties with a
useful and authoritative account of monetary and credit developments
as well as a rational account of policy action while it is still
pertinent, yet not current to the extent that it might defeat the
purposes of the Committee."
Mr. Fulton:
"As for publication, I favor the suggestions
of Messrs. Wayne and Allen that a description of the policy record
be written by a staff member promptly after each meeting, and that
this be submitted to the Committee for amendment and approval, and
then entered into the policy record.
These statements could then be
brought together at the end of each quarter, reviewed by the Committee,
and published in the Federal Reserve Bulletin with a lag of one
quarter."
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 54 Mr. Bopp: "The suggestion that the record of policy
actions be prepared and sent to members of the Committee for their
consideration and suggestions as promptly as possible after each
meeting is a good one. As a means of keeping the public as well
informed as feasible, I also favor publishing the record of policy
actions quarterly with a lag of one quarter instead of annually."
Mr. Swan: "Finally, turning to the question of public
understanding of Federal Open Market Committee determinations, we
do not believe this can be accomplished through publication on a
quarterly basis of the policy record including a more detailed
directive, and such publication would in all probability encourage
more frequent Congressional inquiry.
"We still believe, as we indicated earlier, that what is
needed is a separate publication of System policy positions and accomThis should involve a more explicit
plishments (and failures).
review of both policy decisions and of the changes in the economy
which occurred either in response to, or in spite of, such decisions
than could or should be provided in the formal policy record of the
This would be a considered statement
Federal Open Market Committee.
and what
of what the System is trying to do, how it tried to do it,
seems to have been accomplished. In other words, we need some
economic analysis of policy on a fairly current basis, done within
We would recommend
the System, and presented regularly to the public.
that a quarterly presentation in the Federal Reserve Bulletin be prepared along these lines but we believe it should not be an official
statement of the Committee itself. Perhaps, to insure that such a
statement is authoritative but something less than official, it might
be entrusted to the Economist and Associate Economists of the Committee. To test the practicability of this suggestion, the Committee
could direct this group to prepare such a study covering the second
quarter of 1961."
Mr. Deming: "If such a policy explanation were done
quarterly for Bulletin publication, I see no reason why it should
be lagged a quarter. Given the normal delays of writing and publication, it would be lagged 45 to 60 days anyway. I agree with Mr. Swan
that such a quarterly article should not be an official Committee
statement, but I assume that it would quote the Committee directives
and policy actions as a framework on which to hang the discussion.
Were this approach to be used, the official policy record in the
Annual Report could be confined to a 'bare bones' story, perhaps
using the 'general policy position' form as the only explanation of
the policy action."
*
*
*
*
*
Authorized for public release by the FOMC Secretariat on 3/17/2020
- 55 Other Comments
Mr, Bopp: "...I
should like to endorse with enthusiasm
the decision to commission competent, uninvolved observers to reI am persuaded that this innoview critically what we have done.
vation has very great promise for a viable Federal Reserve System.
Of course, I disagree here and there with the Knipe and Broida
memoranda; of course, they annoy me on occasion; but such disagreements and annoyances are relatively unimportant. What is important
as we enter the future is a willingness to take the risks involved
in authorizing and circulating among ourselves such memoranda.
There are no experts in this field and we can profit immeasurably
from uninhibited internal criticism."
wish to express the hope that we do not
Mr. Bryan: "...I
strive for complete unanimity in the document we are struggling over.
There are evident great differences of philosophy in the Committee,
and great differences in evaluating what is important and what is
unimportant. If we struggle for unanimity, we shall produce an
amorphous and witless document, satisfying to no one and resolutely
defensible by no one."
Authorized for public release by the FOMC Secretariat on 3/17/2020
REC'D IN RECORDS SECTION
DEC 11 1961
CONFIDENTIAL (FR)
December 8, 1961
Checklist on Issues Concerning Committee Procedures
*
*
*
*
*
*
Part I
General Issues Relating to "Operating Policies" or"Standing
Rules"
Part II
Language for Operating Policies or Standing Rules
Part III
Procedural Issues Relating to the Current Policy Directive
Part IV
Form of the Current Policy Directive
Authorized for public release by the FOMC Secretariat on 3/17/2020
Part I
1.
2.
3.
-
General Issues Relating to "Operating Policies" or "Standing Rules"
At its March 7, 1961 meeting the Committee tabled consideration
of changes in its existing operating policies, which consequently
remain in effect. Should the Committee at this time:
(a)
Reaffirm the existing operating policies
(b)
Adopt revised operating policies or standing rules
(c)
Terminate existing operating policies
(d)
Take no action concerning operating policies
If a majority of the Committee favors taking no action at this time
with regard to operating policies (alternative (d) under Question 1),
should the Committee plan to consider such policies:
(a)
At the March 1962 organization meeting
(b)
After more experience is gained with the results of the special
authorization
(c)
In conjunction with a thorough-going revision of the Regulation
Relating to Open Market Operations of the Federal Reserve Banks,
Rules on Procedure, and Rules on Organization and Information
If a majority of the Committee favors either revision or termination
of operating policies (alternatives (b) or (c) under Question 1),
should the published explanation appear:
(a)
Only in the Policy Record
(b)
Also in the Federal Reserve Bulletin, perhaps in extended form
Authorized for public release by the FOMC Secretariat on 3/17/2020
-2-
Part II - Language for Operating Policies or Standing Rules
1.
Should the suggestion be adopted that the preamble to the draft of
standing rules be broadened to include reference to both the availability and cost of credit and possibly other ideas from paragraphs (a) and (b) of Regulation A?
2.
If a majority of the Committee approves the modification of the
preamble proposed in Question 1, should paragraph 1 of the standing
rules be deleted?
3.
If a majority of the Committee favors retention of paragraph 1,
should the word "primarily" be inserted after "conducted"?
4.a
Which, if any,
be adopted?
(a)
of the following versions of paragraph 1 should
The September 6 draft wording:
"Open market operations are conducted (primarily).to supply or
absorb bank reserves consistent with the credit and monetary
needs of the United States, in the light of both the domestic
economy and international developments."
(b)
The September 6 draft wording, with the phrase "or for such
other purposes as the Committee considers" inserted in line 2
after the word "reserves".
(c)
"Open market operations are conducted (primarily) to supply
or absorb bank reserves consistent with the monetary and credit
needs of the United States, in order to foster the broad
objectives of monetary policy described above."
(d)
"Open market operations are conducted (primarily) to supply
or absorb bank reserves consistent with the credit and monetary
needs of the United States, in light of the above principle."
(e)
"Open market operations are conducted to promote appropriate
monetary and credit policies in the light of both domestic
and international developments."
(f)
"Open market operations shall be conducted for the purpose of
carrying out the domestic and international objectives of
monetary and credit policy."
5.
Should paragraph 2 be deleted?
Authorized for public release by the FOMC Secretariat on 3/17/2020
-36.
If a majority of the Committee favors retention of a paragraph along
the lines of draft paragraph 2, should a definition of "short-term"
be included in the paragraph?
7.
Should the phrase "of any maturity" be inserted after "Government
securities" in the first sentence of paragraph 2?
8,
With respect to the second sentence of draft paragraph 2, which
of the following alternatives should be chosen:
(a)
Complete deletion
(b)
Adoption of the September 6 draft wording, as amended:
"Although operations in United States Government securities are
ordinarily conducted in short-term issues, the Committee may
authorize transactions in all maturities when desirable because
of economic or financial conditions."
(c)
Replacement by the following:
"Most operations in Government securities are conducted
in short-term issues."
(d)
Replacement by the following:
"; ordinarily the bulk of operations is conducted in
short-term Government securities."
(e)
Replacement by the following:
"Market conditions and practices, however, will usually
require that the bulk of operations be confined to
short-term securities."
9.
10.
11.
Should the first
sentence of draft paragraph 3 be deleted?
Should there be added to the first sentence of draft paragraph 3:
(a)
"although such operations may tend to influence rates of
interest."
(b)
"although such operations influence interest rates."
Should the phrase, "appropriate corrective action" in draft
paragraph 3 be replaced by the phrase, "such action as it deems
appropriate"?
12.
With respect to the second sentence of draft paragraph 4, should
the word "generally" or "usually" be inserted before the phrase,
"are not conducted"?
13.
Should draft paragraph 5 be eliminated from the standing rules?
Authorized for public release by the FOMC Secretariat on 3/17/2020
-14-
14.
If a majority of the Committee favors elimination of draft paragraph 5 from the standing rules should the paragraph or its
substance be included in the continuing. authority directive?
15.
If a majority of the Committee favors inclusion of a paragraph
along the lines of draft paragraph 5 in either the standing rules
or the continuing authority directive, which of the following
courses should be chosen:
(a)
Adoption of September 6 draft wording:
"Open market operations involving concurrent purchases
and sales of securities of different maturity for the primary
purpose of altering the maturity composition of the System's
portfolio are ordinarily not undertaken."
(b)
Replacement of the phrase, "are ordinarily not undertaken"
by the phrase, "or for other reasons, are undertaken only
upon the authorization of the Committee."
(c)
Replacement of the whole paragraph by the following:
"The Committee avoids 'swap'
transactions with others
undertaken off the open market."
16.
Should reference to repurchase agreements be omitted from the
standing rules, in light of draft paragraph 3 of the continuing
authority directive?
17.
If a majority of the Committee favors inclusion of a paragraph
along the lines of draft paragraph 6 in the standing rules, which
of the following courses should be chosen:
(a)
Adoption of the September 6 draft wording, as amended:
"Repurchase agreements in United States Government securities
and prime bankers' acceptances are entered into with nonbank dealers
to supply temporary reserve funds to the market. To this end, United
States Government securities having remaining maturities of
15 months or less and prime bankers' acceptances are purchased from
nonbank dealers subject to agreement for their resale within 15
calendar days. The repurchase rate is normally the discount rate
at the Federal Reserve Bank of New York, but may be as low as the
average issuing rate on the most recent issue of three-months Treasury bills."
(b)
Replacement of the draft paragraph by one along the following lines, with the "details" left to the continuing
authority directive:
"Repurchase agreements in Government securities and
prime bankerst acceptances may be entered into with
nonbank dealers to supply reserves on a temporary basis."
Authorized for public release by the FOMC Secretariat on 3/17/2020
(c)
Adoption of the amended draft paragraph, with replacement of the
final sentence by:
"The repurchase rate is determined on the basis of
conditions prevailing in the money markets, but is
not less than the average auction rate on the most
recent issue of three-month Treasury bills."
18.
Should the maturity limit on securities acquired under repurchase
agreements be:
(a)
Retained at 15 months
(b)
Increased to 24 months
(c)
Removed completely
19. Should the substance of draft paragraph 7 be included in the
standing rules?
20.
If a majority of the Committee does not favor including the
substance of draft paragraph 7 in the standing rules, which of
the following courses should be chosen:
21.
(a)
Inclusion in Rules on Organization and Information or
Rules on Procedure
(b)
Inclusion in
(c)
Inclusion in minutes of organization meeting
the continuing
authority directive
Should the following language be adopted as an additional rule:
"All transactions in United States Government securities,
except certain exempt transactions indicated below, are conducted in the
open market and at prices and yields prevailing in the market at the time
purchases and sales are made.
Exempt transactions include exchanges of
maturing United States Treasury securities with the United States
Treasury incident upon exchange offerings, and transactions with or
for the account of foreign central banks. The Committee avoids 'swap'
transactions with others undertaken off the open market."
Authorized for public release by the FOMC Secretariat on 3/17/2020
-6Part III - Procedural Issues Relating to the Current Policy Directive
1.
Should the Committee's directive to the Account Management be divided
into a "continuing authority directive" and a 'current policy directive"?
2.
Should a "statement of general policy position" be regularly prepared
as a supplement to the current policy directive?
3.
Which of the following procedures should the Committee adopt for the
preparation of the current policy directive (and policy statement,
if any):
(a)
Have the Committee develop the directive in the course of
its deliberations, without advance distribution of alternative
possible directives
(b)
Have alternative possible directives distributed to the
Committee several days in advance of the meeting, with agreement on the final directive to be reached in the course of
deliberations
(c)
Have a draft directive (and policy statement, if any) prepared immediately after the meeting by the Secretary and the
Account Manager on the basis of their understanding of the
consensus, and, after approval by the Chairman, distributed
to the Committee for approval or dissent
(d)
4.
Have alternative possible directives distributed in advance
of the meeting to facilitate deliberations, but follow the
procedure indicated under (c) above for the preparation of
the final directive (and policy statement, if any)
If a majority of the Committee favors having the directive completed
after the meeting (alternative (c) or (d) under Question 3), which
of the following procedures should be adopted:
(a)
Have the Committee reconvene briefly after lunch to pass formally
on a directive drafted following the morning session
(b)
Have the directive drafted and distributed after adjournment,
by wire to Presidents
Authorized for public release by the FOMC Secretariat on 3/17/2020
-7-
Part IV - Form of the Current Policy Directive
1.
Should the current policy directive include a summary statement
on the cyclical phase of the economy?
2.
Should the current policy directive include:
(a)
A qualitative guide, written in terms of relative degrees
of ease or restraint, but without reference to specific
variables such as total reserves, free reserves, money
supply, bill rates, Federal funds rates, etc.
(b)
A qualitative guide, written in terms of one or more specific
variables, e.g., calling for "somewhat higher (or lower)
levels of
__________
"
(c)
A quantitative guide, written in terms of target ranges for
one or more specific variables
(d)
None of these
3. If a majority of the Committee favors a reference to one or more
specific variables in the current policy directive (alternatives
(b) or (c) under Question 2) which variable(s) should be cited?
Authorized for public release by the FOMC Secretariat on 3/17/2020
CONFIDENTIAL (FR)
December 8, 1961
Standing Rules Governing Open Market Practice
Federal Open Market Committee
(Revision of draft of September 6, 1961
REC'D IN RECORDS SECTION
DEC 11 1961
As provided in section 12A of the Federal Reserve Act and in
the Regulations of the Federal Open Market Committee, open market operations
of the Federal Reserve Banks are conducted "with a view of accommodating
commerce and business and with regard to their bearing upon the general
credit situation of the country."
To implement this governing principle
as well as to help achieve and maintain a high level of economic activity
and employment, sustainable growth, stability of the price level, and a
SOUND INTERNATIONAL POSITION OF THE
DOLLAR, the Committee adopts the following standing rules regarding open
market practice:
1.
Open market operations are conducted to supply or
absorb bank reserves consistent with the credit and monetary
needs of the United States, in the light of both the domestic
economy and international developments.
2.
Open market operations are transacted in United States
in prime bankers'
Government securities and
acceptances.
Although operations in
UNITED STATES Government
securities are ordinarily conducted in
Committee may authorize transactions in
short-term issues, the
all maturities when
desirable because of economic or financial conditions.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-2-
3.
Open market operations are not for the purpose of
fixing or pegging the price of any issue of government
securities.
If
conditions in the market for UNITED STATES
Government securities should become disorderly, the Committee
will take appropriate corrective action.
4.
During Treasury financings,
conducted in
such a manner as to change as little as possible
prevailing
Consequently,
open market operations are
money
MARKET CONDITIONS.
open market operations, EXCEPT THOSE INVOLVING
REPURCHASE AGREEMENTS,
are not conducted in
(b) when-issued securities,
(a)
maturing issues,
or (c)
OUTSTANDING ISSUES COMPARABLE TO THOSE INVOLVED
IN THE FINANCING.
5.
Open market operations involving concurrent purchases
and sales of securities of different maturity for the primary
purpose of altering the maturity composition of the System's
portfolio are ordinarily not undertaken.
6.
AGREEMENTS IN UNITED STATES
Repurchase
GOVERNMENT SECURITIES AND PRIME BANKERS'
ACCEPTANCES ARE
entered into with nonbank dealers
temporary reserve funds to the market.
Government securities having
to supply
To this end, UNITED STATES
remaining maturities of
15 months or less and prime bankers' acceptances
ARE
purchased from nonbank dealers subject to agreement for their resale
within 15 calendar days.
The repurchase rate is normally the
discount rate at the Federal Reserve Bank of New York, but may be
as low as the average issuing rate on the most recent issue of
three-months Treasury bills.
Authorized for public release by the FOMC Secretariat on 3/17/2020
-3-
7.
The F ed er a l
R
eser v e Bank
of
New
Yor
k is
s e lected
as
the Federal Reserve Bank to execute transactions in the open
market pursuant to AUTHORIZATIONS AND directions issued by
the FEDERAL OPEN MARKET Committee.
8.
THESE RULES MAY BE CHANGED OR REVOKED AT ANY MEETING OF
THE FEDERAL OPEN MARKET COMMITTEE.
@FedFRASER