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FORTY· SIXTH ANNUAL REPORT of the BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM COVERING OPERATIONS FOR THE YEAR 1959 30 FEDERAL RESERVE SYSTEM ANNUAL REPORT OF BOARD OF GOVERNORS DIGEST OF PRINCIPAL FEDERAL RESERVE POLICY ACTIONS, 1959 31 RECORD OF POLICY ACTIONS FEDERAL OPEN MARKET COMMITTEE Period Action Purpose of action JanuaryFebruary Reduced holdings of U.S. Government securities in January by about $1 billion. Member bank borrowings at the Federal Reserve Banks continued at an average of $500 million or more. To offset the seasonal inflow of reserve funds resulting mainly from the post-holiday return flow of currency from circulation and thus maintain restraint on credit expansion. MarchMid-July Increased System holdings of U.S. Government securities by about $1.1 billion. Member bank borrowings rose further to an average of $1.0 billion in mid-July. To offset partially the absorption of reserves due mainly to a decline of $780 million in gold stock and an increase of about $1 billion in currency in circulation and to keep credit expansion under restraint. March Raised discount rates from 2V2 to 3 per cent at all Reserve Banks. May-June Raised discount rates from 3 to 3lh per cent at all Reserve Banks. To keep discount rates in an appropriate relationship with the rise in market rates resulting from vigorous credit demands and to restrain undue credit expansion. Mid-JulyOctober Bought and subsequently sold small amounts of U.S. Government securities around periods of Treasury financing and the 3rd quarter tax date. Member bank borrowings averaged about $900 million with temporary increases above $1 billion around Treasury financing and tax payment dates. To supply special reserve needs for only limited periods in recognition of pressures in money, credit, and capital markets resulting from vigorous public and private demand for credit. September Raised discount rates from 3~ to 4 per cent at all Reserve Banks. To keep discount rates in an appropriate relationship with the rise in market rates resulting from vigorous credit demands and to restrain undue credit expansion. NovemberDecember Increased System holdings of U.s. Government securities by about $800 million through mid-December and then reduced holdings somewhat. Authorized member banks to count about $300 million of their vault cash as required reserves through amendment to Regulation D, effective December 1, under new legislation. Average borrowings rose to about $1 billion in the last half of December. To meet part of the temporary end-of-year needs of banks for reserve funds but at the same time to keep bank reserve positions under pressure. The record of policy actions of the Federal Open Market Committee is presented in the Annual Report of the Board of Governors pursuant to the requirements of Section 10 of the Federal Reserve Act. That section provides that the Board shall keep a complete record of the actions taken by the Board and by the Federal Open Market Committee upon all questions of policy relating to open market operations, that it shall record therein the votes taken in connection with the determination of open market policies and the reasons underlying the actions of the Board and the Committee in each instance, and that it shall include in its Annual Report to the Congress a full account of such actions. In the pages that follow, there is an entry with respect to the policy approved by the Committee at each of the 18 meetings held during the calendar year 1959, which record includes the votes on the policy decisions as well as a resume of the basis for the decisions, as reflected by the minutes of the Committee's meetings. In some cases policy decisions were by unanimous vote, while in others a dissent was recorded. As this record shows, the fact that a decision for a general policy was by large majority or even by unanimous vote does not necessarily indicate that all members of the Committee were equally agreed as to the reasons for a particular decision or as to the precise operations in the open market that were called for to implement the general policy. These shades of opinion, fully expressed at meetings, serve to provide the Manager of the System Open Market Account (who attends the meetings of the Committee) with guides to be used in the conduct of open market operations within the framework of the policy directive adopted. Set forth below is the policy directive of the Federal Open Market Committee that was in effect at the beginning of 1959, the directive having been approved in this form at the meeting on December 16, 1958. This directive was issued to the Federal Reserve Bank of New York as the Bank selected by the 34 ANNUAL REPORT OF BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM the reserve base that otherwise would occur, and the continued evidence of speculative fever in the stock market. At the same time, concern was expressed over the persistence of relatively large unemployment. The conclusion of the Committee that the degree of re straint on credit expansion in the near future should be about the same as in the immediate past, but that any deviation should be on the side of restraint, reflected the foregoing considerations. upon individual decisions with respect to pricing and buying and investment and saving. It appeared that additional stimu lants through fiscal or credit policies were not now needed. In fact, the forces already at work might induce commitments of a speculative nature, or lead to pricing policies that would first contribute to inflation but ultimately discourage buying. Con sequently, it was the view of the Committee that the current degree of restraint on bank reserves was appropriate under existing circumstances and should be continued, especially in the light of the forthcoming Treasury refunding which indi cated the desirability of no change in the general state of the money market until a reasonable time following completion of this Treasury financing. The Committee members and the other Reserve Bank presi dents in attendance at this meeting also discussed the level of the discount rate at the Reserve Banks, then 2 1/2per cent. Al though they recognized that that rate was fixed by the directors of the Federal Reserve Banks subject to review and determi nation by the Board of Governors, there was a fairly unani mous opinion that no action to change the rate would be desir able prior to completion of the Treasury's February refunding. January 27, 1959 Authority to effect transactions in System Account. No change was made at this meeting in the Open Market Committee's directive, thus continuing the policy of conduct ing operations in the System Open Market Account with a view, among other things, to fostering conditions in the money market conducive to sustainable economic growth and sta bility. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Mills, Robertson, Shepardson, and Szymczak. Votes against this action: None. In reaching its decision as to policy, the Committee gave particular attention to the fact that the monetary basis for con tinued economic expansion had already largely been estab lished and that forces mostly outside the area of bank credit were likely to determine whether demands for consumption and investment would be of such magnitude and nature as to reduce the volume of unemployment, whether there would be sustainable growth, whether persistent pressures on prices would produce creeping inflation, or whether speculative com mitments would create a bubble on a boom that would burst at an early stage. Analysis of current economic trends led to the conclusion that further recovery to reasonably full utilization of resources and then continued growth at a sustainable rate would depend 35 February 10, 1959 Authority to effect transactions in System Account. The Committee again renewed without change its directive that set forth a policy of fostering conditions in the money market conducive to sustainable economic growth and sta bility. Votes for this action: Messrs. Martin, Chairman, Hayes, Vice Chairman, Balderston, Fulton, Irons, Leach, Mangels, Robertson, Shepardson, and Szymczak. Votes against this action: None. Careful consideration by the Committee of business and financial developments preceded its decision to renew its exist ing policy directive. Widespread but small further increases in industrial production were reported, and prices for some stra-
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