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Reproduced from the Unclassified I Declassified Holdings of the National Archives



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The meeting was called to order at 10;45 a* m. in the officeis of the
Federal Beserve Board, there being present
Governor Iccles,
Governors Young, Fleming and Schaller, and
Deputy Governors Burgess and Hutt.
In the absence of Governor Harrison, Governor Young was elected chair­
man pro tern.
|*~Governor Eccles raised the question whether the government security
portfolio of the Reserve banks might not well be made more flexible, rather than
being static at the same constant amount.


He also stated that the Treasury had

been concerned over the extremely rapid rise in government bond prices, and raised
the question whether the Reserve banks could not operate in the market to exercise
some restraining influence on either excessively rapid rises or declines in prices
of government securities in order that the market might be maintained in sound
condition in anticipation of government financing in MarchJ
It was the view of the Treasury that this was more logically the business
of the Beserve banks than of the Treasury, involving as it does the regulation of
the money market.

While a certain amount of influence over the market could be

exerted by making shifts between maturities in the System Account the question had
been raised whether the purpose could not be accomplished better by some changes
in the total portfolio of securities held by the Reserve banks.

On other grounds

there was, moreover, a considerable argument for greater flexibility in the
Inhere ensued general discussion of the implications of this course in\

- eluding the question of the possible adverse reaction of the public and the market

Reproduced from the Unclassified I Declassified Holdings of the National Archives


to any sale of government securities by the Reserve banks.

There was also dis~

cussion of the recent effect on the market of anticipation of action by the
Supreme Court^j
At 11 o fclock the meeting adjourned to reconvene in a few minutes in the
office of the Secretary of the Treasury.

The Secretary and the Under Secretary

were present in addition to those listed above.
The Secretary raised the same question as had Governor Eccles of the
desirability of flexibility in the system Account rather than the holding of a
static fixed amount of securities*
Governor Eccles pointed out that if the System Account were to show any
reduction it would be necessary to isdue a carefully prepared statement giving
the reasons for the change.
After further discussion of recent and possible market conditions it
VOTED that a wire be sent to all members of the Federal
Open Market Committee to request them subject to the approval
of the Federal Reserve Board to authorize the executive
committee, pending a meeting of the full conanittee in the near
future, to make purchases or sales or shifts between maturi­
ties in the System Account up to a total of $250,000,000.
This authorization is in addition to the authorization to make
shifts between maturities up to 100 million dollars voted at
the December 17 meeting. This authorization is desired
primarily to place the System in position to use its influence
towards preventing any possible disturbances in the market
pending a meeting of the full committee.
After some informal discussion of Treasury financing the meeting ad­
journed at twelve o ’clock and returned to the Federal Reserve Board offices where
it reconvened.
After discussion the motion given above was put in its final form and
there was an informal discussion of possible operations under this motion in which
the dangers of adverse public reaction which might arise from fluctuations in the

Reproduced from the Unclassified / Declassified Holdings of the National Archives

d e c l a s s if ie d


portfolio were emphasized and a number of those present expressed the hope that
it might not be necessary to show any change in the total of the account in the
near future.

It was also suggested that a great deal could be accomplished in

dealing with the market by shifts between maturities in the account without any
change in the total.
The meeting adjourned at 12:25 p. m.
The meeting reconvened at 3:30 p. m,

There was an informal general

discussion of Treasury and Federal reserve problems.

The meeting adjourned at 4:25 p. m.

W. R, Burgess,