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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 26, 1956, at 10:00 a.m.


Martin, Chairman

Mr. Mills

Fulton, Alternate
Treiber, Alternate

Messrs. Bryan, Leedy, and Williams, Alternate
Members, Federal Open Market Committee
Messrs. Leach, Irons, and Mangels, Presidents
of the Federal Reserve Banks of Richmond,
Dallas, and San Francisco, respectively
Mr. Riefler, Secretary
Mr. Thurston, Assistant Secretary
Mr. Vest, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Abbott, Willis, and Young, Associate
Mr. Rouse, Manager, System Open Market Account
Mr. Carpenter, Secretary, Board of Governors
Mr. Sherman, Assistant Secretary, Board of
Mr. Miller, Chief, Government Finance Section,

Division of Research and Statistics, Board
of Governors
Mr. Larkin, Manager, Securities Department,
Federal Reserve Bank of New York
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meetings
of the Federal Open Market Committee held on
May 23 and June 5, 1956, were approved.



Before this meeting there had been distributed to the members
of the Committee a report covering open market operations during the

period June 5 through June 20, 1956, and at this meeting a supple
mentary report covering commitments executed June 21 through June 25,

1956, inclusive, was distributed.

Copies of both reports have been

placed in the files of the Committee.
In commenting on the reports, Mr. Rouse mentioned that net
borrowed reserves would tend to rise considerably during the next few
days and that he anticipated that repurchase agreements would be made
available to take care of this situation.
Mr. Mills inquired why repurchase agreements rather than out
right purchases of securities for the System account would seem de
sirable at this time, when it

appeared that additional reserves would

be required over a considerable period of time.

He also observed that

the System account had permitted $51 million of Treasury bills to run
off during the past week, and he expressed the view that if
crease were permitted to show up in

this de

the statement for the current week

might be interpreted as a shift in

the policy that the Committee

had been following in recent weeks.
Mr. Rouse responded that with net borrowed reserves in the
$200 million area he felt

the run off of bills would not be misunder

stood in view of the sharp easing that had taken place since early this
month, and the condition of the Government securities market.

He also



stated that today the System account had purchased $27 million of
Treasury bills, having in mind the point that Mr. Mills had mentioned.
Mr. Rouse also stated that his thought that repurchase agreements would
be a desirable means of meeting part of the increased need for reserves
in the next few days was based on the assumption that the Committee
would continue at this meeting about the same type of credit policy
that it

has been following in

the past few weeks.

He had not had to

make a firm decision on the matter pending this meeting.

However, he

did not feel that some run off in System holdings of securities this
week or the possibility that Treasury bill

rates might move a little

above 2-1/2 per cent would be inconsistent with the policy approved
at the meeting of the Open Market Committee early in June, considering
the fact that the discount rate continued at 2-3/4 per cent.
said, in response to a further question from Mr.

Mr. Rouse

Mills, that he would

have in mind net borrowed reserves in the $200-300 million range in
this period.
Upon motion duly made and seconded,
and by unanimous vote, the open market
transactions during the period June 5
through June 25, 1956, inclusive, were
approved, ratified, and confirmed.
Mr. Cherry, Legislative Counsel for the Board of Governors of
the Federal Reserve System, entered the room at this point.

Chairman Martin referred to a letter dated June 20, 1956, from
Congressman William L. Dawson, Chairman of the Committee on Government



Operations of the House of Representatives,
distributed before this meeting.

copies of which had been

Mr. Dawson's letter requested that

connection with a study by his committee of the operations of the

debt management advisory committees utilized by the Treasury, arrange
ments be made to have Mr. William Pincus, Associate General Counsel
for the Committee on Government Operations,

received at the Federal

Reserve Bank of New York on July 5 and 6, 1956 in

order that the proper

officials of the New York Bank and of the Federal Open Market Committee
might furnish him with an on-the-spot presentation of the activities
conducted at the Bank as they relate directly to the operations of the
Government securities market.

Mr. Dawson's letter indicated his under

standing that the Federal Reserve Banks act as fiscal agent for the
Treasury Department and that the System also is

involved in the opera

tions of the Government securities market by virtue of the holdings
of Government securities in the System open market account.
At Chairman Martin's request, Mr.
discussions with Mr.

Riefler reviewed earlier

Pincs, stating that on Friday, June 15, Mr.

Miller of the Board's staff received a telephone call from Mr. Pincus
inquiring as to various technical problems in
ment of Government securities.

the issuance and allot

In the course of the conversation,

Mr. Pincus invited members of the Board's organization to come to
his office for the purpose of further discussion of these questions.
Mr. Riefler stated that after presenting the matter to the Board, he,



Mr. Miller, and Mr.

Cherry met with Mr.

the committee's staff.
policy as such.

Pincus and other members of

The discussion did not go to Federal Reserve

At the conclusion of the discussion, Mr. Pincus sug

gested that members of the committee's staff would like to visit


Federal Reserve Bank of New York for the purpose of obtaining on-the
spot information as to the fiscal agency activities of the Bank and
operations of the Government securities market.


Riefler stated

that this request was brought to Chairman Martin's attention, who
expressed the view that such a visit should be based on a formal re
quest by the Chairman of the Committee on Government Operations,


was in this manner that Mr. Dawson's letter was received.
Chairman Martin stated that he had discussed this request with

Treasury officials at a luncheon meeting this past week, feeling that
the Treasury should be fully informed of the nature of the request,

and that it was his understanding that the Treasury was not opposed
to the proposed visit or to furnishing information to the committee
along the lines requested.
In response to a question from Chairman Martin, Mr. Cherry
stated that this request was an outgrowth of the investigation of
advisory committees to the Treasury being conducted by Mr. Dawson's

committee in which there has been considerable discussion of fiscal
operations of the Treasury, methods and techniques of entering sub
scriptions to new issues of securities, the basis for allotment of
such securities, the functioning of the Federal Reserve as fiscal



agent for the Treasury, and the part played by Government securities
dealers in

connection with Treasury financings.

Mr. Cherry said that

it was his understanding that the committee was not exploring monetary
relationships as part of its inquiry, and he expressed the view that

would be desirable to cooperate with the committee in

so far as

that might be feasible.
Mr. Treiber stated that while Mr. Dawson's letter did not make
the nature of the visit entirely clear, he felt that the System should
assist the committee and its

representatives in obtaining information

as to the operations of the Government securities market and of the
functions of the Federal Reserve Bank as fiscal agent.

Treiber said it

In doing this,

would be his view that System representatives

should avoid discussion of such things as directives of the Federal
Open Market Committee but, with that exception, they should be as help
ful as possible to Mr. Pincus or other members of the committee's staff.
Chairman Martin said that Mr. Treiber expressed the views which
he felt should apply to Mr.

Dawson's request.


should be done

to place any road-blocks in the way of the committee, and efforts should
be made to assist its representatives in obtaining a better understand
ing of the operations of the Government securities market.
In response to a question from Mr.

Johns, Chairman Martin re

iterated his understanding that the Treasury would have no objection
to a visit such as Mr.

Dawson's letter proposed but stated that he

would confirm his understanding on this point before the committee



representatives visited the New York Bank.
In response to a question from Mr.

Vardaman, Chairman Martin

stated that he had in mind informing the Chairmen of both the Senate
and House Banking and Currency Committees of the visit proposed by
Mr. Dawson.

Treiber stated that he would be glad to send Mr. Dawson

a letter regarding the proposed visit of Mr.

Pincus and possibly

other members of the committee's staff.
There was unanimous agreement with
the procedure suggested in the foregoing
Mr. Cherry withdrew from the meeting at this point.
Chairman Martin called upon Mr. Young, who made a statement
with respect to the economic situation substantially as follows:
Onset of summer doldrums finds the economy moving for
ward on a high and gently rising plateau.
Industrial pro
duction holds steady within the narrow range it has main
tained since last fall, but other areas of output evidence
Credit demands have been showing excep
expansive tendency.
tional strength, but wholesale prices, while firm, have
Stock prices have re
further advance.
featured little
bounded some from news of the President's illness, and,
reflecting more encouraging news from various economic
fronts, business and financial sentiment has a much more
confident tone than in the second half of May. Late data
flowing in from abroad confirm that expansive trends are
being sustained in most foreign industrial countries.
With the second quarter approaching a close, pre
liminary estimates of the economy's total performance for
They indicate a GNP figure of
the quarter can be made.
$402 billion, up $3-1/2 billion from the first
and $5 billion from the fourth quarter, reflecting in
part a higher price level. Personal income is estimated
at $317 billion, up $3 billion from the first
and $5-1/2 billion



income and consumption expenditures are both estimated to
be up $4 billion over the past two quarters. Personal
savings holds at just under a 7 per cent rate,
The expansive influences carrying total output to new
record levels have been larger consumer spending on non

durables and services, larger business spending on plant
and equipment, and larger State and local government spend
ing. On the more or less neutral side have been Federal
Government spending, residential construction investment,
and investment in business inventories.
Consumer spending
for automobiles has been the main contractive influence.
Other details of the situation may be briefly reviewed:
(1) Industrial production for May is still
placed at
142 with the June figure expected to repeat this level.
Retail sales for May showed a 1 per cent gain over
April. Nondurable sales were responsible for the advance,
durable goods sales about holding even. Judging from depart

ment store sales, total and by major departments, thus far in
June and from the reported marked pick-up in new automobile
sales, further advance in retail sales may be registered this
(3) Instalment credit outstandings are estimated to have
shown a $150-$200 million rise on a seasonally adjusted basis
in May, a little less than in April. The rise in the past two
months has reflected mainly increases in personal loans and
consumer goods paper other than automotive. Liberalization of
credit terms for new automobile paper, which was brought under

check late in the fall, has apparently resumed in a moderate
Business inventory accumulation for April amounted
to about $600 million, mostly at manufacturers and particularly
in nondurable goods lines. High retail sales at nondurable
goods stores in May suggests that this development was in re
sponse to market demands and not a backing up of holdings from
At the distributive level,
retailers to manufacturers.
scattered information up to June points to an even stock posi
tion at retailers of diversified consumer hard goods, while
current information from the automobile industry points to
marked liquidation in June of new car stocks and perhaps some
Over-all the second
additional work down of used car stocks.
quarter is expected to show a reduced rate of inventory ac
cumulation from the first
Total construction activity holds about at or just
under year ago levels, with residential construction down and
Contract award
offset mainly by greater business construction.
data show that strength continues to characterize all major
types of construction, as does also further upward trend of
construction costs and material prices. Recent reports on
residential real estate markets indicate that discounts on

Federally underwritten mortgages have generally increased
in recent weeks, but they also indicate that the reduced
number of completed housing units is moving without ex
ceptional delays and that the inventory of unsold houses
is being held to moderate volume.
Total nonfarm employment in May was at a record
level of 51.3 million, 1.5 million above a year ago. Un
employment at 2.6 was about the same as in April.
An in
crease in unemployment is usual in June, reflecting the
increase of workers in search of summer employment. The
work week in May averaged about 40 hours, about an hour
below levels at the end of 1955.
Reflecting reduced over
time work in part, average hourly earnings in May showed
no change from April and average weekly earnings were off
slightly. In June, workers in a number of major industries
receive automatic wage rate increases, and in July a wage
rate rise goes into effect in the copper industry. The out
come of the steel negotiation is still unknown.
(7) Since mid-May, both industrial and agricultural
prices have been relatively stable. On the industrial com
modity side, prices of materials have strengthened after
earlier marked declines and price increases have been fewer
for partially fabricated and finished items.
Prices of farm
products and foods have held close to mid-May levels, but
prices of livestock, wheat, and fats and oils have eased
somewhat this month. The decline in livestock prices has
reflected larger marketings stimulated by the earlier price
advance for livestock.
(8) Abroad in major industrial countries, output con
tinues at high levels, with some irregularity in further
increases because of capacity and labor supply limitations.
In a number of these countries, the existence of inflationary
of their indexes of
pressures is shown by the upward tilt
average prices.
U. S. exports and imports, on a seasonally adjusted
basis, showed renewed strength in May after a dip in April,
according to preliminary indications.
Altogether, the total situation looks considerably better
than the indications at the last meeting. Observers generally
are now raising their sights for the third quarter. The
opinion is ventured by some that, assuming no prolonged steel
strike, over-all performances in the third quarter, on a
seasonally adjusted basis, may well better performance of the
second quarter. Regardless of the outcome, one can at least
say that the composite picture indicated by the most recent
data on production, trade, employment, and prices is not one
of an economy in recession or even poised to recede.




Thomas pointed out that credit developments,

other areas, indicated continued strength in

like those

the economy.

He said

that Treasury operations have recently been of prime interest in
financial markets,
cash surplus is

both mechanically and psychologically.

The Treasury

likely to be close to $5-1/2 billion for fiscal 1956

and the cash balance,

exclusive of gold, will probably be around $5-1/2

billion at the end of June.

This balance is

about a billion dollars

less than was expected earlier, owing largely to Treasury purchases of
securities, redemption of Commodity Credit Corporation notes, larger
redemptions of savings bonds than had been anticipated, somewhat
smaller receipts from income taxes withheld, and somewhat larger

The heavy turning over of funds and shifts from the

maturing tax anticipation securities to other investments had affected
money markets and Government securities markets recently, making it
difficult to bring out underlying trends.

Thomas referred to the Treasury's borrowing needs during

the next seven months,

concerning which a memorandum dated June 25,

1956, from the Board's Division of Research and Statistics was dis
tributed earlier during this meeting.

The prospect is

that the Treas

ury will have to borrow around $4-1/2 billion during this seven-month
period, of which $1-1/2 billion might be deferred until January.
About $3 billion would be needed by late August or early September.
Refunding operations for the next six months will total around $22
$23 billion, of which the Federal Reserve holds over $9 billion of


maturing securities.

Mr. Thomas stated that during the first


of calendar 1957 debt retirement might be as much as $8 billion.
The large amount of funds that will be available for debt
retirement should influence the types of securities that might be
offered by the Treasury in its
Thomas noted.

cash and refunding offerings, Mr.

By the end of the year, there will be a large concen

tration of outstanding issues in the 1-5 year category which would
make new issues in

that range not particularly appropriate and the

market has not been favorable for longer-term issues.

Thus, a one

year rollover plus optional tax anticipation issues would seem best
for the refunding offerings, and tax anticipation issues and bills
for the cash offerings.
Mr. Thomas said that the capital markets have continued active,

with a large volume of new issues being offered or in prospect.
porate issues are at a high level, with a considerable volume of
private placements,

and State and local issues are also large.


credit developments have been affected by corporate income tax pay
ments, Mr. Thomas said, and while comparisons with the past are made
difficult because of date differences,
at city banks in

he indicated that business loans

the three weeks ending June 20 had probably risen

close to $1.2 billion, compared with $800 million in June last year

and $1.5 billion in March of this year.

Other loans have also in

creased, and banks have added some to their holdings of Government
securities in

contrast to a decrease in the same period last year.



Deposits and currency holdings of business and individuals, which
declined sharply in May, increased during the first two weeks of
June, as is usual prior to a tax date.

Changes in the money supply

this year to date have been close to seasonal, Mr. Thomas said, with
little net growth after adjustment for seasonal factors.
Bank reserves have been more freely available in the past
month than previously, Mr. Thomas noted, with net borrowed reserves
recently around $200 million.

The decrease reflected earlier System

purchases of securities and a recent sharp increase in float, which
more than offset an increase in required reserves.

Nevertheless, the

money market has not been particularly easy because of the greater
liquidity needs that banks have had at this time.

The rate for Federal

funds has continued close to 2-3/4 per cent; a decline in the bill rate
has reflected largely the switching of funds from tax anticipation
Mr. Thomas also referred to a sheet containing recent and pro
jected reserve changes, stating that perhaps as much as $400 or $500
million of additional reserves would be needed during the next two
weeks, if

net borrowed reserves are to be kept at the $200-$300 mil

lion range.

He thought some temporary increase in borrowing over the

July 4 holiday might occur and would not be undesirable.

Some of the

added reserves could be supplied through repurchase agreements, which
could be retired a little later in July as reserve funds again became



available, but there will also need to be some outright purchases of
securities if

the Committee wishes to avoid an increase in pressure

the market during coming weeks.
One of the problems to be faced by the Committee in

the near

future, Mr. Thomas said, was how best to supply the projected reserve
needs of around $1.5 billion during the rest of the current year.


addition to purchases of Treasury bills, repurchase agreements and
member bank borrowing could be relied upon to cover some of the purely
temporary needs.

The use of member bank borrowing should depend on the

climate of credit demands and the attitude of banks.
noted that there had been some discussion in

Mr. Thomas also

banking circles of a re

duction in reserve requirements which would release some of the reserves
now used by banks in meeting their requirements.
for this device is

The argument advanced

the need to increase bank liquidity, which is

now so

low that banks might be reluctant to meet essential seasonal loan demands.
Mr. Thomas questioned whether such a measure would be appropriate in a
period of very strong loan demands with the economy operating at capacity,

Vardaman inquired of Mr. Thomas whether he believed it


desirable to make outright purchases of Government securities to meet
the need for additional reserves during the next two weeks to an amount
of, say, $00

million, to which question Mr. Thomas responded that if

the staff projections of needed reserves proved to be correct, outright
purchases of as much as Mr.

Vardaman mentioned would make it


for some of the securities to be sold shortly after the Fourth of July





was for this reason and as a means of avoiding unneces

sary churning in the Government securities market that he (Mr.



would be desirable to meet part of the demand through the use

of repurchase agreements.
Mr. Rouse said that he agreed with the views expressed by Mr.
Thomas, feeling that some use of repurchase agreements would facilitate
operations, particularly in view of the Treasury financing that is ex
pected shortly and of the desirability of maintaining an "even keel"
during the period prior to the Treasury's announcement.
Chairman Martin said that he anticipated that the next meeting
of the Open Market Committee would be held on Tuesday, July 17.


Treasury's Committee on Government Borrowing would be meeting on
July 11, he noted,

and it was his view that the problems connected

with the Treasury's financing, to which Mr. Rouse had referred,
be considered today.
be difficulty in


Chairman Martin said that as always there would

maintaining an "even keel" and in

color, and other factors in the market.

dealing with tone,

He then called upon Mr.

who made a statement substantially as follows:
The economy in the aggregate continues to move sidewise
at a high level. There have been no new soft spots, and
there has been no acceleration of existing soft spots. In
deed, the evidence indicates that a satisfactory adjustment
There appears to be more strength in the
is going on.
Production, employment,
economy than there was a month ago.
consumer purchases, and capital expenditures are at very
Inventory accumulation has slowed down.
high levels.
As for prices, farm prices continue to firm; industrial
raw material prices appear to be inching ahead in spite of
declines for some individual commodities in April and May.


Prices are likely to rise at a gradual rate. The steel wage
negotiations are coming down the home stretch. It is apparent
that the price of steel will rise; the only question is, how
The demand for bank credit continues high.
The June 15
tax period demand was very high, by past standards, although
not as high as in mid-March.
In the generally balanced cur
rent situation, price inflation is still
a threat and further
relaxation of restraint is not called for.
It looks as if the Treasury will announce the terms of its
refunding financing about the middle of July and that it will
undertake cash financing of a couple of billion dollars a few
weeks later.
The money market has been under less pressure in recent
weeks. In a period when there is customarily a great deal of
churning in the market, the System has made it clear that
needed credit will be available. While the rate on Federal
funds has continued at 2-3/4 per cent, the rate on Treasury
bills is now a bit below 2-1/2 per cent, and the rate on
bankers acceptances has recently been reduced to 2-1/2 per
The sharp drop in the rate on Treasury bills in the
last week or so apparently reflected a temporary distortion
in anticipation of the reinvestment of the proceeds of the
tax anticipation certificates which matured Friday. That
demand having been met, the disparity between bill rates and
the discount rate has narrowed again.
Observers have been conscious of the System's desire to
prevent mid-June technical factors from causing strain. They
are watching to see whether recent System action is directed
primarily to the technical situation or whether it foreshadows
an easier credit policy. We should continue to make reserves
available to meet the basic needs of growth and to meet seasonal
needs, such as the midyear currency demand. Since the Treasury
will be announcing its financing arrangements before, or at
about the time of, the next meeting of the Committee, we should
contribute to the maintenance of an "even keel" in the market.
We should avoid, however, indicating a basically easier policy.
The contraction of float and the outflow of currency cur
rently going on have withdrawn reserves from the banking system
This should
and have increased net borrowed reserves somewhat.
help correct the
before the System
Since part of the reserves needed over the early part of July
will be temporary in nature, repurchase agreements should be
instance, supplemented by outright purchases
used in the first
to supply reserves needed more permanently.
The trend toward easier conditions which has been pursued
The purpose
in recent weeks has served a highly useful purpose.



having been accomplished, we should now seek to stabilize
money market conditions. We should pay particular atten
tion to the Treasury bill rate and the tone in the market.
Recognizing that "net borrowed reserves" are but one of
many factors indicating the tightness of the money market,
we could stand a higher range of net borrowed reserves than
we have had in the last two weeks; net borrowed reserves
amounting to something over $200 million--perhaps in such
a wide range as $200 to $400 million--would seem appro
The officers of the Federal Reserve Bank of New York
believe that there should be no change at this time in
the Bank's discount rate.

Johns said that he had nothing significant to report by way

of data from the Eighth District.

He had no reason to disagree with

the summary of general conditions presented by Mr.

Young, although he

might have some question regarding the general employment picture be
cause of a seeming tendency for unemployment compensation claims to
resist declines.

In view of the present apparent state of the economy

and the apparent expectations of business people and consumers as well,

Johns said that no further relaxation of monetary and credit re

strictions was indicated at the moment.

The question was whether

there had been such a change in the business picture as to indicate
a need for greater restraint.

Mr. Johns said he was not sure whether

there had been a turn-around in the business picture or whether at
an earlier period the Committee may have misread the signs, but at
the moment he was not inclined to believe that greater restraint was

Therefore, he would undertake to maintain net borrowed

reserves somewhere in the neighborhood of $300 million although he
would not be disturbed by fluctuations from this figure.

He hoped



that the Treasury bill rate would be at or slightly above 2-1/2 per

As to the discount rate, Mr.

Johns said that he did not be

lieve the rate at the St. Louis Bank (now 2-3/

per cent) needed to

be changed at the present time.

Johns said that he was glad that the use of a reduction

in reserve requirements as a possible means of meeting some of the
need for reserves later this year had been mentioned.

He recalled

that Chairman Martin had stated recently before a Congressional Com
mittee (Subcommittee on Economic Stabilization of the Joint Committee
of the Economic Report) that present reserve requirements are probably
too high.


Johns said that it

seemed to him that the System should

be searching for opportunities to reduce reserve requirements rather
than for reasons not to reduce them.
problem of public relations if

He recognized that there was a

reserve requirements were reduced at

a time monetary policy was restrictive, but he felt this would be
mitigated if

at the same time there was a considerable seasonal need

for additional reserve funds which the System needed to supply and
which the Committee had indicated would be supplied.


Johns noted

that changes in reserve requirements had been referred to as a blunt
instrument, as a meat-axe approach to monetary policy.




time to explore whether the System could supply some of the

reserves that would be needed by a reduction in reserve requirements
later this year.

He suggested that a reduction of 1/2 per cent in

reserve requirements across the board would release approximately



$700 million in reserves and, while this might not be desirable now,
later in the summer or autumn consideration might well be given to
release of around $500 million by lowering reserve requirements.


thought that by telling why the reduction was being made, it would be
possible to offset undesirable public relations that otherwise might
result from such action.
Mr. Bryan said that the economic situation in the Sixth District
seemed to be relatively stable.

Mortgage credit apparently is


very scarce, and discounts on mortgages are increasing in the Atlanta

He would not now recommend a change in the policy the Committee

has been following.

While he had fear of a policy action that would

seem to be dramatic,

at the same time he had a great deal of sympathy

for the view Mr.

Johns had expressed regarding reserve requirements.

Mr. Bryan referred to the figure of $400-$500 million of added reserves
that Mr. Thomas had mentioned as probably being needed during the next
two weeks if

net borrowed reserves were to be maintained at the $200

$300 million level, and he suggested that requirements against time
deposits might be reduced from 5 per cent to 4 per cent as a means of
meeting much of this demand since it

the neighborhood

would free in

of $400 million.
Commenting further on a question from Mr.

Vardaman as to timing,

Bryan noted that projections indicated net borrowed reserves averag

ing over $700 million during the week ending July 4.



Mr. Thomas commented that if

$400 million were released

through a reduction in reserve requirements early in

July, it

probably would be necessary to sell some $200 million of securi
ties from the System account soon after July 4 as currency returned
from circulation.

Williams said that the economy of the Philadelphia District

was continuing to move sidewise.
mism than three weeks ago.

Psychologically there was more opti

He presented comparative figures showing

that new automobile sales in the district had been relatively better
this year than in most other areas, and he cited comparisons of de
partment store sales as well as strong demands for credit as evidences
that upward pressures were likely to continue.

Mr. Williams noted a

growing tendency on the part of small business concerns to use term
loans at commercial banks on the grounds that pressures are likely
to continue to force them into plant and equipment expenditures in
order to remain competitive, and that they do not have available
facilities for obtaining funds for that purpose except at the com
mercial banks.


Williams also noted that national concerns were

activating lines of credit at Philadelphia banks.

In summing up,

Williams said that he could see no need for any further relaxa

tion in
where it

credit policy,

that he felt the discount rate should stay

and that net borrowed reserves might be permitted to

range around the levels that have prevailed for the last couple of



Fulton said that it

would be a steel strike.
severely in

now appeared quite likely that there

Even a limited strike period would be felt

the Fourth District, but it

would furnish an impetus to

a very high level of steel production during the fourth quarter of
the year.

Other activities such as machine tool and paper production

were continuing at a very high rate.


Fulton said he would not

favor any further relaxation in open market policy at this time and,
in fact, the present policy may have produced more relaxation than
was needed to take care of seasonal needs.

He suggested that net

borrowed reserves of $350 million or more would be quite appropriate
during the next few weeks.

He also said that he concurred in the

view that reserve requirements could well be reduced from their pres
ent levels.

There should be no change in

the discount rate at this


Shepardson said that the general atmosphere seemed to have

improved in

recent weeks and that there was a little

than existed a month or so ago.
slackness in

more optimism

Possibly there had been a little

the money market during the past week or so, and he

would be inclined to take up some of this slack although he would
not favor action that would place greater restraint or pressure on
the market.

From the standpoint of agriculture, Mr.

noted that a number of areas had suffered severely in
outlook because of drought.


their crop

Shepardson said that he too had



been thinking about reserve requirements and had come to the con
clusion that any change in the level of requirements should be
deferred until later on.
Mr. Mills called attention to the fact that at its last meet
ing the Open Market Committee was influenced by the doubts that had
been raised in many quarters about business prospects and that at
that time it would have welcomed a more optimistic sentiment in the
business community.

In the face of improved business sentiment, he

felt it would now be a mistake to shift System policy toward more
severe credit restriction because of a hagridden fear of an inflation

Inasmuch as the System previously indicated by word and action

that credit would be available for the requirements of the economy, a
shift at this time to a tighter monetary policy would be construed as
a reversal of earlier policy declarations and could have damaging con

Mr. Mills contended that as a matter of fact the reduction

brought about in the level of negative free reserves in recent weeks
has not resulted in the degree of ease that might have been expected
from having supplied so sizable a volume of new reserves, and for
the reason that member banks employed the new reserves at their dis
posal to the liquidation of their discounts at the Federal Reserve


was brought out that as the new reserves that were supplied

by System action were canceled out through the retirement of Federal
Reserve Bank discounts,

through which the member banks had previously

supplied themselves with reserves on their own initiative, a base for



building a harmful expansion of credit had not been laid.

The fact

that the rate on Federal funds has held continuously at 2-3/4 per cent
would seem to bear witness to a generally tighter money market condi
tion than might have been indicated by only looking at the reduction
effected in

the level of negative free reserves.

Mr. Mills went on

to say that this experience suggested that under present conditions

the volume of Federal Reserve Bank discounts might be a better indi
cator of the degree of tightness in the money market than the level
of negative free reserves and that System actions to vary the out
standing volume of Federal Reserve Bank discounts could be construc
tively used to achieve System policy objectives.
In the light of this reasoning, it

was Mr.


opinion that

direct purchases of Treasury bills for the System open market account
should be undertaken promptly in
the supply of reserves that it


by a process that would result in

order to prevent the shrinkage in
estimated would otherwise occur and
a gradual increase--rather than in

an abrupt increase--in the System open market account's Treasury bill


carrying out this policy, repurchase agreements would

be used to even out reserve situations that could not be treated as
well through the vehicle of direct Treasury bill purchases.
Mr. Mills had in mind that a level of negative free reserves
of $200 million or less would be visible evidence to the financial
and business community that the System was not reversing its




and was prepared to supply such reserves as were necessary for the
seasonal and growth requirements of the economy.

He was inclined

to believe that of late the factor of growth had been neglected in
System policy thinking.

And according to his reasoning, the current

objectives of System policy in supplying reserves should therefore
take into account both the seasonal and the growth requirements of
the economy.

As to the question of a reduction in reserve require

ments, it was Mr. Mills' belief that the subject deserves study but
that no such action should be taken at least until later in the year.
Mr. Vardaman said he agreed with everything that Mr. Mills had
said under existing circumstances.

The attitude of the public during

the last three weeks has been one of hope, he said, and the System
should not do anything to dampen that feeling. Producers and con
sumers seem to be moving pretty well together and nothing should be
done to get one or the other out of step.

Policy should be continued

about as is, but there should be no indication in the slightest degree
of any further tightening at the present time.

A reduction in reserve

requirements at this time would be magnified out of its


Mr. Vardaman said; he was not sure that reserve requirements on time
deposits should not be reduced, although he was confident that that
should not be done at present.

Consideration might,

given to such a proposal along in

however, be

late August or September.


Vardaman said that he would suggest negative free reserves around
$200 million.


he would prefer to rely first

chases of securities and would let

on outright pur

repurchase agreements be used as



a means of meeting additional reserve needs, rather than to rely
primarily on repurchase agreements to make reserves available in
the period immediately ahead.
Mr. Leach said that the month of June brought no appreciable
change in

business conditions in the Fifth District.

the staff that the third quarter now looks a little
did three weeks ago.

he said.

He agreed with
better than it

Loan demand continues high in the Fifth Dis

Although the loan-deposit ratio of the weekly re

porting member banks is

only 4 6 per cent compared with a national

average of almost 56 per cent, many Fifth District banks have indi
cated that they are at or above their desired goals in terms of the
relation of loans to deposits.

During the last several days, some

of the larger banks of the district have returned to the discount
window after having been out of debt for a period.

Leach said that the Committee's actions to reassure the

market of the availability of reserves over the tax date resulted
in a much lower level of net borrowed reserves.

He thought it de

sirable to leave net borrowed reserves at this lower level for the
time being.

This presumably would require substantial additional

purchases of Government securities in the near future to prevent
undesired tightening.

No change in

the Committee's directive was

needed at this time, Mr. Leach said, and consistent with this posi
tion he did not propose to recommend to the board of directors of



the Richmond Bank a change in the discount rate at present.
said that he felt

Mr. Leach

that reserve requirements are higher than they should

be but he would not suggest a decrease at the present time.

Leedy presented comparisons which showed that employment in

the Tenth District during the first

four months of 1956 had increased

by significantly lower percentages than in the United States as a whole,

comparison with both the first four months of 1955 and the first

four months of 1953.

He also stated that agricultural conditions in

the Tenth District this year are not quite as good as last year.


the national picture, Mr. Leedy suggested that the Committee's activi
ties in furnishing additional reserves to the market may themselves
have contributed to the recent improvement in business sentiment.


commentators may have gone too far in their interpretations of the
Committee's operations and intentions in recent weeks,
noted that Mr.

he said, and he

Treiber had expressed the view that market observers had

appraised these actions as "bridging the gap" of the June tax period
without coming to the conclusion that there had been any change in
credit policy.

Mr. Leedy said that he had a different impression,

feeling that rather generally observers believed that there had been
a change in policy in the direction of a very definite easing.
this juncture he felt


that no action could safely be undertaken to

correct this impression, he said; he would not favor any tightening

the immediate future and as a matter of fact he felt the pattern

of operations that had been followed during recent weeks should be




This would mean the level of net borrowed reserves should

not be permitted to exceed $300 million and perhaps should trend down


Notwithstanding the optimism that seems to exist, Mr. Leedy

said that he felt that uncertainties with respect to a steel strike,
the layoffs that would take place during the summer because of vaca
tions and for other reasons, and the uncertainties that must exist in
the minds of many persons with respect to the President's intentions
meant that this was not the time to be trending in any direction other
than that in which the Committee has been moving during the past few

He felt the System account should purchase bills to whatever

extent they were expected to remain in the portfolio, and it should
supply additional reserves through repurchase agreements to the extent
that might be needed, particularly during the period until the Treas
ury's financing is

out of the way.

Powell said that there was a very high level of economic

activity in the larger cities of the Ninth District and in the mining
areas, but that in

the Western part of the district some areas were

faced with a severe drought--some crops were already gone and replant
ing was necessary.

Retail trade is

up in the larger cities and employ

ment is at a new high, largely because of increased employment in
manufacturing of certain products such as industrial machinery and
electrical equipment.

Construction is

up 26 per cent over a year ago

even though residential building is down about 4 per cent.




trade in

country areas is

below a year ago and recently the figures

have shown greater decreases than earlier in the year.

Farm imple

ment sales are down and the general agricultural outlook is

not good.

Powell said that he would favor a reduction in reserve

requirements on time deposits, a move which would be particularly
beneficial to country banks.

He could not see that there would be

any harm in such a reduction at an early date.

The 3 per cent dis

count rate of the Minneapolis Bank still seemed appropriate in view
of the rather feverish activity in the principal cities of the Ninth

However, there was growing concern about the position of

banks in country areas where a number were now borrowing and addi
tional banks would soon begin to borrow seasonally.
he did not know


Powell said

what the directors of the Minneapolis Bank would decide

about the discount rate at their meeting to be held in

July, in view of

the diverse conditions that he had described as prevailing in the Ninth
With respect to open market operations, Mr. Powell felt that


a middle of the road policy was indicated at this time.

We had gotten

through the June tax period successfully and there was no reason for
making money cheaper at this time.

A level of net borrowed reserves

the $200-$00 million range seemed appropriate for the immediate




seemed desirable to do any substantial easing, Mr.

Powell would be sympathetic to a reduction in

reserve requirements

on time deposits as a means of easing the situation where ease would
be most needed.


Mr. Mangels said that economic conditions in the Twelfth

District continued good with a fractional rise in
a decline in unemployment during May.

employment and

Automobile plants in Southern

California, at which layoffs took place earlier this spring, were now
anticipating a reversal of that situation and additional employment
was also expected in the aircraft, fruit packing, and other industries.
The West Coast labor situation is very tight.

The lumber situation in the

in May were 20 per cent below a year ago.
Pacific Northwest appears a little

New automobiles sales

brighter than a month ago and there

have been some increases in prices of Douglas fir.

A number of in

dustries recently have granted wage increases.
Bank loans continue to increase, Mr.

Mangels said,

and following

the pattern he had reported before, a third of the increase in the
national total of loans at reporting member banks during the four weeks

ending in mid-June took place in the Twelfth District.

On the other

hand, borrowings at the San Francisco Reserve Bank last Thursday were
by only two banks in the amount of $29 million.

Both of these banks

have been consistent borrowers and are also using Federal funds.

the first of the year, 21 of the 25 reserve city banks have borrowed
from the San Francisco Reserve Bank, Mr.

Mangels said, while in


large cities only 10 banks have borrowed since the beginning of the

Only three country banks have borrowed in that period.


Mangels referred to a meeting held at the San Francisco Bank week



before last attended by the presidents of all banks in Los Angeles
and San Francisco and to a discussion of the loan demand following
the meeting.

The general feeling was that banks needed more deposits

and less loans, and some were concerned as to how they would meet the
demand for loans.

One banker thought that the demand for commercial

and industrial loans had now reached its


Some of the bankers

expressed the hope that reserve requirements would be reduced to
assist them in meeting loan demands.

Mr. Mangels also referred to

comparisons made of the ratio of loans to deposits in the Twelfth
District and in New York, and to a discussion regarding why Twelfth
District banks should be penalized with a 3 per cent discount rate
when banks in New York with a higher loan-deposit ratio had a lower

The comparisons which Mr. Mangels presented developed the fact

that the increase in

the ratio of loans,

exclusive of real estate loans,

had been greater in the San Francisco District than in the New York

Mr. Mangels said that the San Francisco Bank's directors

voted to maintain the present 3 per cent discount rate at their June
meeting although not by a unanimous vote.

The question would again

be considered at the meeting scheduled for July 11 and Mr. Mangels
said that he did not know what action would be taken.
been a definite improvement in

There has

psychology in recent weeks,

Mr. Mangels

said, and whereas a short time ago many were talking about a poor
third quarter,

the general attitude now is

to look for a bright fourth





Mangels said he did not think all the inflationary

dangers were past but that, as Mr.

Mills had indicated, it

not be desirable to move toward a more restrictive policy.

On the

whole, he would favor a continuation of the situation about as it
had existed during the past three weeks.
In response to a question from Mr. Leach as to why member
banks in

the Twelfth District would borrow from the Federal Reserve

Bank at the 3 per cent rate when Federal funds were available at

per cent, Mr. Mangels said that the two banks borrowing were

using Federal funds, and they were discounting at the San Francisco
Reserve Bank to obtain the additional reserves which they needed.
Mr. Irons said that conditions in

Department store trade is

both in manufacturing and in

the Dallas District continue

about seasonal.


total nonagricultural activity, and

estimates of industrial production show some gain.

Employment is

Confidence is

Agricultural conditions have deteriorated within the past

three to five weeks because of lack of rain but in most agricultural
areas income is

also produced from oil and gas leases and other

Automobile sales have improved in

theattitude of automobile dealers.

Production of chemicals has in

creased and on the whole economic conditions in
are generally strong.

recent weeks, as has

the Eleventh District

Observers expect about the usual seasonal

movement during the third quarter of the year and a good fourth

The national picture points to strength,


Mr. Irons stated that he would like to see no further easing

of credit policy although he has been pleased with developments in
the last three weeks.

He would like to see the Federal Reserve main

tain a condition of firmness in the market without moving toward
further ease beyond what has already been attained.

Mr. Irons said

that he had decided to give up using figures of net borrowed reserves
because he doubted their meaning.

He did not feel that the easing in

the money market in recent weeks had been as great as was indicated
by a reduction from $600 million to $100 million in net borrowed re

Mr. Irons said he would not recommend a change in discount

rate to his directors at the present time and that Mr. Treiber had
expressed the view he held, that is,

the Committee should attempt to

stabilize money market conditions at their present state and to be in
a position to move in whatever manner was called for in the next few

Mr. Erickson said that conditions in the First District still
remained strong and that favorable factors outweighed the unfavorable.

Employment in the Boston area is getting tight.

Loans did not increase

prior to the June tax date as much as had been expected.

Easing of

restraints during the past three weeks had resulted in a turn-around
in borrowings at the Boston Reserve Bank, with less than half as many
banks borrowing as a little earlier.

Mr. Erickson said that at this

time he would suggest no change in the Committee's directive, would
hope that the discount rate would remain at its

present level, and



that he was inclined to agree with the view Mr.

Shepardson had ex

pressed that the Committee might take up some slack during the next
two or three weeks.

He would prefer net borrowed reserves in the

$250-$300 million range.

Reserve requirements are too high, Mr.

Erickson said, but this question should be given further study before
action was taken to make any change in

the present level.

Mr. Szymczak said that in his opinion the major question before
the Committee at the present time was related to the Treasury's plans.
about to carry through a large refunding operation and

The Treasury is

it will need to obtain new money shortly.

This being the case, the

Committee should provide some measure of stability to the market so
that the Treasury will be able to enter the market with its


and cash offerings, knowing what the market will require in

the way of

interest rates.

Statistics that have become available regarding eco

nomic activity a month or two ago show that conditions were not de
teriorating at that time as much as the Committee was then inclined
to think.

This might be a warning to the Committee not to become so

concerned as some reports and comments might suggest.
hand, Mr.

On the other

Szymczak said that he felt the Committee had met the situa

tion properly during the recent tax period.
should now concentrate on its

He thought the Committee

over-all objectives in

the light of the

Treasury's needs and should seek to keep the market as stable as


should provide reserves by buying Government securities



outright and also by making repurchase agreements available, and by
preparing to do whatever the situation called for as we move into

Balderston said he shared the views expressed by most of

the members of the Committee.

The immediate problem is

one of timing,

because of the impending Treasury financing, and the Committee should
look beyond the next meeting tentatively set for July 17.


would be

comforting not to have to determine the degree of tightness until after
we know whether there will be a steel strike; on the other hand, July
17 would be too late to change our posture.

Business psychology seems

to have improved recently as retail trade has gained and as plant con
struction has continued to provide underlying support.

The wage and

price increases that are impending plus the strong loan demand suggest
that the slackness often associated with the summer "doldrums" may
have been offset.

Balderston said he would hope that the discount rate would

not be lowered because of the effect such action might have on public

he would like to see the System retain present discount

rates and aim at a net borrowed reserve target of about $250 million.
Whatever posture we adopt today should permit us to move in
direction as summer comes to an end.


At that time the pressure on

prices and demand for loans may be very heavy and the Federal Reserve
may wish to apply the brakes vigorously.



a prolonged

steel strike causes business psychology to turn sour, the System may



wish to give business a stimulus.

Mr. Balderston said he would like

to see the Committee adopt today a policy that can be adhered to
throughout the period of the Treasury financing and also permit the
Committee to move toward either tightness or relaxation without too
much commotion in

the press.

He was very happy,

he said, with de

velopments of the past few weeks and he felt that the System had
accomplished what it

set out to do.


should now adopt a stance

that will serve the Committee between now and late August.
Chairman Martin said that he thought it

apparent that the views

expressed this morning were not far apart and, although the policy to
be followed was not crystal clear, it

was reasonably clear,


emphasized the factor of stability in relation to the Treasury financ
ing, stating that we were now getting into one of those periods in
which the Committee always seemed to find difficulty in gauging the
market in

terms of the phrases it


tone, and color.

The Committee was seeking to foresee the needs and developments for
the next several weeks, but it was not possible to judge precisely
the results of the policy that might be agreed upon.
The Chairman went on to say that he could fully understand the
Powell and Mangels regarding the discount

views expressed by Messrs.

rate, but he also wished to note that any change in discount rate
would create a problem if

We could not know in


came in the midst of the Treasury financ
advance how a change would be construed by

the public and, as indicated by the comments of Messrs. Leedy and



Treiber this morning, our judgments of the public opinion differ.
Chairman Martin said that he agreed with Mr. Irons in his de
sire to get away from using net borrowed reserve figures.
these figures had led the Committee down a path that it
been wiser not to have gotten on to.


would have

However, if we were to use

these figures, the Chairman said that during the period just ahead
he would prefer something around $200 million of net borrowed reserves,
assuming that this would create stability.

This would call for rather

drastic action in view of the projections indicating that, without
System operations,

net borrowed reserves might rise to the $700 million

level within the next two weeks.

He recognized that instead of $200

million, the figure might range up to $300 or $400 million.
Chairman Martin cautioned that the Committee not be misled by
rapid shifts in sentiment such as we have seen in the last few months.

Szymczak had called attention to the fact that recent statistics

of business had not borne out the sentiments that existed a few weeks

Sharp swings in

sentiment such as these must be discounted by

the Committee, no matter which way they go and even though business
people are influenced by the feeling at the moment.
are coming on us,
summer is

Chairman Martin said, but some slipping off during the

entirely normal and is

state of business.

The summer doldrums

On the whole,

financing problem coming up it

not necessarily a reflection of the
his view was that with the Treasury

would be preferable to resolve doubts

on the side of ease rather than to take actions that might be construed



as additional restraint.

He would prefer this regardless of what

commentators might say or misconstrue regarding System policy.


was referring to the summer period, he said, and could foresee the
possibility that the System might find it

desirable to move across

the board toward substantially greater restraint in the fall.
were not for the Treasury financing,


he would be sympathetic to the

view expressed by Mr. Shepardson that it
slack out of the market at this time.


would be desirable to take

But the Treasury refunding

would come at a time when there were other opportunities for use of
funds and it

might not be handled as easily as the Committee would

Chairman Martin said that his interpretation of this meeting
was that none of those present wished to change the Committee's di

He would also interpret the comments as desiring "stability"

or an "even keel" from the Committee's daily operations.

None of the

members of the Committee indicated disagreement with Chairman Martin's
statements of policy to be followed, and he then called upon Mr. Rouse
for comments regarding the suggested policy and operations for the
System account during the next three weeks.
Mr. Rouse said that the policy stated by the Chairman would be
difficult to achieve.

Repurchase agreements would be availed of the

next few days to the extent needed and there would be outright purchases
for the System account and,

later on, sales of Government securities.



He felt that the Committee should have in mind that the market has
been very conscious of the Treasury's doing financing in a relatively
easy period followed almost immediately by tightening in the market.
Dealers and participants generally feel they have had a raw deal in
this respect.


Rouse thought there would be an advantage in not

permitting the market to get too easy during the next few days,
particularly if

there seemed to be a good chance of its


up fairly soon, because the Committee probably would be faced with
the need for maintaining an even keel into the period of the Treasury's
cash financing.

Mr. Rouse also said in response to a question from

Chairman Martin that he interpreted the sense of the meeting as calling
for stability with around a quarter of a billion dollars of net borrowed

As Chairman Martin had indicated,

as to tone, color, and state of the market in

this would require judgments

Bryan said that he agreed with the comments on the importance

of stability in

this situation.


he felt

there had been an

adequate demonstration that the Committee did not get stability for a
Treasury financing on the basis of stability of free reserves or some
thing of that sort.

Stability could be gotten in

basis because financing is

the market on a rate

done on a rate basis, not on reserves.

Bryan also referred to the suggestion that some of the

reserves that would be needed be provided by a reduction in reserve

and he stated reasons why he believed the System might

do well to take every opportunity that presented itself

to do something



the way of bringing requirements down to the statutory minimum.
Chairman Martin stated that there was a good deal to what

Mr. Bryan said but that in his judgment a reduction in reserve re
quirements should not be made in

connection with the Treasury refund

There was a problem of whether such action would be interpreted

as an overt change of policy, Chairman Martin said, and his judgment
was that the most opportune time to consider a reduction would be in
connection with the Treasury's cash offering.

He did not know whether

the System would wish to change reserve requirements at that time but


should study the question and if a change were to be made, it could

state openly and frankly the purpose of the reduction.
Mr. Szymczak said that some of the instruments of credit were
the interpretations placed upon them by the

largely psychological in

A reduction in reserve requirements at a time when a re


strictive monetary policy was being pursued would almost inevitably
confuse the public.

One question was whether this was the time when

the System wished to confuse the public.

Treiber said that he agreed basically with the views Chair

man Martin had expressed.

He thought it

reserve requirements at this time.
reserve requirements is
change in

would be a mistake to reduce

Generally speaking a change in

recognized by the public as a symbol of a

credit policy, more so than a change in

the discount rate.

would not be desirable to send up a signal at this time that the

public was likely to interpret as it

would a change in

reserve require



Chairman Martin said that he hoped the Committee could get
away from the use of net borrowed reserves in its discussions.


ever, if net borrowed reserves were suddenly to rise to the projected
$750 million level, such a figure would attract a great deal of atten
tion that a more modest figure would not attract.

It would be unwise

to permit the level to rise to anything like that figure because of
the interpretations that would be put on it, particularly if a strike
in the steel industry should take place.

He then suggested that, un

less there were further comments on the policy to be followed during
the next three weeks the existing directive to the New York Bank be
approved without change.
Thereupon, upon motion duly made and
seconded, the Committee voted unanimously
to direct the Federal Reserve Bank of New
York until otherwise directed by the Com
(1) To make such purchases, sales, or exchanges (in
cluding 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
restraining inflationary developments in the interest of
sustainable economic growth while taking into account any
deflationary tendencies in the economy, and (c) to the
practical administration of the account; provided that the
aggregate amount of securities held in the System account
(including commitments for the purchase or sale of securi
ties for the account) at the close of this date, other than
special short-term certificates of indebtedness purchased
from time to time for the temporary accommodation of the



Treasury, shall not be increased or decreased by more
than $1 billion;
To purchase direct from the Treasury for the
account of the Federal Reserve Bank of New York (with
discretion, in cases where it seems desirable, to issue
participations to one or more Federal Reserve Banks)
such amounts of special short-term certificates of in
debtedness 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;
To sell direct to the Treasury from the System
account for gold certificates such amounts of Treasury
securities maturing within one year as may be necessary
from time to time for the accommodation of the Treasury;
provided that the total amount of such securities so sold
shall not exceed in the aggregate $500 million face amount,
and such sales shall be made as nearly as may be practicable
at the prices currently quoted in the open market.
Chairman Martin referred to Mr, Sproul's suggestion, made prior
to his leaving New York, that a copy of the memorandum prepared at the
Federal Reserve Bank of New York under date of September 29, 1955 en
titled "Notes on Debt Management,

the Structure of the Debt, and Credit

Policy" be sent to the Treasury for consideration along with the memo
randum prepared by Mr. Riefler under date of April 10, 1956, on
Experience Since the Accord with Short-Dated Federal Debt.
Martin went on to say that he thought it


would be just as well to let

the Treasury have the memorandum, although he would not wish to trans
mit it

as a memorandum bearing the endorsement of all

Open Market Committee since in
there was not agreement.

his view it

members of the

raised questions on which

He suggested, therefore,

that the memorandum

be transmitted to the Secretary of the Treasury as one prepared at



Federal Reserve Bank of New York and distributed to members of the
Federal Open Market Committee by Mr.

Sproul, who had suggested that

a copy be furnished to the Treasury in order that it

might have the

benefit of the paper.

Treiber stated that he thought this would be a good way to

proceed, that the memorandum represented "thinking out loud", and that
to whatever extent it

might be helpful it

seemed desirable to make it

available to the Treasury without the endorsement of the Open Market
It was understood that the pro
cedure suggested by Chairman Martin
would be followed.
Secretary's note: Chairman Martin
transmitted a copy of the memorandum
referred to above to Secretary of the
Treasury Humphrey under date of June
27, 1956.
Chairman Martin noted that the proposal made by the New York

Bank that it be authorized to engage in swaps in Treasury bills,
originally suggested in Mr.

Sproul's memorandum of May 3,

been placed on the agenda for discussion at this meeting.

1956, had
He said

that Mr. Robertson who was unable to attend this meeting held rather
firm views on this matter and that in view of the lack of pressure
for a decision it
meeting when Mr.

would seem desirable to carry it
Robertson might be present.

There was agreement with this

over until a


Chairman Martin noted that the next meeting of the Committee

would be held on Tuesday, July 17, 1956.
In response to a question, Mr. Treiber commented briefly on
the status of the proposed section 13b loan to Studebaker-Packard
Corporation, referred to at the meeting held on June
Thereupon the meeting adjourned.