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FORTY-SEVENTH
Annua{ Report
OF THE
BOARD OF GOVERNORS
of the Federal Reserve System
COVERING OPERATIONS FOR THE YEAR
FEDERAL RESERVE SYSTEM
ANNUAL REPORT OF BOARD OF GOVERNORS
DIGEST OF PRINCIPAL FEDERAL REsERVE. POLICY ACTIONS,
Period
JanuaryMarch
Action
To offset the seasonal inflow
of reserve funds, mainly from
the post-holiday return of
currency from circulation,
while permitting some reduction in borrowed reserves.
Late MarchJuly
Increased System holdings of
Government securities by
nearly $1.4 billion. Member
bank borrowings at Reserve
Banks declined to an average
of less than $400 million in
July.
To promote further reduction in the net borrowed reserve positions of member
banks and, beginning in May,
to provide reserves needed
for moderate bank credit and
monetary expansion.
June
Reduced discount rates from
4 to 3'11 per cent at all
Reserve Banks.
To reduce the cost of borrowed reserves for member
banks and to bring the discount rate closer to market
interest rates.
August
Period
Action
AugustSeptember
Reduced discount rates from
3'11 to 3 per cent at all
Reserve Banks.
To reduce further the cost of
borrowing from the Reserve
Banks and reduce the differential between the discount
rate and market rates of
interest.
AugustNovember
Bought or sold at different
times varying amounts of
Government securities with a
net increase in System holdings of about $1 billion,
including securities held under repurchase agreement
and issues with short maturities other than Treasury
bills. Member bank borrowing declined further to average below $150 million in
October and November.
To encourage bank credit
and monetary expansion by
meeting changing reserve
needs and offsetting the impact of a large gold outfiow
without exerting undue
downward pressure on shortterm Treasury bill rates that
might stimulate further outflow of funds.
Late
NovemberDecember
Authorized member banks
to count all their vault cash
in meeting their reserve requirements and increased
reserve requirements against
net demand deposits for
country banks from 11 to 12
per cent. The net effect of
these two actions, effective
November 24, was to make
available about $1,050
million of reserves.
Purpose of action
Purpose of action
Reduced System holdings of
U.S. Government securities
by about $1.6 billion. Member bank borrowings at the
Federal Reserve Banks
dropped from an average of
$900 million in December to
$635 million in March.
July
DIGEST OF PRINCIPAL FEDERAL REsERVE POLICY
ACTIONS, 1960-Cont.
1960
Reduced margin requirements on loans for purchasing or carrying listed securities from 90 to 70 per cent of
market value of securities.
Authorized member banks to
count about $500 million of
their vault cash as required
reserves, effective for country
banks August 25 and for
central reserve and reserve
city banks September 1.
Reduced reserve requirements against net demand
deposits at central reserve
city banks from 18 to lTYz
per cent, effective September
1, thereby releasing about
$125 million of reserves.
4
To lower margin requirements from the high level in
effect since October 1958 in
recognition of decline in volume of stock market credit
outstanding and lessened
danger of excessive speculative activity in the market.
To provide maiIlly for seasonal needs for reserve funds,
and to implement 1959 legislation directed in part toward
equalization of reserve requirements of central reserve
and reserve city banks.
Reduced reserve requirements against net demand
deposits at central reserve
city banks from 17~ to 16'11
per cent, effective December
1, thereby releasing about
$250 million of reserves.
Sold U.S. Government securities except for seasonal
purchases in last week of
December. Member bank
borrowings at the Reserve
Banks averaged less than $90
million in December.
5
To provide, on a liberal basis,
for seasonal reserve needs, to
complete implementation of
legislation directed in part
toward equalization of reserve requirements of central
reserve and reserve city
banks, and to offset the
effect of continued gold outflow, while avoiding direct
impact on short-term rates
that might stimulate further
outflow of funds.
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
January 26, 1960
Authority to effect transactions in System Account.
The Federal Reserve Bank of New York was directed by the
Federal Open Market Committee to conduct open market opera
tions that would continue the policy of restraining inflationary
credit expansion in order to foster sustainable economic growth
and expanding employment opportunities.
imminent, several Committee members would have preferred, in
view of reported economic developments, to move slightly in the
direction of reducing the degree of pressure on bank reserve posi
tions. No Committee member favored increasing the degree of
restraint at this time.
Mr. Mills voted against renewal of the policy directive because
of his continued preference for a directive that would provide for
fostering sustainable economic growth and expanding employ
ment opportunities while guarding against inflationary credit
expansion, wording which he felt called for somewhat less re
straintthan had been applied during the past few months.
Votes for this action: Messrs. Martin, Hayes, Allen, Balder
ston, Deming, Erickson, Johns, King, Robertson, Shepardson,
and Szymczak. Vote against this action: Mr. Mills.
Reports at this meeting, both national and regional, continued
to reflect the high level of economic activity that had been noted
at the meeting of the Committee two weeks earlier. Recovery in
production and employment from the lower levels reached during
the steel strike had been rapid. The reports indicated a some
what less buoyant attitude among businessmen than had been
reported at the preceding meeting, however, and contrasted to
some degree with earlier expectations in some quarters of an ex
plosive surge of activity following settlement of the steel strike.
Seasonal contraction in bank credit appeared to be occurring
about as usual, and signs of strain in the credit and capital
markets were less than a few weeks earlier. A marked easing of
Treasury bill rates, reflecting heavy demand from nonbank in
vestors, had taken place despite substantial sales of bills from the
System Account portfolio. Nevertheless, a feeling of tightness in
credit markets was reported, and the question was raised as to
whether growth of savings, increased velocity of the money
supply, and willingness of member banks to increase their bor
rowings from the Reserve Banks would be sufficient in the aggre
gate to meet the credit demands needed to support prospective
expansion in economic activity.
The Committee's decision as to policy for the period immedi
ately ahead was to continue substantially the same degree of
restraint on credit expansion that had been followed for some
weeks past. However, had a large Treasury financing not been
February 9, 1960
Authority to effect transactions in System Account.
Indicators of economic output continued to show strength.
Gross national product was still expected to attain an annual rate
close to $500 billion for the first quarter, and earlier estimates of
the Board's index of industrial productionfor Januarywere being
revised upward as preliminary data became available. Employ
ment apparently was being well maintained. After a record
Christmas trade, seasonally adjusted department store sales con
tinued at about the same level in January as in December, while
construction activity, seasonally adjusted, moved upward to an
annual rate that represented the highest January on record. Re
cent figures indicated that exports were likely to provide some
what greater stimulus to the economy than in the past year.
While economic activity was clearly proceeding at a satisfac
tory pace, nevertheless the extremely optimistic attitudes that had
prevailed in some quarters around the turn of the year were being
reevaluated. Evidence of the boom widely anticipated following
termination of the steel strike had not yet appeared, and there
were few, if any, signs of undue fervor.
The abatement of enthusiasm concerning the business outlook
had been reflected in financial developments. Following extreme
tightness in the money market in December, with sharply rising
@FedFRASER