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FIFTIETH
Annua{ Report
OF THE
BOARD OF GOVERNORS
of the Federal Reserve System
COVERING OPERATIONS FOR THE YEAR
Period
Description
Purpose
lanuarymid-May
Reduced System holdings of U.S. Government securities and then increased them in line with seasonal
and moderate growth needs of the economy. Total
holdings rose about $470 million on balance, owing
mainly to net purchases of issues maturing in more
than 1 year. Member bank borrowing rose slightly to
a level of about $150 million in the first half of May.
To offset seasonal downward pressures on short-term interest rates
early in the period and to provide for growth in bank credit and
the money supply at a rate consistent with minimizing capital outflows in accordance with the policy of slightly reduced reserve
availability adopted at the December 18, 1962, meeting of the
Federal Open Market Committee.
Mid-Maylate-July
Reduced the degree of reserve availability slightly further. System holdings of U.S. Government securities
increased nearly $1.2 billion, about one-fifth representing net purchases of issues maturing in more
than 1 year. Member bank borrowing increased further, averaging $275 million over the period.
To achieve a slightly greater degree of firmness in the money market in order to minimize the outflow of capital while continuing
to provide reserves for moderate monetary and credit growth.
Mid-July
Raised the discount rate from 3 to 31h per cent.
Raised maximum interest rates payable by member
banks on time deposits (other than savings) and
certificates of deposit with maturities of 90 days to
6 months from 2Y2 to 4 per cent and with maturities
of 6 months to 1 year from 3V2 to 4 per cent.
To help reduce short-term capital outflows by firming U.S. short-term
money market rates and permitting member banks to compete more
effectively for foreign and domestic funds.
Reduced a little further the degree of reserve availLate-Julyability. System holdings of U.S. Government securiDecember
ties increased about $1.1 billion, of which more than
one-half represented purchases of securities with
maturities of more than 1 year. Member bank borrowing averaged about $325 million over the period.
To attain slightly more firmness in the money market, in the context
of a higher discount rate, with a view to minimizing the outflow
of funds abroad while offsetting seasonal reserve drains and providing for growth needs of the domestic economy.
Raised margin requirements on loans for purchasing
or carrying listed securities from 50 to 70 per cent
of market value of securities. Also increased retention requirements on proceeds of sales from undermargined accounts from 50 to 70 per cent.
To help prevent excessive use of stock market credit, which had increased sharply since July 1962, when margin requirements were
lowered from 70 to 50 per cent.
November
8
9
ANNUAL REPORT OF BOARD OF GOVERNORS
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
The Federal Reserve Bank of New York is also authorized and directed
to purchase, in accordance with the Guidelines and for the purpose of
allowing greater flexibility in covering commitments under reciprocal
currency agreements, any or all of the foregoing currencies through for
ward transactions, up to a combined total of $25 million equivalent.
The Federal Reserve Bank of New York is further authorized and di
rected to purchase and sell, in accordance with the Guidelines and for
the purpose of utilizing its holdings of one currency for the settlement of
commitments denominated in other currencies, any or all of the foregoing
currencies through forward as well as spot transactions, up to a combined
total of $50 million equivalent.
Total foreign currencies held at any one time shall not exceed $1.75
billion.
Votes for these actions: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Scanlon, and Shepardson. Votes against these actions:
None.
June 18, 1963
1. Authority to effect transactions in System Account.
Expansion in domestic activity was reported to have continued
in May and early June. The industrial production index advanced
again in May, with gains widespread among industries and
products. Employment also increased and hours of work at
factories lengthened, but the unemployment rate rose as teenagers
entered the labor market. Retail sales were unchanged from the
level of the preceding 3 months, and commodity prices continued
to show only small mixed changes. Stock market prices showed
little change on balance.
Business confidence remained strong; a recent survey found
the planned rise in outlays for new plant and equipment in 1963
to be practically the same as reported earlier, but with relatively
more of the increase anticipated in the second half of the year.
FEDERAL RESERVE SYSTEM
Expectations of higher sales and inventories than had been indi
cated earlier were also reported. Stockpiling against a possible
steel strike appeared about at an end, however, and the steel
industry was expected soon to become a contractive influence on
the economy, at least temporarily, as production was brought
into closer balance with consumption.
In the financial area, market adjustments to the mid-May shift
in System policy toward slightly less monetary ease continued
moderate. Yields on Treasury securities had risen somewhat, but
a Treasury offering of a 4 per cent intermediate-term bond met
with an exceptionally strong market reception. Corporate yields
on new issues changed little, while yields on municipal securities
increased.
In May, seasonally adjusted bank credit rose substantially,
offsetting a comparable decline in April. Real estate and con
sumer loans continued to expand rapidly; the rise in business
loans was less sharp. The seasonally adjusted money supply was
unchanged in May, in part because of an unusually large increase
in Treasury deposits. Time and savings deposits rose more
rapidly than in April, but more slowly than earlier in the year.
Free reserves of member banks averaged somewhat lower after
mid-May than earlier.
The U.S. balance of payments deficit in April and May con
tinued at about the advanced level of the first quarter, with capital
outflows remaining a major factor. Gold and foreign exchange
markets were generally quiet, although the dollar was relatively
weak against most major foreign currencies.
At this meeting of the Committee, attention was focused on
the failure of the balance of payments deficit to show improve
ment; on the role of capital outflows in the continuing large
deficits; and on the contribution that monetary policy might
make, either alone or in conjunction with other Governmental
actions, toward a solution of the problem. The majority view
was that market adjustments to the mid-May shift in policy were
still in process and that no further change in open market policy
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
was appropriate at this time. One minority position was that
monetary policy should move a little further toward firmness;
this position was based on the view that while the domestic econ
omy continued to strengthen, the balance of payments drain
remained serious and could be alleviated somewhat through a
higher structure of domestic interest rates, particularly short-term
rates. Another minority view, which favored returning to the
degree of monetary ease existing before the May decision, was
based largely on the feeling that an easier credit posture would
encourage the domestic economy to expand more rapidly and
that this in turn would help the balance of payments situation.
Although no expectations of a boom in domestic conditions
were expressed, neither were there reports from Federal Reserve
districts of any significant weakening of business and financial
expectations for maintenance of activity at current advanced
levels. A majority agreed that, with unemployment persisting at
high rates, domestic conditions did not require a further lessen
ing of monetary ease at this time. Further monetary action-pos
sibly dramatic action-might be required soon, however, if the
international financial situation did not show signs of betterment.
By majority vote, the current economic policy directive to the
New York Reserve Bank was reissued in the same form as
approved at the preceding meeting of the Committee.
the Federal Reserve Bank of New York was amended to raise
from $1 billion to $1.5 billion the limit on changes in holdings of
securities in the System Open Market Account between meetings
of the Committee. With this amendment, Section 1(a) read as
follows:
Votes for this action: Messrs. Martin, Bopp, Clay,
Irons, Mills, Scanlon, and Shepardson. Votes against
this action: Messrs. Hayes, Balderston, and Mitchell.
Messrs. Hayes and Balderston dissented because they felt that
the Committee should move further in the direction of slightly
less ease, while Mr. Mitchell dissented because he favored a
return to the greater degree of ease that had existed prior to the
policy shift of mid-May.
2. Amendment of continuing authority directive.
In accordance with the recommendation of the Account
Manager, Section 1(a) of the continuing authority directive to
(a) To buy or sell U.S. Government securities in the open market,
from or to Government securities dealers and foreign and international
accounts maintained at the Federal Reserve Bank of New York, on a cash,
regular, or deferred delivery basis, for the System Open Market Account
at market prices and, for such Account, to exchange maturing U.S. Gov
ernment securities with the Treasury or allow them to mature without
replacement; provided that the aggregate amount of such securities held in
such Account (including forward commitments, but not including such
special short-term certificates of indebtedness as may be purchased from
the Treasury under paragraph 2 hereof) shall not be increased or de
creased by more than $1.5 billion during any period between meetings
of the Committee.
Votes for this action: Messrs. Martin, Hayes, Bald
erston, Bopp, Clay, Irons, Mills, Mitchell, Scanlon,
and Shepardson. Votes against this action: None.
July 9, 1963
Authority to effect transactions in System Account.
Economic activity had continued to expand moderately
through June, but business sentiment appeared to have become
a little less buoyant than earlier, probably reflecting some
uncertainty over the timing and magnitude of inventory curtail
ments following the steel labor settlement. A threatened rail strike
also may have been a factor.
GNP was indicated to have increased substantially again in
the second quarter. Retail sales in June, however, showed little
change at the level prevailing since February. The industrial pro
duction index apparently was at least as high in June as in May,
as reductions in steel output were offset by gains elsewhere. The
construction and housing situation appeared strong.
@FedFRASER