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A meeting of the Federal Open Market Committee was held in
the offices of the Board of Governors of the Federal Reserve System
in Washington on Tuesday, June 20, 1961,
PRESENT:

at 10:00 a.m.

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Allen
Balderston
Mills
Robertson
Shepardson
Swan
Wayne
Johns, Alternate for Mr. Irons
Mr. Treiber, Alternate for Mr. Hayes
Messrs. Ellis, Fulton, and Deming, Alternate
Members of the Federal Open Market Committee
Messrs. Bopp, Bryan, and Clay, Presidents of the
Federal Reserve Banks of Philadelphia, Atlanta,
and Kansas City, respectively
Mr. Young, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hexter, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Coldwell, Einzig, Garvy, Noyes, and
Ratchford, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Koch, Adviser, Division of Research and
Statistics, Board of Governors
Mr. Knipe, Consultant to the Chairman, Board
of Governors
Mr. Yager, Economist, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr. Petersen, Special Assistant, Office of the
Secretary
Mr. Hickman, Senior Vice President, Federal
Reserve Bank of Cleveland

6/20/61

-2
Messrs. Eastburn, Baughman, and Tow, Vice
Presidents of the Federal Reserve Banks
of Philadelphia, Chicago, and Kansas
City, respectively
Mr. Holmes, Manager, Securities Department,
Federal Reserve Bank of New York
Messrs. Bowsher and Hellweg, Economists,
Federal Reserve Banks of St. Louis and
Minneapolis, respectively.
Chairman Martin noted that consideration of approval of the

minutes of the Committee meeting on May 9, 1961, had been deferred
at the June 6 meeting in order that the Committee members might have
an opportunity to study certain comments of Mr. Wayne, as set forth
in a letter dated June 1, 1961, pertinent excerpts from which had
been distributed by the Secretary of the Committee.

Mr. Wayne's

comments were directed toward the wording of two sentences in a
statement, found at page 55 of the preliminary draft of minutes,
which Mr. Robertson had submitted subsequent to the May 9 meeting
in explanation of his dissent from the consensus as to the implementa
tion of the policy directive during the period until the next meeting
of the Committee.

In essence, Mr. Wayne had expressed himself as feel

ing that parts of the statement inserted by Mr. Robertson in the
minutes following the meeting might be read to imply that members of
the Committee other than Mr. Robertson did not hold certain views
that Mr. Robertson endorsed, whereas in his (Mr. Wayne's) opinion,
such views were not a subject of debate but actually were accepted
by all members of the Committee.

6/20/61

-3
Chairman Martin commented that, not having been present

at the meeting on May 9, he could not speak in

terms of first-hand

knowledge of what had been said at that time.

However,

he noted

that no verbatim record of Open Market discussions was maintained,
and he emphasized the need for care in phrasing whatever went into
the minutes so as to maintain their integrity as an accurate
reflection of the meetings.

He then called for comment on the question

raised by Mr. Wayne.
Mr. Robertson said that there was nothing in

the statement

that he had asked be inserted in the minutes that had not been said
during meetings of the Committee.

However,

to eliminate any question

as to the way his comments might be read, he would suggest certain
changes in

the language of the two sentences cited by Mr. Wayne.

Mr. Robertson said that he shared the concern expressed by Mr. Wayne,
and he agreed fully as to the desirability of phrasing minutes so
as to avoid misunderstanding, particularly if portions were read out
of context.

He then presented his suggested changes in

wording.

Mr. Wayne indicated that the revisions proposed by Mr. Roberts,
would meet his point satisfactorily, and other members of the Com
mittee likewise expressed themselves as satisfied.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, the
minutes of the meeting of the Federal Open

6/20/61

-4Market Committee held on May 9, 1961,
were approved in a form in which the afore
mentioned statement of Mr. Robertson was
revised to read as follows (eliminations
shown by canceled type and additions in
capital letters):

Mr. Robertson dissented from the decision to request
the Manager of the Account to so conduct open market
operations as to achieve a degree of ease comparable to
that which prevailed prior to the last meeting of the
Committee rather than the higher degree of ease which has
prevailed from that time to this.
It was his belief that
the recent level of around $600 million has promoted a
turn-around in the money supply and brought about an
increase in bank credit without unduly depressing yields
on Government securities.
It was his view that the down
swing in yields which did occur was attributable more to
the West German discount rate reduction and comments by
persons outside the Federal Reserve System than to System
open market operations.
In-his-view ALL MEMBERS OF THE COMMITTEE AGREE THAT
this is a time when the American economy ought to move
upward toward a more satisfactory rate of employment and
toward a fuller use of its resources.
While current
information suggests that this may be happening, it would
be dangerous to take it for granted that recovery is going
to proceed vigorously upward without significant interruption,
which has never been the case after a downturn except in
the spring of 1958.
With the gold outflow apparently halted for the time
being, and with inflationary pressures seemingly less
dangerous just now than at any time in recent years, he
believed that IN ORDER FOR the Open Market Committee
should TO make certain that the System does its full part
in stimulating recovery to more nearly satisfactory levels
of production and employment, and-hence-that the degree of
ease achieved during the past three weeks should not be
diminished (and if anything, increased slightly) during the
next four weeks until the next meeting of the Committee,
In view of the likely monetary and credit needs which
will accompany business recovery, he felt
that a volume of
free reserves in the neighborhood of $600 million during this
period would not result in any sloppiness in the money
markets or an unduly low bill
rate.

-5-

6/20/61

Before this meeting there had been distributed to the members
of the Committee a report of open market operations covering the
period June 6 through June 19, 1961.
placed in

A copy of this report has been

the files of the Committee.
In

supplementation of this report, Mr. Rouse commented

as follows:
In the short period since the last meeting of
the Committee the Government securities market has
been generally quiet and the money market has been
generally quite easy. Although open market opera
tions withdrew about $340 million of reserves early
in the period, the money market was unusually easy
in the middle of last week when the Federal funds
rate fell as low as 1/4 per cent. This was the
result of a higher than expected level of float and
also of a redistribution of reserves in favor of the
central reserve city banks.
The general ease
apparently did not have an undesirable effect, as
banks generally confined their investment activities
to buying short-term bills
and there was no significant
tendency to extend maturities on the basis of expecta
tions of continuing unusually easy money.
At times,
however, such wide swings in money market conditions
are somewhat disconcerting as extremely easy money,
even for a few days, may create anticipations of this
kind.
There has been no occasion to operate in longer
term issues since Monday, June 5, the day that prices
fell
almost a full point.
Since then operations have
been confined entirely to sales of short-term issues.
The longer-term market continues to be pretty much on
Activity is light and dealer markets
its own at this point.
are generally quite thin, with relatively few offerings be
ing made to the Trading Desk.
The spread between yields on
Governments and on corporate securities is fairly wide, but
the corporate market is acting quite well at this point as
the calendar of new issues promises to be a bit lighter
despite an occasional large issue. Recent new issues have

6/20/61

-6-

continued to move steadily into investor hands when
priced attractively, indicating that funds for capital
investment are readily available.
The municipal market
is also performing quite well in the face of a large
overhang of still
undigested issues.
The Treasury's recent offering of strips of Treas
ury bills
went well from the Treasury's standpoint, the
rate of about 2.30 per cent being somewhat lower than
expected due to aggressive bidding on the part of the
larger banks.
Smaller banks were apparently reluctant
to bid due to the newness of the marketing technique and
the complications involved in bidding and putting the
issues on the books.
The secondary market for the new
bills has been good; banks have sold moderate amounts in
strips and there has been no problem for the dealers to
Ratewise the whole
redistribute them by individual issues.
operation has had very little
impact on the market.
We
despite
can conclude that the technique has proven itself
the undesirably large number of issues involved in the
offering which tended to keep out the small banks.
If
strips are used again, I would prefer to see a smaller
number of issues,
The next Treasury operation will be the auction of
on July 11 to refund the July 15 maturity
one-year bills

of $1.5 billion; the chances are the Treasury will add
$500 million to this refunding to pick up needed new cash.
Next will be the August 1 refunding which will involve
about $5 billion publicly-held securities and about $5 billion
The books will be open from July 14
held by the System.
to 18.
This will be followed shortly by an offering of a
short-term issue to pick up new cash, possibly March tax
Despite this heavy load of financing
anticipation bills.
rates are holding in a 2.30 per cent to
in prospect, bill
2.40 per cent range for 91 days.
I would like to mention that a dealer recently bid us
for a sizable block of 2-5/8 per cent bonds of February 1965.
The dealer remarked that we had been buying intermediate
issues to supply reserves and he thought we might be willing
to sell them now that we were withdrawing reserves through
We declined the offering, but this
sales of Treasury bills.
the System should at some time
whether
raises the question
recently
acquired longer issues.
plan to sell some of its
Personally, I think there is something to be said for doing
so when conditions are clearly favorable.

6/20/61

-7Thereupon, upon motion duly made
and seconded, the open market trans
actions during the period June 6 through
June 19, 1961, were approved, ratified,
and confirmed.
The economic review at this meeting consisted of a visual

auditory presentation, in which Messrs. Noyes, Hersey, Williams,
1/
Garfield, Brill, and Koch of the Board's staff participated. 1/
The presentation,

highlighting economic and financial developments in

the current period of economic recovery,
balance of payments,

economic activity, demand,

outlays, resource utilization,
and financial flows.

contained sections on the
plant and equipment

and prices, liquidity developments,

The introductory portion of the presentation

was as follows:
At the time of our last
broad review of economic
developments in March, the decline in economic activity
appeared to be over, but there was considerable un
certainty as to when recovery would begin and how fast
Now, only three months later, the evidence
it would be.
is clear that vigorous recovery has already brought
activity to a level substantially above the February low.
By May, industrial production was at 108 per cent of the
1957 average, up 6 points from the low of 102 in February
and only two points below the level of last July. A further
rise is likely in June. Gross national product in the
second quarter is now estimated at an annual rate of at
least $512 billion, $12 billion or more above the first
quarter rate.
Prices of those industrial materials especially sensitive
to cyclical influences have advanced nearly half as much
since the turn of the year as they had declined during the
recession, almost 3 per cent as compared with 7 per cent.
Steel scrap, copper, rubber, and hides have led the advance.
For some months now, one question of great interest in
discussions of fiscal, monetary, and other economic policies
1/ Messrs. Brill, Garfield, Hersey, and Williams withdrew from
the meeting at the conclusion of the economic presentation.

6/20/61

-8-

has been how far any advance in production and employment
might take the economy toward reasonably high utilization
of available resources.
More time will be needed to
answer this question.
This is partly because we are still
in an early stage of the current upswing, with nearly 5
million persons still
unemployed, and the rate of unemploy
ment still
close to 7 per cent.
As the economic events of 1961 and 1962 unfold, analysts
will be able to base appraisals of prospects increasingly
on recent events, relying less on comparisons with the last
expansion period--in which unemployment never fell
much below
5 per cent--and the recent recession, when unemployment did
not rise to the 7.5 per cent level reached in the summer of
1958. Also, as production rises and unemployment declines,
consideration of what constitutes a reasonably high level of
resource use will become increasingly significant.
A great deal of attention will be focused--already has
been, in fact--on what is shown by various measures of
resource use, including those relating to employment of the
labor force, utilization of plant capacity, and actual
versus potential GNP.
The significance of any particular level of activity and
employment reached will depend in part on how and when we
get there, the composition of demand and output at that time,
and conditions then relating to demand, prices, payment
Looking back, we can see that the
balances, and the like.
highs of mid-1953, mid-1957, and mid-1960 had some important
elements in common--inventories, for example, were being
accumulated beyond current needs and housing starts had been
declining for some time.
There were important differences
also, however--as, for example, in the extent of inventory
accumulation, the size of the previous capital goods upsurge,
and the course of defense and other government expenditures.
The ending of inventory liquidation clearly has been a highly
Will there be
important influence in the recent turnaround.
a further shift to inventory accumulation soon? Auto sales and
Can we
housing starts have risen moderately from their lows.
expect, somewhere along the line, a dramatic expansion in
these areas such as occurred in earlier upswings, especially
in 1954-55? How is the unique behavior of capital goods in
the recent recession to be interpreted? Does maintenance of
demand for capital goods close to early 1960 levels in most
lines suggest strength in this area, where, on some grounds,
weakness might be expected? What are the prospects for exports
and imports? All such problems need to be considered in
appraising prospects for increased activity and absorption of
idle resources,

6/20/61
Total holdings of liquid assets relative to GNP this
time are not so high as at the comparable stage of the 1958
recovery. The liquidity position, however, differs from
one sector to another and study of details as well as over
all totals may be helpful in appraising prospects for various
types of demand.
In the initial stage of this recovery there has been
some upturn in private credit, particularly in the long-term
area. Whether short-term credit will show the rapid expan
sion that has marked previous recovery periods is still
uncertain.
While balance-of-payments problems have been in the
foreground this year, the current upswing in the U. S, economy
has started with exports higher than in either 1958 or 1954.
The excess of exports over imports this year has been greater
than in any other recent period except early 1957, reflecting
a wide range of economic and financial developments abroad
appreciably different from those in this country.
The concluding portion of the presentation was as follows:
Reviewing the whole economic situation at home and abroad,
we see first that the 1958 recovery here preceded that in
Europe and that the recession of 1960-61 was confined to the
United States and Canada.
In this country, the recession reflected a sharp shift
from inventory accumulation to liquidation, especially for
materials; nearly full-scale declines, however, according to
postwar cyclical standards, in output of consumer goods and
residential building; but an unusually small decline in out
put of capital goods.
These declines were offset in part by expanding govern
ment outlays, rising consumer expenditures for services, and
higher exports. Consumer incomes, augmented by higher trans
fer payments, did not decline and total consumer expenditures
were maintained at about the pre-recession level. The over
all decline in demand and production was the smallest of any
postwar recession.
In markets for goods and services, the strength of upward
pressures on prices was diminished by many influences, includ
ing resistance of consumers to higher prices and efforts of
producers to hold labor and other costs down. Underlying the
attitudes prevailing in bargaining for goods and
stiffer
services has been an easier supply situation, with more goods
available from abroad and with more productive capacity idle

6/20/61

-10

in this country than at any other time in the postwar period,
except in early 1958.
Substantial margins of unutilized capacity offer the
possibility that the advance in economic activity now under
way can continue for a considerable time on a noninflationary
basis, unless speculative attitudes are induced by unsustain
able price and wage developments. In this respect, recent
price reductions for some steel products, the moderate nature
of most wage settlements this year, and the apparent lessen
ing of fervor in the stock market are encouraging signs.
If these market attitudes continue to prevail as the
recovery proceeds, the environment will be favorable to the
expansion of the financial base that the economy requires for
continued growth. Current levels of liquidity and of resource
utilization and the absence of inflationary price pressures
suggest that, at least for the immediate period ahead, it
would be appropriate to encourage further expansion in bank
credit and the money supply.
Mr. Bryan commented that the figures on unused capacity,
such as those cited in the economic presentation, always seemed rather
disturbing. He wondered, however, if he was not correct in assuming
that actually these figures included a vast amount of plant and equip
ment that was not economically utilizable except under conditions of
great boom.

He then cited as an example the textile industry.

Mr. Garfield replied that in 1955, when business was very active,
the rate of resource utilization was about 90 per cent of capacity.

No

industry, of course, can operate much above capacity, and over a period
In

of time the average rate of utilization runs much lower than that.

the discussion of modernization outlays, actual and potential, it was
recognized the figures might not be quite what they seemed to be.

Mr.

Noyes noted, however, that modernization expenditures had been sub
stantial over the past five years or so.

Thus, the figures on idle

6/20/61

-11-

capacity probably were more nearly a true measurement than they were
in earlier years.
It was understood that a copy of the text of the economic
review and the accompanying charts would be placed in the files of
the Committee and that copies would be sent to the members of the
Committee and the Reserve Bank Presidents not currently serving on
the Committee.
Mr. Treiber then presented the following statement of his
views on the business outlook and credit policy:
Economic recovery continues in a satisfactory manner,
but there is still nothing to indicate that a vigorous
expansion is ahead. So far, the advance appears to stem
in large part from a slowdown, perhaps even cessation, in
sales show no great
inventory liquidation. While retail
strength, there are indications that business spending on
plant and equipment will move up later this year.
Even if the recovery continues to proceed through
early 1962 at the same pace as in previous recoveries,
unemployment is likely to remain uncomfortably high.
Inflationary pressures from the demand side are unlikely.
Prices remain generally stable, with some price reductions
On the
taking place as a result of competitive pressures.
other hand, the possibility of upward pressures on the cost
side will bear careful watching as collective bargaining
negotiations in the automobile industry and elsewhere get
under way. The stock market has recently shown a more sober
tone, and business sentiment appears to be one of cautious
optimism.
There has been a good volume of financing in the capital
markets, with a steady flow of investment funds into new
issues. Recent bank credit developments have been about in
line with what one might expect at this stage of the busi
ness cycle. Bank liquidity has improved markedly at money
market banks in recent weeks and is quite satisfactory else
where.
The most recent estimates indicate greater Treasury
deficits for the fiscal year ended June 30 and for the calendar
year. The prospect of increased Treasury deficits promotes

6/20/61

-12-

inflationary expectations.
Last week the Treasury received
$1.8 billion in cash through the sale of its strip of addi
tional Treasury bills. The Treasury will probably have to
raise $3.5 to $4 billion more cash in July.
The additional
borrowing presumably will increase the supply of short-term
securities and increase bank liquidity.
The latest balance-of-payments statistics have been
somewhat disappointing, with a larger deficit for May than
had been expected. Thus there is every reason to remain
alert to the need to prevent a decline in short-term inter
est rates,
The domestic business and credit situation calls for
a continuation of a policy of monetary ease similar to that
followed in recent weeks, resolving doubts on the side of
ease. The directive was revised at the last meeting, and
there is no reason to revise it at this time. We think the
discount rate should remain unchanged.
For almost a year the rate on three-month Treasury bills,
the bellwether for short-term interest rates, has been within
the range of 2-1/8 to 2-5/8 per cent. During most of the time
the effective range has been 2-1/4 to 2-1/2 per cent. We
think that it is important that the rate continue within this
range.
Although the recent pressure of international short-term
capital flows has been concentrated on sterling rather than
on the dollar, the primary need continues to be to strengthen
both the dollar and sterling in relation to some of the major
Continental currencies. The pressure on sterling arises out
of fears and uncertainties regarding the future of sterling.
As holders of sterling seek to dispose of it, the British
supply dollars to the foreign exchange market to support ster
ling. As such dollars come into official reserves of Con
tinental countries, they constitute a potential demand on
United States gold.
We need not be fearful about doing a disservice to the
British if the rate on three-month Treasury bills were to
rise to the upper part of the range of recent months. Ster
ling is under pressure not because of rate differentials but
because of weakening confidence. The main question is whether
the speculative outflow from London will go to the Continental
markets or to New York. An increase in the United States
Treasury bill rate above its present level but within the
range of recent months may influence the direction of the flow.

6/20/61
It

-13
is unlikely, however, to promote a substantial increase

in the volume of the outflow from London. It is worse from
our viewpoint for Britain to lose reserves to the Continent
than to the United States.
Last week the job of open market operations was to
absorb reserves. During the next few weeks it will be neces
sary to supply reserves. During a period of substantial open
market purchases, it is especially important to have maximum
flexibility as to the area of operations. We believe it is
desirable to continue in its present form the authority to
engage in transactions in longer-term securities.

Mr. Ellis said the few statistics on First District economic
conditions that had become available since the June 6 meeting reflected
a pattern of steady progress in

the recovery phase of the current cycle.

The New England manufacturing index gained three points in

April, the

survey of New England purchasing agents showed further gains in May,
and in June there were further gains in

electric power output.

Residential construction contract awards had increased, although
construction activity did not yet reflect the level of contract awards.
April data, the most recent available,

showed employment about one per

cent below the year-ago level, which was a somewhat more favorable
comparison than for the United States as a whole.

Insured unemploy

ment improved a little in the latter part of May, but was still
unfavorable in comparison with the year-ago level.
Continuing, Mr. Ellis reported some decline in business loans
during the past two or three weeks, just as in the United States as
a whole.

However, business loans showed a gain of 3.8 per cent during

the year 1961 and a gain of about 2 per cent from the year-ago level.
There had been an increase recently in demand deposits; such deposits

-I4

6/20/61

were running slightly below the total at the start of the current
year and one per cent higher than a year ago.

Member banks had

increased slightly their borrowing at the discount window during
the past few weeks,

They had also resorted to the Federal funds

market and reduced somewhat their holdings of Government securities.
Mr. Ellis expressed himself as satisfied with credit conditions
during the past two weeks.

Reserves were in ample supply, and there

was probably some increase in the money supply.

Bill rates were

slightly lower than at the time of the June 6 meeting.

The capital

markets seemed to be functioning quite well, with funds readily avail
able.

As indicated by the Account Manager, it had been found possible

for the Desk to stay out of the longer-term market during the past two
weeks and leave the market on its own.
Mr. Ellis expressed the opinion that the Committee should con
tinue to encourage credit expansion by maintaining the present degree of
availability of reserves.

He would resolve doubts on the side of ease.

He saw no need to change either the directive or the discount rate at
this time, and he would favor continuing the special authorization
covering operations in longer-term securities.

In the latter regard,

however, he would continue to favor the view expressed at the June 6
meeting looking toward gradual disengagement from System activities
in the longer-term market.
Mr. Swan reported that few new significant Twelfth District
economic data had become available during the past two weeks.

Judging

6/20/61

-15

from preliminary data, nonfarm employment on the Pacific Coast was
up slightly more than seasonally in May, but not enough to prevent
a rise in the seasonally adjusted rate of unemployment from April to
May.

Looking ahead, if hiring plans in the major labor market areas

in California were fulfilled, there would be a continued rise in
nonfarm employment of more than seasonal proportions through the
middle of July.

Some employment cutbacks were anticipated in the

aircraft industry in

Southern California,

would be more than offset by gains in
industries.

but it

appeared that these

shipbuilding,

metals,

and other

These projections did not take into account present and

potential labor disputes, including the current maritime dispute, or
the possibility of a spread of interruptions in warehousing and truck

ing.
Mr. Swan went on to say that business loans of Twelfth District
reporting banks continued to decline during the two weeks ended June 7,
while real estate loans showed practically no change.

Holdings of

Government securities were up in total during those two weeks, with
the increase in holdings of maturities under one year more than off
setting declines in the one to five year and over five year categories.
Time deposits continued to rise.

In June, District banks apparently

were in a somewhat easier position than previously.
net purchasers of Federal funds in May,

After having been

they were net sellers in each

of the two weeks ended June 7 and June 14, respectively, although not

-16

6/20/61
by large amounts.

There had been virtually no borrowing from the

Reserve Bank in the past two weeks.
Turning to the national picture, Mr. Swan said it seemed
that recovery was proceeding, but with no real push, at least as yet,
in terms of increased consumer buying.

Further, although there appar

ently had been a turnaround from inventory contraction to accumulation,
no significant accumulation was evident, and there was no indication
of any significant increase in the demand for bank credit.
circumstances,

In such

there appeared to be room for considerable further

encouragement of monetary expansion.

To him this meant,

as Mr.

Ellis

had indicated, that the Committee should continue on more or less the
same basis as during the past two weeks, with, if anything, an edge
toward ease.

In terms of free reserves, he would think of a range

from $500 to $600 million, possibly somewhat over $600 million, with
the bill rate fluctuating, as had been the case recently, from about
2-1/

to 2-3/8 per cent.

He would not suggest a change in the direc

tive at this time, and it seemed to him that the Committee should
continue the special authorization to operate in longer-term securities.
Mr. Deming recalled having noted at the June 6 meeting that
current evidence indicated slower growth prospects for the Ninth
District than for the nation, but that the evidence might have been
overly influenced by weather.

The same statement could be made today,

he said, but with a switch in emphasis.

Agricultural prospects, which

6/20/61

-17

earlier were quite good, had deteriorated because of excessive dry
weather, while nonagricultural activity had shown somewhat better
than seasonal expansion, partly because of the weather.

The current

unemployment rate was more favorable than that for the nation.

The

major sector of weakness in the nonagricultural area continued to be
the Iron Range.

Up to June 1, ore shipments totalled just 5 million

tons in contrast to 17.5 million tons shipped in the same period
last year.
Differences in experience between city and country banks
continued.

City bank loans in early June were about the same as at

year-end 1960, with commercial loans down a shade and total loans up
a fraction.
strong.

In the same period of 1960,

loan expansion was fairly

At country banks, loans had continued to grow moderately in

1961 and were at new peak levels.
Mr.

Deming said it

seemed to him the evidence in

today's

chart show indicated that policy should continue about as it had over
the past two weeks; that is, a policy with an edge toward ease.

He

would suggest no change in the directive or the discount rate, and
he would continue the authorization to deal in longer-term securities.
Mr. Allen commented that the sharp rise in the industrial
production index in April and May had eliminated all doubt about the
mildness of the 1960 recession, if indeed recession was the proper term.
Further, the recently released Government survey on capital spending

6/20/61

-18

indicated the most rapid turnabout in capital spending in the post
war period.

Nevertheless, there remained considerable slack in the

use of resources.

Although employment would continue to rise gradually

in most Seventh District centers, according to surveys of hiring plans,
new unemployment claims were still running ahead of last year.
optimism on future production was moderating somewhat.

In steel,

The announced

price reductions in certain types of steel constituted evidence not
only of local but also of foreign competition.

And throughout the

consumer hard good lines, even in television and portable radios where
demand had been strongest, intense competition was apparent.

The

economist for the largest national retailer characterized sales in
recent months as "lackadaisical," although consumers had responded
well to special sales efforts.
In automobiles, Mr. Allen said, sales had been better than was
expected early in the year.

The latest estimate from Detroit sources

was that sales of domestically produced cars in 1961 would total
5,600,000--2,750,000 in the first six months and 2,850,000 in the last
six months.

Production for the year was put at 5,500,000--2,700,000 in

the first half and 2,800,000 in the last half.

If these figures proved

out, 1961 sales would be 9 per cent below 1960 and 1961 production
would be 18 per cent below 1960.

It was expected that by September 30

inventories of 1961 models would be pretty well cleaned up--in marked
contrast with a year ago.

-19

6/20/61

In agricultural areas of the Seventh District, the sign-up
in the feed grain program had proved to be surprisingly high, with
the corn acreage to be retired in Seventh

District states ranging

from 23 per cent in Iowa to 26 per cent in Indiana.

The reduction

in acreage was adversely affecting sales of fertilizer and farm
machinery.

However, the outlook for farm income for the rest of

the year continued favorable, and deposits in agricultural area
banks remained above a year ago.
Loans of weekly reporting banks declined more than $1 billion
in the seven weeks ended June 7, of which Seventh District banks
accounted for 23 per cent.

Meanwhile, the reporting banks added

further to their holdings of Government securities, and their port
folios became increasingly liquid.

From May 3 to June 7, the report

ing banks over the country reported increases of $1.5 billion in
Governments maturing in less than a year.

A striking contrast be

tween the 1957-58 and the 1960-61 recessions was the obvious attempt
to stay short in the recent period, with both city and country banks
seeking to avoid becoming "locked in"

by falling bond prices.

Of

course, the fact that short rates did not fall to the low levels
reached in early 1958 made longer maturities relatively less attrac
tive.

Chicago central reserve city banks had an average basic

surplus of $71 million in

the week ended Wednesday, June 14, and

all of the larger banks were net sellers of Federal funds.

-20

6/20/61

The business picture seemed to him, Mr. Allen said, to
provide a basis for cautious optimism, but no room for complacency.
The rise in industrial production had been substantial.
for farm income was favorable.

The outlook

The consumer was not spending as much

as merchants would like, but he was saving.

As Mr. Allen had suggested

at the June 6 meeting, this seemed to him a desirable development
unless and until the saving became extreme because of a fear pyschology.
At the moment, the most serious problems in the areas to which the
Committee devoted consideration appeared to be those of the Treasury,
with so much debt on a short-term basis and with the need to raise
additional new money.
For the next three weeks, Mr. Allen felt that monetary policy
should continue as it had been conducted since the June 6 meeting.
Free reserves seemed adequate and, as he had mentioned, the banks held
short-term Governments in

substantial amount.

He saw nothing to do

except to keep a watchful eye on the situation against the time, if
it arrived, when continued improvement in the business situation
brought increases in

loan demands.

He would not change the discount

rate or the directive at this time, and, as in

the past,

he would favor

discontinuance of the special authorization to conduct operations in
longer-term securities.
Mr. Clay commented that the recovery movement in the national
economy appeared to have progressed at a satisfactory pace in its early

6/20/61

-21

stages.

Thus far, he noted, the impetus had been rather strongly

concentrated in limited sectors of the economy.

While some evidence

of a broadening base of recovery was apparent, that phase of develop
ment was largely ahead.

Monetary policy would need to do its share

in facilitating the broadening of the recovery movement in order to
attain a satisfactory level of resource utilization and economic
activity.
Continuing, Mr. Clay observed that the existing directive
called for open market operations with a view to encouraging expan
sion of bank credit and the money supply so as to contribute to
strengthening the forces of recovery.
in

accordance with it

current period.
monetary ease.

That directive and operations

appeared to him to be appropriate for the

This would call for a continuation of the policy of
In view of the relatively modest credit expansion,

the relatively high level of bank loan-deposit ratios, and the
relatively high level of interest rates, the degree of ease, however,
could in his opinion appropriately be increased somewhat.
In line with this policy, Mr. Clay said, the discount rate
should not be changed.

An increase obviously would not be consistent

with present monetary policy.

On the other hand, while the spread

between the discount rate and the Treasury bill rate was substantial,
a decrease in the discount rate would not be proper either in terms
of the international situation or in terms of the stage of the
business cycle.

6/20/61

-22
As to the special authorization with respect to operations

in longer maturities, Mr. Clay's opinion was that it should be
renewed.

Viewed as a temporary departure from the Committee's

operating procedures, the trial period had been too short.

Con

sidering the stage of the business cycle at which the departure
in operating techniques was instituted, outside critics would be
justified, he thought, in contending that sufficient opportunity
had not been afforded for passing judgment.

This contention

could be made despite the fact that some positive results had
been derived from the Committee's modest use of this technique.
In his view, moreover, this operating technique was one of the
logical instrumentsfor the Committee's open market operations and
should be retained in some form in any case.

Assuming renewal of the

special authorization, there remained the question referred to at
the June 6 meeting by various phrases such as disengagement, with
drawal, and the like.
not be taken.

It seemed preferable to him that such action

It might well be that under present circumstances

transactions in longer maturities would be modest.

Nevertheless,

he felt that the technique should be employed in an endeavor to
moderate the upward movement of interest rates in the longer
maturities.
Mr. Wayne reported that business activity in

the Fifth

District showed no significant difference from the national trend.

6/20/61

-23

Employment and production continued to improve.
were relatively good in
a high level.

Automobile sales

May, and sales of farm machinery were at

Textile markets had gradually grown stronger, with

some flurries of forward buying and a few scattered price increases.
Insured unemployment continued to decline at a seasonal rate or
better during May in
States in

North Carolina and West Virginia, the only

the District for which reports were yet available.

"sour note" from the farm was that in

One

recent weeks the price of

broilers had fallen as low as eleven cents per pound,

several cents

below the cost of production and a record low price.
District banks continued in

a comfortable position, although

some banks had experienced sporadic seasonal pressure over the latest
two weeks.

As the result of a sharp loss of public funds by one of

the larger banks, borrowings at the discount window rose to the
highest level of the year, but they had now dropped back to a more
normal figure.

District banks were net buyers of Federal funds on

most days of the latest period, but at steadily declining totals.
Weekly reporting banks reduced their total investments somewhat,

with

the reduction about equally divided between Governments and other
securities.

Gross loans fell

seasonal decline in

slightly, due chiefly to a greater-than

business loans; most other loan categories showed

about normal seasonal behavior.
With respect to policy, Mr. Wayne noted that the quarterly tax
settlement date had passed and the Treasury's strip-bill

venture

6/20/61

-24

had been completed with a minimum of disturbance in the market.

This,

along with declining bill rates, the very low Federal funds rate on
several days during the past week, and the strong basic reserve posi
tion of New York banks during the week ending last Wednesday all indicated
a substantial degree of ease.
The desirable strength in retail sales, residential housing,
and business spending for plant and equipment had not yet been seen,
nor was it at all certain that the current weakness in the stock market
might not generate hesitations elsewhere.

So long as demand lagged in

important areas and so long as prices generally remained stable or
moved down very slightly, as they had in recent weeks, Mr. Wayne felt
the Committee should not reduce the degree of ease that had been the
target for some time.

He would like to see the bill rate near 2.30

per cent, the level of free reserves slightly over $500 million, and
the Federal funds rate, on average, between 2 and 3 per cent.

He saw

no reason at this time to change the directive, the discount rate, or
the special authorization to deal in longer-term securities.
Mr. Mills commented that the tone of the chart show presenta
tion that launched today's discussion of policy considerations was
to venture some predictions and projections as to financial and
economic developments through the months to come.

To him the most

significant and illuminating of those projections was that although
there might be extensive capital expenditures for plant improvement,

6/20/61

-25

the over-capacity existing in

the country's industrial plant suggested

an accumulation of internal resources in the period ahead that would
not find employment.

The conclusion he drew from this projection was

that those accumulated resources would be put to use in retiring bank
debt.

If that were the case, the liquidation of bank debt would tend

to be a drag on expansion of the money supply.

That drag would be

offset to a degree by the seasonal expansion of credit that one would
normally anticipate, but his own guess was that this seasonal expan
sion would not be very extensive.

If there was substance to this

reasoning, it would appear that the main reliance on which to look
for an increase in the money supply would have to be thoseoccasions
on which the Treasury came to the market for new cash, at which times
it would be incumbent on the Federal Reserve System to supply the
reserves necessary to support those operations and permit the increase
in the money supply that was desired.
In that sort of climate, Mr. Mills said, the Committee should
be chary about being impatient regarding the lack of a normal growth
in demand for credit.

It should not, in its impatience, attempt to

force feed the commercial banking system with reserves.

The result

would be only to produce an interest rate reaction on the downside
that would be both unnecessary and unrealistic.

Accordingly, it

seemed to him that the posture of policy over the past two weeks was
appropriate to present and nearby circumstances and could reasonably
be continued, again avoiding any attempt to force feed the supply of

-26

6/20/61

reserves at the disposal of the commercial banks.

Under those

conditions, it was his feeling that there was no need to consider
changing the discount rate or the policy directive.

However, the

Committee might want to watch thoughtfully the phrase in the directive
relating to encouragement of expansion of the money supply.

In his

opinion, as he had indicated earlier, efforts to force an expansion
of the money supply under the conditions that seemed to prevail at
the present time could be quite unavailing and if the money supply,
because of circumstances militating against its expansion, did not
rise in response to System efforts, the directive was likely to be
misunderstood when read at some future date.
In conclusion, Mr. Mills said that he would favor continuing
the special authorization covering System operations in longer-term
securities.

At least temporarily, however, he felt that the imple

mentation should be in terms of continuing to abstain from operations
other than in the short end of the market.
Mr. Robertson expressed himself as pleased at the way in which
open market operations had been conducted during the past two weeks.
Also, he was pleased by the fact that so many who had spoken agreed
that those operations had been good.

He would not recommend changing

the discount rate or the directive at this time, and for reasons he
had expressed previously he would favor discontinuing the special
authorization covering operations in longer-term securities.
Mr. Robertson then turned to the question of instructions given
by the Committee to the Desk and presented the following statement,

6/20/61

-27-

indicating that he hoped others would study the statement as well
as the tables presented therewith:
All members of the Committee, I am sure, are abundantly
aware of the difficulties of conveying a clear idea of
intentions to the Account Manager, and also of the short
comings that attach to reliance upon any single statistical
indicator of the degree of ease or tightness one might have
in mind. Under the pressures of wishing to be as concrete
as possible, however, most of us keep returning (at least
occasionally) to some expression of a desired free reserve
range as a means of illustrating our intentions,
"other
things being equal." We try to make our comments loose
enough to allow for vagaries in the relationships between
the level of free reserves and the degree of ultimate
monetary ease or tightness, but I think we may sometimes
not fully recognize, either in foresight or in hindsight,
some important factors which produce fairly systematic shifts
in the likely expansive effects of any given level of free
reserves. I have in mind particularly this morning the mid
month bulge in float. This factor often is mentioned in our
discussions, but I doubt that enough allowance is made for
its impact. As an indication of how great that impact might
be, let me review the recent record.
Seasonally adjusted expansion of private deposits can
be inferred from the movements in required reserves in ten
out of the twenty reserve weeks since the end of January.
How much free reserves did it take to achieve this expansion?
In the weeks of monetary expansion which were characterized
by low float, the average free reserve figure was only about
$475 million; in expansive weeks when float was high but some
monetary expansion was nonetheless achieved, the average free
reserve figure was $600 million for the weeks from February
on, and nearly $700 million if one were to include the January
weeks as well.
I have some tables here which summarize these statistics,
and I would like to place them in the record in order to per
mit more reflective and critical examination of them by others.1/
I would not maintain for a moment that these differences are
uniform, or that they would necessarily pertain for periods of
strong credit demands. In addition, more should be done to
allow for other factors in this process, such as the inflow of
funds to the money centers from country banks near the end of
their reserve periods, and possible leads and lags in stimula
tive or contractive effects. In the meantime, however, in
current expressions regarding the management of the Account,

1/ The three tables are appended to these minutes as Attachment A

6/20/61

-28-

I suggest we might make a beginning by mentally adding or
subtracting $75 million or so to the free reserve range
which might otherwise be regarded as desirable, depending
upon whether float is high or low.
The results would still
be far from precise, for we all know that the linkage of
free reserves to monetary expansion is not a fixed one. So
long as the credit climate continues to resemble the current
one, however, I think that the allowances I have suggested
would keep us closer to base than if we ignored such influ
ences. More sophisticated and flexible adjustments for
these influences are to be coveted, but I am disillusioned
about our ability to keep making such adjustments individually
on a subjective and ad hoc basis. I think the month of May
provides a clear case in point, when free reserves, held
within a $400-$500 million range in line with the Committee
consensus, produced alternating tides of tightness and ease
in the market which were closely associated with the float
bulge, as well as the timing of country bank reserve period
endings.
Accordingly, I would suggest, in view of the economic
and financial conditions which have been outlined earlier,
that our policy should continue to be one of ease, that
operations should be conducted with a view to maintaining a
free reserve range averaging around $550 million, but with
recognition that such a range should probably be extended up
ward by as much as $75 million in the current week and
perhaps also in the following week (with relatively high float
expected), and reduced by $50-$75 million in the succeeding
two July weeks (when we will have low float). I would add
that in these weeks the Manager should aim for the different
free reserve ranges I have specified with the usual allowance
for the exercise of judgment to avoid undue money market ease
or tightness.
Mr. Shepardson said that, particularly in view of the chart
show that had been presented, he did not feel it necessary to comment
to any extent on the economic situation.

Generally speaking, it seemed

to him this was a period to remain steady in the boat and to continue
to provide needed reserves, although without attempting a forced
feeding operation.

He would favor continuing the directive and the

special authorization covering operations in longer-term securities,

6/20/61

-29

but he would look forward to disengagement from operations under the
special authorization.
Mr. Fulton reported that business activity continued to expand
in the Fourth District in early June, but with some loss of momentum
in the steel industry and in other industries allied with manufacture
of automobiles.

At this time of year, he noted, there is usually a

downturn in steel and automobile production, and the current lag was
not as great as in other years.
started from a low base.

On the other hand, the current upturn

Recent price cuts in some steel products

are attributable to overcapacity and also to a recognition that under
cover price cuts had been occurring for some time.

In addition, the

steel companies recognize the substantial volume of imports, particularly
in certain types of steel.

However, the volume in those items that had

been cut in price was rather small, and there was said to be no particular
price weakness in sheets and strip, which are the backbone of steel output.
Mr. Fulton noted some general improvement in the unemployment
problem, but added that there had been a small increase in insured unem
ployment in certain communities, mostly places dependent on the steel
industry.

There were indications that inventory liquidation had stopped

at the moment.

In addition to orders for immediate utilization, there

appeared to be some ordering for the purpose of restoring inventories
to normal working levels.

It was felt that there might be some inventory

accumulation starting in the latter part of the third quarter and
continuing in the fourth quarter.

Automobile sales were fairly good

6/20/61

-30

and department store sales equalled the year-ago figures during the
latest weeks,

although for the year to date they were still

per cent under the comparable period a year ago.

about two

Both loans and invest

ments of District banks had declined, with business loans down for the
past 11 weeks.
Mr. Fulton said that he saw no reason to change the discount
rate or the directive.

He was quite pleased by the recent operations

of the Account, even though reserves became rather plentiful on a
couple of days for technical reasons.

In his opinion, the same general

degree of ease should be continued, with free reserves somewhere around
$500-$550 million.

He would favor continuation of the special authoriza

tion for operations in longer-term securities, and he would be favorable
to the sale of securities other than bills from the Account as circum
stances permitted.

If the System was going into operations in the

longer-term area, it seemed to him that it should operate on both the
However, he would agree with the idea of as

buying and selling sides.

much disengagement as possible from operations in the longer-term area.
He would not care to see a decline in the bill rate below present levels.
Mr. Bopp reported that business in the Third District continued
to improve, but not rapidly.

A tendency for the District to lag behind

the country as a whole during upswings, observed in earlier periods,
seemed to be at work again.

Steel production and rail carloadings had

decreased recently, and unemployment rates, as usual, were higher than
the national average.

In May, however, manufacturing employment in the

District declined less than seasonally.

6/20/61

-31
Two weeks ago, Mr. Bopp said, there was some indication of

the beginning of an upward movement in bank loans.

However, more

recent data gave little support for this expectation.

While reserve

positions of District banks were far from tight, reserve city banks
had been borrowing Federal funds and had been running a deficiency
in basic reserve positions.

Country banks continued to borrow moderate

amounts at the discount window.
Mr. Bopp expressed the view that monetary policy should con
tinue to be directed toward stimulating the economy.

In fact, he

would like to see even slightly more ease if this was necessary to
induce expansion in the money supply and to offset any upward creep
in market yields.

If this should require somewhat higher figures

of free reserves and further purchases of intermediate and long-term
issues, he would not be disturbed.

The recovery was proceeding, and

he would want to be alert for the appearance of signs calling for less
ease.

However, until symptoms of inflationary pressure appeared, he

felt the economy could well use the continued stimulus of monetary ease.
In conclusion, Mr. Bopp indicated that he would favor continu
ing both the present directive and the special authorization covering
operations in longer-term securities.
Mr. Bryan said there were almost no new figures on the Sixth
District to report at this time.

Of the new figures that had become

available, only two seemed worth mentioning.
a sharp upswing in bank debits.

First, there had been

While this was rather hard to account

6/20/61

-32

for, the rise merely canceled out a preceding sharp downswing.
Second, loans of member banks had gone up much more than the national
average, and apparently a good deal more than seasonally.
Mr. Bryan went on to say that after studying the various
reserve statistics he found himself concluding that the instruction
to the Desk in terms of free reserves should be one of essentially
no change.

In other words, he would come out with free reserves in

the range of $500-$550 million.
rate ought to be changed.

He did not believe that the discount

As for the special authorization covering

operations in longer-term securities, he would continue it, though
with the hope that it would be exercised with restraint.

Although

he had not thought too much about the matter, his inclination at the
moment would be to support the idea of selling intermediate and
longer-term securities on occasion.

If the System was going to buy

securities in the intermediate and long-term areas, it

would appear

logical to sell in the same market if what seemed to be appropriate
circumstances arose.
Mr.

Johns commented that in

the early part of June there

apparently was some resumption of growth in
hoped that this was no flash in the pan.

the money supply.

Continuing,

He

he pointed out

that over the past two and one-half months, specifically from the
last half of March to date, there had been practically no growth in
the money supply.
of May,

From the last half of March through the last half

there apparently had been a decline at an annual rate of a

6/20/61

-33

little less than 1/2 per cent, which contrasted rather sharply with
the period from late November through late March, when the money
supply increased at an annual rate of 4-1/2 per cent.

If time deposits

were included, the annual rate of growth was 9.1 per cent from
November to March, compared with 4.6 per cent in the March-May period.
That kind of behavior of the money supply at this stage of recovery
was, as far as he could recall, unprecedented, at least in the postwar
period.

For more than eight months following both the 1953-54 and

1957-58 recessions, the money supply increased at a substantial rate,
and at no time in those eight-month periods did the money supply fail
to grow in successive months.

It might be argued that either or both

times the rate of growth was too large, but he doubted anyone would
care to maintain that there should have been no growth at all.

Judged

by interest rate developments, it seemed to him the picture would be
rather similar.

These developments, together with the behavior of

the money supply, might actually be characterized with some accuracy
as a tightening.

Since early May the bill rate had shown practically

no change, although there is normally some decline at this time of
the year, and yields on longer-term Government securities had increased.
Mr. Johns said he believed that growth in the money supply
should be encouraged, and in such a way as to more than catch up for
the lack of growth during the 2-1/2-month period to which he had
referred.

If in doing this the System could also restrain the rise

in interest rates that might be expected to accompany economic recovery,

6/20/61

-34

that would not be an undesirable result.

In terms of procedure, he

suggested referring to the statistics contained in the staff memorandum
on the outlook for member banks reserves that had been distributed
prior to this meeting, with particular attention given to the column
in table 2 on total reserves needed.

These were the reserves needed,

according to the projections, to provide for seasonal changes in
private deposits and expected changes in Government deposits, with
adjustments to be made, of course, if and when the projections for
various factors did not work out.

Accordingly, he would suggest that

these figures be a guide, and that some allowance be made for modest
growth.

He did not know at what point such an increment might be

regarded as forced feeding.

Whatever that might be, he would not

want to be quite that forceful.

Nevertheless, he continued to believe

that if the System desired some expansion of bank credit and the money
supply, it was going to have to inject an amount of reserves reasonably
calculated to bring about such expansion, through loans, if possible,
and if not through investments.
Mr. Johns said that he would not favor changing the directive
or the discount rate at this time.

It would continue to be his prefer

ence that the special operations in longer-term securities be brought
to a conclusion.
Mr. Balderston commented that he had a sense of satisfaction
regarding the conduct of open market operations during the past two
weeks and a feeling that continuation of the same degree of ease

6/20/61

-35

would be appropriate during the month of July, when the Treasury
would be going to the market.

There were two longer-run problems

that he thought would plague the Open Market Committee.

The first

was the deficit spending on which the Federal Government had reembarked.
The second was the pressure on the pound sterling.
Mr.

Balderston said he would favor the implied suggestion of

Mr. Rouse that the Desk sell intermediate-term securities from the
Account,

assuming this meant that any such sales would be integrated

with System policy objectives and with Treasury operations at the
particular time.
Chairman Martin said he liked to think, though it
be a frame of mind,

might only

that monetary policy was more clearly on the right

track at present than it

had been for some time.

He saw little

to go over the points that had been made at this meeting.
to say that the consensus was clearly for no change in

need

Suffice it

the directive

or the discount rate.
There were at least two dissents from renewing the special
authorization to operate in

longer-term securities,

the Chairman

noted, and there had been some further comments about disengagement
from such operations.
engagement.

Personally, he would hope for a gradual dis

However, he felt

that the Committee ought to renew the

special authorization at this time and rely on the judgment of the
Account Manager as to how to operate under it,

In his opinion, the

6/20/61

-36-

Desk had conducted things well during the past several weeks, and
he thought the Committee could afford to rely on the Manager's judg
ment to effect the indicated policy.
Chairman Martin also noted that, as at the June 6 meeting, refer
ence had been made to resolving doubts on the side of ease.
he saw it,

This, as

was again the consensus.

The Chairman then inquired whether there were further comments,
and none were heard.

He went on to say that he assumed Messrs. Allen

and Robertson wished to be recorded as voting against continuation of
the special authorization,
recorded in

and that Mr.

Johns would like to have

the minutes the views that he had expressed in

this regard.

The responses indicated that this was the desired procedure.
Thereupon, upon motion duly made
and seconded, it was voted unanimously
to direct the Federal Reserve Bank of
New York until otherwise directed by
the Committee:
(1)
To make such purchases, sales, or exchanges (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 be necessary in the
light of current and prospective economic conditions and the
general credit situation of the country, with a view (a) to
relating the supply of funds in the market to the needs of
commerce and business, (b) to encouraging expansion of bank
credit and the money supply so as to contribute to strength
ening of the forces of recovery, while giving consideration
to international factors, and (c) to the practical administra
tion of the Account; provided 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 short-term
certificates of indebtedness purchased from time to time for

6/20/61

-37

the temporary accommodation of the Treasury, shall not be
increased or decreased by more than $1 billion;
(2) To purchase direct from the Treasury for the
account of the Federal Reserve Bank of New York (with dis
cretion, 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.
The Committee then authorized the
Federal Reserve Bank of New York, between
this date and the next meeting of the
Committee, within the terms and limitations
of the directive issued at this meeting,
to acquire intermediate and/or longer-term
U. S. Government securities of any maturity,
or to change the holdings of such securities,
in an amount not to exceed $500 million.
Votes for this action: Messrs. Martin,
Balderston, Mills, Shepardson, Swan, Wayne,
Johns, and Treiber. Votes against this
action: Messrs. Allen and Robertson.
Chairman Martin referred at this point to the fact that there
had been distributed to the members of the Committee copies of a letter
addressed to him by Congressman Patman, Chairman of the Joint Economic
Committee,

under date of June 14, 1961, regarding certain open market

records that had been requested of Chairman Martin and Mr. Rouse during
the hearings before the Joint Committee on June 1 and 2,
principal request was for the full
meetings held during the year 1960.

1961.

The

minutes of the Open Market Committee
Reference also was made to inter

pretative memoranda and notes taken or prepared by Mr. Rouse or any
other members of the staffs of the Board and the New York Reserve Bank

6/20/61

-38

concerning the deliberations and policy decisions of the Open Market
Committee,

also for the calendar year 1960.

A further request was for

a description of all the factors which the Open Market Committee took
into account on the last occasion when it

instituted a policy of

restraint, and a description of the factors which it

took into account

on the occasion of the immediately preceding meeting,

prior to institu

tion of a policy of restraint.
Chairman Martin noted that there had been some discussion at
the Open Market Committee meeting on June 6 concerning the request of
Congressman Patman for the 1960 minutes, which request was at that time
in

oral form.

The Chairman then noted that three members of the

Committee, Messrs.
Accordingly,

Hayes,

Irons,

and King,

were not present today.

he suggested that a determination of the response to be

made to Congressman Patman's request be deferred until the next meeting
of the Committee, scheduled for Tuesday, July 11.
Chairman Martin also commented that at the hearing on Friday,
June 2,

Congressman Patman had referred to him a series of 13 questions,

based principally on the record of policy actions of the Federal Open
Market Committee for the year 1960,
Report for that year.

as published in

the Board's Annual

The Chairman stated that drafts of replies to

those questions were in process and that they would be distributed to
the members of the Committee within the next few days for comments and
suggestions, with a view to transmittal of the replies after the next
meeting of the Committee.

6/20/61

-39
There followed a general discussion relating to various aspects

of the request for the 1960 minutes during which Chairman Martin
suggested that consideration might be given at an appropriate time to
the possibility of publishing the Open Market Committee minutes each
year in conjunction with the publication of the Board's Annual Report.
The broad problem, he pointed out, involved clearly the matter of the
Committee's responsibility in the public interest and the best way to
discharge that responsibility.
Ensuing comments reflected a divergence of preliminary views on
the question of publishing the Committee's minutes, reasons being cited
both for and against such a practice.

Among other things it

was noted,

on the one hand, that such a procedure would have the advantage of
making available to all interested parties, as opposed to a particular
person or groups, a full exposition of the processes through which
Committee policy determinations had been reached.

A related result

would be to lessen the possibility of material from the minutes being
used out of context.

On the other hand, it

was suggested that such a

procedure could have the effect of restraining freedom of expression
at Committee meetings.

Similarly, the minutes might tend to become

more restricted in scope, thus affecting their usefulness for Committee
purposes.

Attention also was called to the problem of timing, a

distinction being noted by those who spoke on this phase of the matter
between the publication of relatively recent minutes and those for
earlier periods.

Release of recent minutes, it was suggested, could

-40

6/20/61

create problems in open market operations, or even from the stand
point of international relations, whereas the release of minutes for
earlier periods could be quite useful in providing research material
for scholarly purposes.
In reply to a question regarding a procedural suggestion that
had been made at the June 6 meeting, Chairman Martin said that he had
since that date discussed the request for the 1960 minutes with the
Chairmen of the Banking and Currency Committees.
the basis of his conversations,

that it

It

was his view, on

would be of doubtful wisdom to

request those parties to intercede in the matter.
At certain points the discussion turned to the somewhat related
question of publication of the record of policy actions of the Open
Market Committee more frequently than on an annual basis, and tentative
views both for and against such a procedure were expressed.
gestion was that consideration might be given,

One sug

in the alternative,

to

the periodic issuance by the System of somewhat less formal statements
concerning policy actions taken during the preceding period.

Another

suggestion was that consideration might be given to quarterly publica
tion of the record of policy actions, after a suitable time lag, with
an accompanying article reviewing the economic background against which
the actions were taken.
With more specific regard to the request of Congressman Patman
that the 1960 minutes be made available for the use of the Joint Economic

6/20/61

-41

Committee,

a view was expressed that the Committee should consider

carefully, before complying with such a request, whether a refusal
to comply could not be justified on the grounds of possible injurious
consequences,

from the standpoint of Committee operations and the

public interest, that might flow from use of the minutes for other
than their intended purposes.

Thus it

was suggested that the response

to the request, at least in the initial instance, might be in terms of
setting out as comprehensively as possible the reasons why it was felt
that the confidentiality of the minutes should be preserved.
presentation of this suggestion, it

was indicated that if

After

any member

of the Committee cared to draft such a letter, that might be helpful
,r

the Committee in

its

further consideration of the matter.

With respect to that portion of Congressman Patman's letter
which referred to interpretative memoranda and notes taken or prepared
by Mr. Rouse or other staff members of the Board or the New York Bank,
Mr. Treiber commented that certain notes customarily were taken during
Committee meetings by representatives of the New York Bank for supple
mentary guidance in

the conduct of open market operations.

These notes

he brought out, were not of comparable status to the minutes since the
latter were subject to review and approval by all members of the Commit
The reply by Chairman Martin, from which no dissent was heard, was to
the effect that the question whether to furnish notes such as those
referred to by Mr. Treiber would appear to be primarily a matter for
determination by the New York Reserve Bank, and the Manager of the Syst

6/20/61

-42

Account.

The Chairman commented further that notes of various kinds

might be prepared from time to time by members of the Committee for
their own use; in his judgment they would fall
personal material.

into the category of

Similarly, the synopses prepared by the Secretary

of the Committee and transmitted to the Manager of the System Account
immediately following each Committee meeting appeared to be in the nature
of interim minutes.

The minutes themselves were extensive, more so than

the minutes of any other organization with which he had been associated.
Therefore, he doubted whether other material of a personal or interim
nature needed to be taken into account in considering Congressman Patman's
request.
After further discussion which touched upon some of the aspects
of the broad question of the extent to which material pertaining to
various System functions should be made available to the public,
Chairman Martin repeated his suggestion that a determination of the
response to be made to Congressman Patman's letter of June

14 be de

ferred pending discussion at the next Open Market Committee meeting,
and there was agreement with this suggestion.
It

was agreed that the next meeting of the Federal Open Market

Committee would be held on Tuesday, July 11,

1961.

The meeting then adjourned.

Secretary

Attachment A
Table 1
Summary: Averages of Free Reserves in Periods
of Monetary Expansion and Contraction 1/
February 1961 to Date
(In millions of dollars)

Weeks with

Weeks of
Monetary
Monetary
expansion

contraction

Low float

473

457

High float

600 (694)

517

1/ For details and definitions see Tables 2 and 3.
(Parentheses in this table enclose the average
figures which would result if January 1961 data
were also included.)

Table 2
Comparison of Free Reserves and Required Reserve Changes
in Weeks of Monetary Expansion
Daily Averages for Reserve Weeks
Year 1961 to Date
(In millions of dollars)

Type and date of
reserve week

Average ree
reserves
Average of
For each
weekly
groupings
week listed

Change in adjusted
required reserves 1/
Average of
For each
weekly
groupings
week listed

with low float:

2-1
5-31

482
522

4-5

+74
+57

428

+57

3-29

521

5-10

411

with high float:
3-1

/

/

+1 .+43

629

+312

957
694

+180
+153
+80

584

+35

638

+30

1-25
3-22
4-26

6-14
4-19

1-18

757

1-4

838

Note.--Within

+26

73

454

+11

694

+7

+101

each grouping, reserve weeks are listed according to size of
increase in adjusted required reserves.
Adjusted to exclude required reserve changes due to projected seasonal
changes in private deposits of other than banks and actual changes in
Government and interbank deposits.
"Low float" was defined as a weekly average below $1,2 billion in the
months January-March and below $1.1 billion in April-June.
Float averages
above cut-offs were classified as "high" float.

Table 3
Comparison of Free Reserves and Required Reserve Changes
in Weeks of Monetary Contraction
Daily Averages for Reserve Weeks
Year 1961 to Date

(In millions of dollars)

Type and date of

reserve week

Average free
reserves
Average of
For each
weekly
week listed
groupings

,

Change in adjusted
required reserves 1/
For each
week listed

Average of
weekly
groupings

With low float:

5-3

6-7
3-15
2-8
2-15

4-12
3-8

-4
-4

405
509
586

-27

389
449
529

-50

333

-50
-59
457

-143

-48

With high float:

5-24
5-17
2-22

1-11

501
428
618

521

-33
-39
-105

517

-117

-74

Note.--Within each grouping, reserve weeks are listed according to size of
decrease in adjusted required reserves.
1/ Adjusted to exclude required reserve changes due to projected seasonal
changes in private deposits of other than banks and actual changes in
Government and interbank deposits.
2/ "Low float" was defined as a weekly average below $1.2 billion in the
months January-March and below $1.1 billion in April-June, Float
averages above cut-offs were classified as "high" float.