Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, March 1, 1960 : Historical Minutes

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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, March 1, 1960, at 10:00 a.m
PRESENT:

Mr. Martin, Chairman
Mr.
Mr
Mr.
Mr.

Hayes, Vice Chairman
Balderston
Bopp
Bryan
Mr. Fulton
Mr. King
Mr. Leedy
Mr.
Mr.
Mr.
Mr.

Mills
Robertson
Shepardson
Szymczak

Messrs. Leach, Allen, Irons, and Mangels, Alternate
Members of the Federal Open Market Committee
Messrs. Erickson, Johns, and Deming, Presidents of
the Federal Reserve Banks of Boston, St. Louis,
and Minneapolis, respectively
Mr. Young, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Thomas, Economist
Messrs. Brandt, Eastburn, Marget, Noyes, Roosa,
and Tow, 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. Keir, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr. Knipe, Consultant to the Chairman, Board of

Governors
Messrs. Ellis, Hickman, Storrs, Baughman, Jones,
and Einzig, Vice Presidents of the Federal
Reserve Banks of Boston, Cleveland, Richmond,
Chicago, St. Louis, and San Francisco,
respectively

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Messrs. Parsons and Coldwell, Directors of
Research, Federal Reserve Banks of
Minneapolis and Dallas, respectively
Mr. Stone, Manager, Securities Department,
and Assistant Secretary, Federal Reserve
Bank of New York
In the agenda for this meeting, the Secretary reported that
advices had been received of the election by the Federal Reserve Banks
of members and alternate members of the Federal Open Market Committee
for a period of one year commencing March 1, 1960, and that it

appeared

the persons elected would be legally qualified to serve after they had
executed their oaths of office.

Prior to the meeting, each newly

elected member and alternate member had executed the required oath of
office.

The members and alternate members were as follows:
Alfred Hayes, President of the Federal Reserve Bank of
New York, with William F. Treiber, First Vice Presi
dent of the Federal Reserve Bank of New York, as
alternate member;
Karl R. Bopp, President of the Federal Reserve Bank of
Philadelphia, with Hugh Leach, President of the
Federal Reserve Bank of Richmond, as alternate member;
W. D. Fulton, President of the Federal Reserve Bank of
Cleveland, with Carl E. Allen, President of the
Federal Reserve Bank of Chicago, as alternate member;
Malcolm Bryan, President of the Federal Reserve Bank of
Atlanta, with Watrous H. Irons, President of the
Federal Reserve Bank of Dallas, as alternate member;
H. G. Leedy, President of the Federal Reserve Bank of
Kansas City, with H. N. Mangels, President of the
Federal Reserve Bank of San Francisco, as alternate
member.

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Upon motion duly made and seconded, and
by unanimous vote, the following officers of
the Federal Open Market Committee were elected
to serve until the election of their successors
at the first
meeting of the Committee after
February 28, 1961, with the understanding that
in the event of the discontinuance of their
official connection with the Board of Governors
or with a Federal Reserve Bank, as the case
might be, they would cease to have any official
connection with the Federal Open Market Commit
tee:
Wm. McC. Martin,

Jr.

Alfred Hayes
Ralph A. Young
Merritt Sherman
Kenneth A. Kenyon
Howard H. Hackley
David B. Hexter
Woodlief Thomas
Harry Brandt, David P. Eastburn,
L. Merle Hostetler, Arthur W.
Marget, Guy E. Noyes, Robert
V. Roosa, and Clarence W. Tow

Chairman
Vice Chairman
Secretary
Assistant Secretary
Assistant Secretary
General Counsel
Assistant General Counsel
Economist
Associate Economists

Upon motion duly made and seconded, and
by unanimous vote, the Federal Reserve Bank
of New York was selected to execute trans
actions for the System Open Market Account
meeting
until the adjournment of the first
of the Committee after February 28, 1961.
Upon motion duly made and seconded, and
by unanimous vote, the selection by the Board
of Directors of the Federal Reserve Bank of
New York of Robert G. Rouse as Manager of the
System Open Market Account was approved.
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
February 9, 1960, were approved.

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Chairman Martin then referred to a memorandum distributed

with the agenda under date of February 2,

1960, relating to the

procedure authorized at the meeting on March 2, 1955, whereby, in
addition to members and officers of the Committee and Reserve Bank

Presidents not currently members of the Committee, minutes and other
records could be made available to any other employee of the Board of
Governors or of a Federal Reserve Bank with the approval of a member
of the Committee or other Reserve Bank President, with notice to the
Secretary.

The most recent list

of persons so authorized (exclusive

of secretaries and records and duplicating personnel),

as shown by

the Secretary's records, was attached to the February 24 memorandum.

Chairman Martin inquired whether anyone wished to raise a
question with respect to the existing procedure, and no questions
were heard.
Accordingly, it

was agreed unanimously

that no action should be taken at this time
to amend the procedure authorized on March
2, 1955.
At Chairman Martin' s suggestion, consideration was then given
to the continuing authorizations of the Committee customarily reviewed
at the first meeting in March of each year, and the actions as set
forth subsequently in these minutes were taken concerning the matters
that had been listed on the agenda for review at this meeting.
It was agreed unanimously that no
action should be taken at this time to
amend or terminate the resolution of

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November 20, 1936, authorizing each Federal
Reserve Bank to purchase and sell, at home
and abroad, cable transfers, bills of ex
change, and bankers' acceptances payable
in foreign currencies, to the extent that
such purchases and sales may be deemed to
be necessary or advisable in connection
with the establishment, maintenance,
operation, increase, reduction, or dis
continuance of accounts of Federal Reserve
Banks in foreign countries.
A plan for allocation of securities in the System Open

Market Account became effective September 1, 1953, pursuant to
action of the Federal Open Market Committee at its meeting on
June 11, 1953.

This procedure had subsequently been reaffirmed by

the Committee each year at the first meeting in March,
this meeting,

Prior to

there had been distributed to the members of the

Committee (1) a memorandum dated February 19, 1960, from Mr. Rouse,
Manager of the System Open Market Account, and Mr. Farrell, Director

of the Division of Bank Operations, Board of Governors, containing
certain suggested changes in the existing procedure, and (2) a
memorandum from Messrs. Rouse and Farrell dated February 23, 1960,
submitting a pro forma reallocation of securities held in the
System Account as of February 1, 1960.
Paragraph 7 of the statement of procedure adopted in 1953
read as follows:
Profits and losses on the sale of securities from
the Account shall be allocated on the basis of average
daily participations in total holdings in the Account
during the preceding five years. These ratios shall
be computed as of the end of each month for the
succeeding month.

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The recommendation of Messrs. Rouse and Farrell was that
paragraph 7 be changed to read as follows:
Profits and losses on the sale of securities from
the Account shall be allocated on the basis of each
Bank' s current holdings at the opening of business on
the date of delivery of the securities sold.
Paragraph 3 of the statement of procedure adopted in 1953
read as follows:
No allocation shall be made which would reduce the
reserve ratio of a Bank below 35 per cent.
If, because
of the provisions of this paragraph, a Bank is unable
to take its prorata share based on total assets, the
amount which it is unable to take without reducing its
reserve ratio below 35 per cent shall be allocated to
the Bank or Banks having the highest reserve ratios in
such a manner that the ratio of the Bank or Banks to
which securities are reallocated will not be reduced
below the ratio of any other Bank. Regardless of
possible subsequent improvement in reserve ratios, no
reversal of these adjustments shall take place pending
the next general reallocation.
The recommendation of Messrs. Rouse and Farrell was that
the first

sentence of paragraph 3 be changed to read as follows:

No allocation shall be made which would reduce the
reserve ratio of a Bank as of the next to the last busi
ness day of March below 35 per cent.
Paragraph 5 of the statement of procedure adopted in 1953
read as follows:
If a Bank's reserve ratio falls below 30 per cent
on a Tuesday or the next to the last day of the month,
sufficient of its holdings as of the close of business
that day to raise its reserve ratio to 35 per cent
shall be reallocated by an adjustment the following
day, unless such day is a general reallocation date.

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Such securities shall be allocated to the Bank or anks
having the highest reserve ratios.(NOTE: This procedure
does not contemplate partial reversal of these adjust
ments.
However, full reversal of these adjustments will
be made when a Bank's reserve position improves to the
extent that the full amount of its participation allocated
to other Banks under the provisions of this paragraph can
be restored without reducing the Bank's reserve ratio
below 35 per cent.)

The suggestion of Messrs. Rouse and Farrell was that the first
sentence of paragraph 5 be changed to read as follows:
If a Bank's reserve ratio falls below 30 per cent
on the next to the last business day (as observed by
the Agent Bank) of a statement week or month, sufficient
of its holdings as of the close of business that day to
raise its reserve ratio to 35 per cent shall be re

allocated by an adjustment the following day, unless
such day is a general reallocation date.
Upon motion duly made and
seconded, the procedure for alloca
tion of securities in the System
Open Market Account adopted pursuant
to action of the Federal Open Market
Committee on June 11, 1953, was
approved unanimously, effective as of
the April 1, 1960, reallocation, in
a form reflecting incorporation of the
three changes recommended in the

memorandum from Messrs. Rouse and
Farrell dated February 19, 1960, it
being understood that the reallocation
to be made as of April 1, 1960, would
be based on the ratios of each Reserve
Bank's daily average of total assets
to the total for all Reserve Banks for
the period March 1, 1959 through
February 29, 1960.
Mr. Rouse suggested that the existing authorization for
distribution of the weekly open market report prepared by the
Federal Reserve Bank of New York be rephrased so as to refer to

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distribution of periodic reports prepared by the Federal Reserve
Bank of New York for the Federal Open Market Committee,
with the
understanding that the authorization for distribution to certain
officials of the Treasury Department would extend to the weekly
open market reports only and not to other reports, including the
annual reports or the reports submitted prior to each meeting of
the Committee.
There being no objection to the
suggestion of Mr. Rouse, it was agreed
unanimously to authorize distribution
of periodic reports prepared by the
Federal Reserve Bank of New York for
the Federal Open Market Committee as

follows
1.
2.
3.
*4.

*5.
*6.

*7.
8.
9.
10.

The Members of the Board of Governors
The Presidents of the twelve Federal Reserve Banks
Officers of the Federal Open Market Committee
The Secretary of the Treasury
The Under Secretary of the Treasury
The Assistant to the Secretary of the Treasury
working on debt management problems
The Fiscal Assistant Secretary of the Treasury

The Director of the Division of Bank Operations
of the Board of Governors
The officer in charge of research at each of the
Federal Reserve Banks not represented by its
President on the Federal Open Market Committee
The alternate member of the Federal Open Market
Committee from the Federal Reserve Bank of New
York; the two Assistant Vice Presidents of the
Federal Reserve Bank of New York working under
the Manager of the System Account; the Managers
of the Securities Department of the New York
Bank; the Vice President in charge and the
Assistant Vice President of the Research Depart
ment of the New York Bank; and the confidential
files of the New York Bank as agent for the
Federal Open Market Committee

* Weekly reports of open market operations only.

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11.

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With the approval of a member of the Federal Open
Market Comittee or any other President of a
Federal Reserve Bank, with notice to the Secretary,
any other employee of the Board of Governors or of
a Federal Reserve Bank.

Unanimous approval was given to
continuation of the authorization to
the Manager of the System Account to
engage in transactions on a cash as
well as a regular delivery basis.
With reference to the authorization to the Federal Reserve Bank
of New York to enter into repurchase agreements with nonbank dealers in
United States Government securities, Mr. Robertson commented that his
views on the subject of repurchase agreements were well known because
of statements he made previously from time to time.

These views had

not changed, and he continued to doubt the legality of the use of
repurchase agreements.

He did want to raise the question of ultra

vires action since so many members of the Committee were convinced
that the use of the repurchase agreement over a long period of time
had legalized this mechanism for making loans to nonbank dealers.
However, in view of the question of legality-the statutory right
of the Open Market Committee to make loans as distinguished from
purchasing securities-and the possibility that we can accomplish
the System's objectives equally as well through the development of
cash trading, he felt that we should minimize to the fullest possible
extent the use of repurchase agreements and maximize cash trading,
even though this might be less profitable and less palatable to the
dealers.

When it

was concluded several years ago to continue the

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use of repurchase agreements notwithstanding the question of legality,
it

was understood, as he recalled it,

sparingly as possible in

that they would be used as

achieving System objectives.

In recent

times, however, the tendency had been to use them frequently, and in
his opinion excessively, to offset items that he doubted seriously
needed to be offset.

He felt that the Account should go back to a

basis of using repurchase agreements as sparingly as possible, and
then only for the purpose of taking care of the borrowing needs of
the dealers in instances where they could not possibly get financing
from other sources with which to carry securities and hence contribute
to the smooth functioning of the Government securities market.

In

addition, he felt there should be an amendment of the authorization
covering rates on repurchase agreements.

In his opinion, the rate

should be confined to the discount rate, rather than allowing, under
some circumstances, the use of a rate less than the discount rate.
This was not important today because we are not actually engaged in
making loans (in the form of repurchase agreements) at rates less
than the discount rate, but it
conditions.

He felt that it

could become important under other

was completely inequitable to permit

nonbank dealers to borrow from the Federal Reserve System at rates
below the rates prescribed for member banks, whether those banks
were dealers or nondealers in Government securities.
Mr. Hayes said he had sensed that the use of repurchase
agreements for meeting relatively short-term needs appealed strongly

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to many members of the Committee.

It seemed to him that repurchase

agreements had been considered a useful technique for combining the
objectives of providing reserves temporarily, assisting dealer
financing, and preventing any knots from developing there.

On

theoretical grounds and on the basis of past experience, it

was a

desirable technique that he would hate to see minimized.
Mr. Hayes recalled that there had been some discussion
recently as to whether, because of the frequent use by banks of

Government securities ranging to, say, two years in adjusting their
reserve positions, the repurchase agreement authorization should be
amended to permit agreements covering Government securities maturing
beyond 15 months.

Recognizing, however, that this question was

closely related to the Committee's operating policies, he did not
wish to raise the issue for action now.
Mr. Rouse said it had been found impracticable to use any
rate other than the discount rate because of the factor mentioned
by Mr. Robertson.

To go above the discount rate would create a

feeling on the part of the nonbank dealers that they were being
imposed upon, while to go below the discount rate would mean that
the bank dealers would feel imposed upon.

As a practical matter,

therefore, no rate other than the discount rate had been used for
years, with perhaps one or two exceptions.
Mr. Robertson said he could find only one exception.
However, he felt that in continuing the authority in its present

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form the Committee subjected itself to the criticism, for no purpose,
of appearing to differentiate between banks and nonbank dealers.
Mr. Shepardson inquired whether he understood correctly that
Mr. Rouse would not object to eliminating the authority for a rate
other than the discount rate.
Mr. Rouse stated that he would not object.
Chairman Martin then said that he would not want to change

the existing rate authorization without more discussion.

He disagreed

with Mr. Robertson' s views on the use of repurchase agreements.

In

his opinion, they were a convenience to the System and of great
importance in carrying out monetary policy.
of accommodating the dealers.

It was not just a matter

The repurchase agreements were not

only useful but important to monetary management, and he would not
want to see their use minimized.
Mr. Szymczak commented that repurchase agreements were helpful
to the Government securities market, and Chairman Martin added the
comment that they were extremely helpful.
Chairman Martin repeated that he would not want to see the
authorization changed to eliminate the right to use a rate lower
than the discount rate under certain circumstances,

if

that appeared

desirable.
Mr.Rouse commented that if rates on Treasury bills were low,
it

might be necessary to go below the discount rate in order to get

out repurchase agreements to accomplish the objectives to which

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Chairman Martin had referred.

At least, that was the concept.

Mr. Mills then moved that the existing authorization with
respect to repurchase agreements be continued.

However,

since Mr.

Robertson had expressed himself for the record, the Committee would
be alerted to study the problem as the year progressed.
The Chairman then called for any further comments,

but none

were heard.
Thereupon, the motion of Mr. Mills
having been seconded, the Committee ap
proved, with Mr. Robertson dissenting,
a renewal of the existing authorization

to the Federal Reserve Bank of New York
to enter into repurchase agreements with
nonbank dealers in United States Govern
ment securities, subject to the following

conditions
1.

Such agreements
In no event shall be at a rate below whichever is
the lower of (1) the discount rate of the Federal
Reserve Bank on eligible commercial paper, or
(2) the average issuing rate on the most recent
issue of three-month Treasury bills;
(b) Shall be for periods of not to exceed 15 calendar
days;
(c) Shall cover only Government securities maturing
within 15 months; and
(d) Shall be used as a means of providing the money
market with sufficient Federal Reserve funds to
avoid undue strain on a day-to-day basis.
Reports of such transactions shall be included in the
weekly report of open market operations which is sent to
the members of the Federal Open Market Committee.
In the event Government securities covered by any such
(a)

2.

3.

agreement are not repurchased by the dealer pursuant to
the agreement or a renewal thereof, the securities thus

acquired by the Federal Reserve Bank of New York shall
be sold in the market or transferred to the System Open
Market Account.

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The Committee approved by unanimous
vote a renewal of the authorization to
the Federal Reserve Bank of New York (last
renewed March 3, 1959) to purchase bankers'
acceptances and to enter into repurchase
agreements therefor. The authorization was
as follows:

The Federal Open Market Committee hereby authorizes the
Federal Reserve Bank of New York for its own account to buy
from and sell to acceptance dealers and foreign accounts
maintained at the Federal Reserve Bank of New York, at market
rates of discount, prime bankers' acceptances of the kinds
designated in the regulations of the Federal Open Market
Committee, at such times and in such amounts as may be
advisable and consistent with the general credit policies
and instructions of the Federal Open Market Committee,
provided that the aggregate amount of such bankers' ac
ceptances held at any one time by the Federal Reserve Bank
of New York shall not exceed $75 million, and provided
further that such holdings shall not be more than 10 per
cent of the total of bankers' acceptances outstanding as
shown in the most recent acceptance survey conducted by
the Federal Reserve Bank of New York.
The Federal Open Market Committee further authorizes
the Federal Reserve Bank of New York to enter into repurchase
agreements with nonbank dealers in bankers' acceptances cover
ing prime bankers' acceptances of the kinds designated in
the regulations of the Federal Open Market Committee, subject
to the same conditions on which the Federal Reserve Bank of
New York is now or may hereafter be authorized from time to
time by the Federal Open Market Committee to enter into
repurchase agreements covering United States Government
securities, except that the maturities of such bankers'
acceptances at the time of entering into such repurchase
agreements shall not exceed six months, and except that in
the event of the failure of the seller to repurchase, such
acceptances shall continue to be held by the Federal Reserve
Bank or shall be sold in the open market. Such repurchase
agreements shall be at the same rate as that applicable, at
the time of entering into such agreements, to repurchase
agreements covering United States Government securities.

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The Committee approved by unanimous
vote the continuation without change of
the existing authorization for fixing the
rate charged on special short-term certifi
cates of indebtedness purchased direct from
the Treasury, pursuant to paragraph (2) of
the Committee's policy directive to the
Federal Reserve Bank of New York, at 1/4 of
1 per cent below the discount rate of the
Federal Reserve Bank of New York at the
time of such purchase.
The Committee reaffirmed by unanimous
vote the authorization for the Chairman to
appoint a Federal Reserve Bank as agent to
operate the System Account temporarily in
case the Federal Reserve Bank of New York
is unable to function, such authorization
having first
been given on March 1, 1951,
and having been renewed in March of each
year since.
The following resolution to provide for
the continued operation of the Federal Open
Market Committee during an emergency was re
affirmed by unanimous vote:

In the event of war or defense emergency, if the Secretary
or Assistant Secretary of the Federal Open Market Committee (or
in the event of the unavailability of both of them, the Secre
tary or Acting Secretary of the Board of Governors of the
Federal Reserve System) certifies that as a result of the
emergency the available number of regular members and regular
alternates of the Federal Open Market Committee is less than
seven, all powers and functions of the said Committee shall be
performed and exercised by, and authority to exercise such
powers and functions is hereby delegated to, an Interim Com
mittee, subject to the following terms and conditions:
Such Interim Committee shall consist of seven members,
comprising each regular member and regular alternate of the
Federal Open Market Committee then available, together with
an additional number, sufficient to make a total of seven,

which shall be made up in the following order of priority
from those available: (1) each alternate at large (as defined
below); (2) each President of a Federal Reserve Bank not then
either a regular member or an alternate; (3) each First Vice

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President of a Federal Reserve Bank, provided that (a) within
each of the groups referred to in clauses (1), (2), and (3)
priority of selection shall be in numerical order according
to the numbers of the Federal Reserve Districts, (b) the
President and the First Vice President of the same Federal
Reserve Bank shall not serve at the same time as members of
the Interim Committee, and (c) whenever a regular member or
regular alternate of the Federal Open Market Committee or a
person having a higher priority as indicated in clauses (1),
(2), and (3) becomes available he shall become a member of
the Interim Committee in the place of the person then on the

Interim Committee having the lowest priority.
Committee is

The Interim

hereby authorized to take action by majority

vote of those present whenever one or more members thereof
are present, provided that an affirmative vote for the action
taken is cast by at least one regular member, regular alter
nate, or President of a Federal Reserve Bank. The delegation
of authority and other procedures set forth above shall be
effective only during such period or periods as there are
available less than a total of seven regular members and
regular alternates of the Federal Open Market Committee.
As used herein the term "regular member" refers to a
member of the Federal Open Market Committee duly appointed
or elected in accordance with existing law; the term "regular
alternate" refers to an alternate of the Committee duly
elected in accordance with existing law and serving in the
absence of the regular member for whom he was elected; and
the term "alternate at large" refers to any other duly elected
alternate of the Committee at a time when the member in whose
absence he was elected to serve is available.
Unanimous approval was also given to
a renewal of the resolution set forth below
authorizing certain actions by the Federal
Reserve Banks during an emergency:
The Federal Open Market Committee hereby authorizes each
Federal Reserve Bank to take any or all of the actions set
forth below during war or defense emergency when such Federal
Reserve Bank finds itself unable after reasonable efforts to
be in communication with the Federal Open Market Committee
(or with the Interim Committee acting in lieu of the Federal
Open Market Committee) or when the Federal Open Market Com
mittee (or such Interim Committee) is unable to function.
(1) Whenever it deems it necessary in the light of
economic conditions and the general credit situation then

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prevailing (after taking into account the possibility of
providing necessary credit through advances secured by
direct obligations of the United States under the last
paragraph of section 13 of the Federal Reserve Act), such
Federal Reserve Bank may purchase and sell obligations of
the United States for its own account, either outright or
under repurchase agreement, from and to banks, dealers, or
other holders of such obligations.
(2)
In case any prospective seller of obligations of
the United States to a Federal Reserve Bank is unable to
tender the actual securities representing such obligations
because of conditions resulting from the emergency, such
Federal Reserve Bank may, in its discretion and subject to
such safeguards as it deems necessary, accept from such
seller, in lieu of the actual securities, a "due bill"
executed by the seller in form acceptable to such Federal
Reserve Bank stating in substantial effect that the seller
is the owner of the obligations which are the subject of
the purchase, that ownership of such obligations is there
by transferred to the Federal Reserve Bank, and that the
obligations themselves will be delivered to the Federal
Reserve Bank as soon as possible.
Such Federal Reserve Bank may in its discretion
(3)
purchase special certificates of indebtedness directly
from the United States in such amounts as may be needed
to cover overdrafts in the general account of the Treasurer
of the United States on the books of such Bank or for the
temporary accommodation of the Treasury, but such Bank
shall take all steps practicable at the time to insure as
far as possible that the amount of obligations acquired
directly from the United States and held by it, together
with the amount of such obligations so acquired and held
by all other Federal Reserve Banks, does not exceed $5
billion at any one time.
Authority to take the actions above set forth shall
be effective only until such time as the Federal Reserve
Bank is able again to establish communications with the
Federal Open Market Committee (or the Interim Committee),
and such Committee is then functioning.
By unanimous vote, the Committee
reaffirmed the authorization given at

the meeting on December 16, 1958, and
continued at the meeting on March 3,
1959, providing for System personnel
assigned to the Office of Civil and

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Defense Mobilization Classified
Location (High Point) on a rotating
basis to have access to the resolu
tions (1) providing for continued
operation of the Committee during an
emergency and (2) authorizing certain
actions by the Federal Reserve Banks
during an emergency.
There was unanimous agreement that
no action be taken to change the exist
ing procedure, as called for by the

resolution adopted June 21, 1939,
requesting the Board of Governors to

cause its examining force to furnish the

Secretary of the Federal Open Market Com
mittee a report of each examination of
the System Open Market Account.
The next item on the agenda was a review of the continuing
operating policies of the Federal Open Market Committee.

However,

Chairman Martin stated that he would like to defer consideration
of this item until later in

the meeting and proceed at this time

to a review of open market operations since the meeting of the
Committee on February 9, 1960.

There being no disagreement, it

was understood that this procedure would be followed.
Before this meeting there had been distributed to the
members of the Committee a report of open market operations covering
the period February 9 through February 24,

1960, and a supplementary

report covering the period February 25 through February 29, 1960.
Copies of both reports have been placed in the files of the Committee.
In supplementation of the written reports, Mr. Rouse made
substantially the following comments:

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Since the last meeting of the Committee, the statistical
position of the money market experienced wide swings but the
over-all atmosphere was on the whole much the same as in
other recent periods: continued restraint without extremes
other than for very short periods.
Net borrowed reserves
went from a peak of about $900 million on February 15 to a
low of $47 million free reserves on February 19, but
averaged about $400 million over the period. The peak was
reached at a time when the money market was in the throes
of settling for the Treasury's February refunding, which
produced symptoms of extreme tightness requiring System
repurchase agreements to ease the situation. Subsequently,
banks gained reserves rapidly as float increased at a more
than normal pace and other factors added to the bulge. A
reduction in the System's holding of Treasury bills was
needed to offset this trend. Toward the close of the
period further repurchase agreements were made to temper
renewed pressures on reserves, but none of the open market
operations carried out during the period were large. Opera
tions were for the most part done through bill redemptions,
transactions with foreign accounts, and repurchase agreements.
The distribution of reserves also swung sharply in favor of
New York City banks at two points, adding to the peculiarities
of the period. With the advent of the two-week reserve period
for country banks, a new pattern seems to have emerged wherein
the country banks shift sizable amounts of funds to their New
York correspondent banks every other Tuesday and Wednesday,
causing an oversupply of reserves in New York central reserve
city banks which has tended to make the Federal funds market
unusually easy on those Wednesdays when the New York banks
must also settle their reserve positions.
Despite this easing, bill rates moved up substantially,
reflecting mainly a cautious attitude toward the approaching
March 15 tax date-91-day bill Treasury issuing rates rose
from a low of about 3.56 per cent to more than 4.25 per cent
Prices of longer-term issues
in yesterday's auctions.
up to the middle of last week
improved throughout the list
when the favorable vote of the House Ways and Means Com
mittee on the compromise measure for revising the rate
ceiling enhanced the prospects for advance refundings. This
action brought a sharp drop in prices of the longest-term
issues, with shorter issues continuing to improve moderately.
Also, corporate and municipal bonds have been under some
pressure as potential buyers have been reluctant to take up
promptly a number of recent new issues in view of the House

3/1/60

-20

Committee action and the growing calendar of new flotations
which they think may offer better investment opportunities.

The approach of the mid-March tax and dividend dates
and accompanying liquidity needs are now beginning to

attract attention in the market. Although this is a factor
contributing to the upward tilt of short-term rates, it
does not seem to be a matter of concern and most of the
major corporations have already provided for their needs

in one way or another, largely through tax anticipation
bills.

Mr. Mills said it appeared to him that the Desk had permitted
a greater degree of restraint to exist during the reserve week ending
tomorrow than was contemplated by the sense of the Committee at the
February 9 meeting.

Negative free reserves, at the $460 million

level estimated by the Federal Reserve Bank of New York in the pro
jection accompanying its supplementary report of Open Market opera
tions to March 1, will have risen above the general level of the
previous weeks and above what he had sensed to be the Committee's
own choice.
With regard to the use of repurchase agreements, Mr. Mills
inquired whether it

was drawing too fine a line to get into the

Account, as had been done twice in the past week or thereabouts,
agreements with a maturity falling on the succeeding day from their
origination.

He thought that this could be confusing to the market

and inquired whether a somewhat greater maturity leeway should not
be provided.

Mr. Rouse replied that the swings during the past period
had been enormous, and guesses had been pretty badly out of line

3/1/60

-21

on a number of days.
doing anything,

Some days the Account was not planning on

and then repurchase agreements were written.

If

they were needed on a one-day basis, he thought the right thing
had been done.

Yesterday morning it

was estimated that the average

of net borrowed reserves for the week ending tomorrow would be
around $17
about $60
cerned,

million, but now it
million.

appeared that the average would be

As far as the temper of the market was con

he felt that the degree of restraint had been fairly

consistent throughout the period with the exception of February 15
and the following morning, when there was far more tightness in
the market than the Committee wanted.
Mr. Allen commented that on several days Federal funds went

begging.
Mr. Hayes noted that at one stage of the discussion at the
February 9 meeting the Chairman had referred to "slight but not
visible easing."
Mr.

This, he said, is

about what has happened.

Mills said he could define his interpretation of the

instruction to the Desk at the last meeting in this manner.

If

on

looked at the table on recent and projected reserve changes that
was distributed at the beginning of this meeting, it

could be seen

that negative free reserves for the several reserve weeks preceding
the February 9 meeting had been averaging $400 million or lower.

He

would have interpreted the instruction to the Desk on February 9 as
satisfaction with the results developed from that level of pressure.

-22

3/1/60

Consequently, any increase in pressure above those general averages
would have been contrary to the instructions.
Mr. Hayes said it

seemed to him there was again the danger,

to which he had referred from time to time, of giving too much
emphasis to a single figure (net borrowed reserves).

The feeling of

ease in the market was greater than might have been associated with
net borrowed reserves in the range of $400-$500 million.

Chairman Martin said he understood from Mr. Rouse's explana
tion that there had been no conscious effort on the part of the Desk
to absorb reserves for the purpose of yielding a specific figure of
net borrowed reserves.

Mr. Rouse replied that the Desk had tried to maintain the same
The

feeling in the market that existed before the February 9 meeting.
problem went back to the question of net borrowed reserves, for net
borrowed reserves of $400-500million in

January and February were

associated with a much easier situation than net borrowed reserves of
$300 million in November and December.
of the market were concerned,

As far as the feel and temper

there was an easier situation than may

have been associated with the same level of net borrowed reserves in
a previous period.

As usual, the New York Bank had reviewed its

of the February 9 meeting-and also the minutes, when they became
available--to determine whether the Desk was on the right track.
However,

the February 9 meeting was not the easiest meeting to

interpret.

notes

3/1/60

-23Mr. Mills then said that with the greater degree of pressure

that occurred last week, there was a reflection in the downward move
ment of the prices of securities in
extenuating circumstances,

many sectors.

There were

he granted, but he could not feel that

those circumstances were conclusive in the movement of the Govern
ment securities market.

He felt that the pressure placed on reserves

equalled, or at least ranked with, other influences in the market.
Mr. Robertson noted that he had sometimes criticized the
Desk because he had the feeling that the easiest thing to do is

to

move toward ease and that easing had been the over-all general
tendency.

In this instance, it

reserve figure had gone a little
However,

might be that the net borrowed
higher than some anticipated.

this did not mean to him that the Desk had tried to

tighten beyond the degree of restraint indicated by the discussion
of the Committee.

He was glad that once in

a while operations

produced a figure on the higher side, and he wished to commend the
Desk.
Thereupon, upon motion duly made
and seconded, and by unanimous vote,
the open market transactions during
the period February 9 through February
29, 1960, were approved, ratified, and
confirmed.
Mr. Noyes presented the following statement with respect to
economic developments
In the visual presentations we made at the beginning
that the attention of
of the year, we commented first
the settlement of the
on
focused
was
analysts
economic

3/1/60

-24

steel strike.
In a subsequent revision we added that it
had shifted to the President's Budget Message, and the
final version reported that the spotlight had turned to
the sharp decline in the stock market. If we were to do
still
another version, we might report that interest is
now centered on developments in money and credit markets,
and perhaps especially on the decline in the money supply.
Whatever its true significance, there is no doubt that the
persistent downward trend in the volume of demand deposits
and currency adjusted, which started last summer and has
continued beyond the period of depressed activity attribu
table to the steel strike, is an important factor in bearish
sentiment. The prospect of a further decline in February
will undoubtedly add to the attention focused on credit
markets and monetary policy,
Another area being closely watched from all sides, which
provides the basis for some misgivings as to the future, is
that of inventories and new orders. The rapid rate of inven
tory accumulation which occurred in January, and appears to
have continued in February, combined with the slight decline
in new orders, suggests to some that we are mearing the end
of the spurt of activity attributable to the resumption of
steel production before any other expansive factor has
These people will probably find
emerged to take its place.
some confirmation of their fears if the February index of
industrial production shows little
or no increase over
January, as now appears likely.
In further support of their view, they can also point
to the fact that seasonally adjusted department store sales,
which declined from December to January, appear to have
further in February on the basis of the
slipped a little
three weeks' data and that, in fact, total retail
first
sales were down from December to January, if one excludes
auto dealers. While these declines are small and retail
trade remains at a very high level, the edging off may
gain some added significance from the fact that it occurred
in a period when employment and production were rising to
record levels and one might have expected some spurt in
spending as strike-curtailed incomes were restored.
On the other hand, the last three weeks have also
produced evidence that there is considerable confidence and
basic strength in the situation. If the stock market has
not shown much "oomph" on the upside, its stubborn
resistance to general "across the board" declines has been
impressive. Mr. Thomas will discuss money market develop
ments in detail, but it is worth mentioning here that,

3/1/60

-25-

whatever the technical factors, the recent firming could
hardly have occurred in a period of general weakness.
Further evidence of underlying strength can be drawn
from the February expansion of loans at weekly reporting
banks.
The $425 million increase in business loans in the
first
three weeks was larger than in the comparable period
of any other year.
hile much of the increase was accounted
for by metal fabricators, most categories showed more than

seasonal increases or less than seasonal declines. Hence,
the strength of loan demand can hardly be attributed solely
to the reaccumulation of steel inventories and durable goods.
Commodity markets have shown neither dominant strength
nor weakness--some prices moved up, others down. Taken
altogether, industrial prices have been stable.
Without impinging unduly on Mr. Marget's extensive
territory, perhaps I should mention that the near boom
conditions developing in many countries abroad constitute

an important element of strength in the domestic economic
picture.
In summary, no convincing signs of basic weakness have
emerged since the last meeting, but there is added support
for the view that the moderate gap between capacity and
current output is not closing rapidly.
In these circumstances,
it would appear that some adaptation of monetary constraint
would be consistent with continuing price stability. At the
same time, there is every reason to suppose that credit
demands are sufficient to keep the proverbial string taut
and that any supplement to the volume of loanable funds
made available through bank credit expansion will be quickly
absorbed. We may be, in fact, in one of the relatively

rare periods when melioration of monetary policy would
actually contribute to vigorous, healthy growth in
economy.
Mr.

the

Thomas presented the following statement with regard to the

financial situation:
Probably the most important current financial develop
ment, from the standpoint of this group, is the indication
of further greater-than-seasonal decline in the money supply.
Demand deposits adjusted at city banks declined by a larger
amount during February than in the same month of any other
Country bank figures for the first
recent year except 1956.
half of the month failed to show the increase that occurred
It is possible that the
in the same period last year.
declined by as much as half
supply
seasonally adjusted money
a billion dollars in February to a level of as much as $300
million less than a year ago.

3/1/60

-26

The reason for and significance of this decline is not
easy to appraise.
Bank loans, after declining sharply in
January, turned up in February.
Business loans at city banks,
which had declined only moderately in January following the
sharp December increase, increased substantially in February
a month that usually shows little
change.
Other categories of
loans showed little
change, except for a moderate increase in
the "all other" category, which includes consumer loans. At
the same time banks continued to reduce their holdings of U. S.
securities.
The net decline in total loans and investments was
fairly substantial, though not as large as in February last
year or in 1956 and 1955.
Banks had to increase their borrow
ings to avoid further liquidation of investments, in the face
of the loan increase and the deposit decline.
To some extent the decline in bank investments and deposits
may reflect the further shifting of funds by holders from bank
deposits to Government securities, attracted by the prevailing
high interest rates.
In the past three weeks, however, in
terest rates have risen, following the sharp drop in the early
weeks of the year. At the same time demands on capital markets
Offerings of new securities by corpora
have not been heavy.
tions and by State and local governments have been relatively
quarter of
light. It appears that new issues in the first
the year will be smaller than in the same period of most other
Offerings by finance companies have comprised a
recent years.
larger portion of total corporate issues than usual. Mortgage
demands, on the other hand, have continued heavy, and there has
been a considerable volume of short-term issues by Federal
agencies.
Rates on three-month Treasury bills are again above the
discount rate-as is normal for a situation in which banks are
much lower than in December and
borrowing-but they are still
bills, which declined
six-month
on
rate
The
early January.
more sharply after early January, has risen less in the past
three weeks than the three-month rate and is below levels that
have generally prevailed since early September. Yields on
two- to three-year issues have risen rather sharply, but issues
in the four- to five-year area have shown greater strength
than previously. Yields on longer bonds declined during most
of February but have risen again since action by the House Ways
and Means Committee last week on interest ceiling legislation.
In general, the interest rate structure has been tending to
flatten out over the past several months, with medium-term
rates lower and the very short and very long-term rates higher
relative to the average.
Stock prices have fluctuated fairly erratically at slightly
above the low level reached early in February. Interest rates

3/1/60

-27

in other industrial countries have been tending to rise in
response to economic activity and speculative developments,
and official policies have moved further in the direction of
restraint.
System operations have generally had the effect of
maintaining pressure on banks. Reserves have been released
by the decrease in required reserves, but various market
factors and continued reduction in the System's portfolio
have absorbed larger amounts of reserves. As a consequence,
using preliminary estimates for this week, net borrowed
reserves have increased somewhat in the past month on the
basis of revised figures for a month ago. For the period
as a whole, net borrowed reserves averaged less than $400
million, with borrowings averaging close to $800 million.
It appears from the course of events that a figure of
this magnitude has kept the banks under pressure to liqui
date securities in order to meet loan demands.
The net
result has evidently been the greater-than-seasonal decline
in the money supply, as previously mentioned. Although it
is possible that the public may be willing to reduce its
cash holdings in order to invest in earning assets, it seems
hardly necessary under existing conditions for System opera
tions to be an inducement to credit liquidation by banks,
with further increases in interest rates.
During the next three or four weeks money markets are
likely to be under severe pressures to provide liquidity
needed at this season. At similar periods in the past year
the System has not acted to ease these pressures, with the
result that interest rates have risen sharply and subsequently
Some pressures are desirable at such
declined somewhat.
periods in order to attract funds to the market and avoid
making Treasury bills the same as money, but it might be
well for the System to be somewhat more liberal in supplying
reserves at such times than has been customary in the past.
From a longer-run standpoint, in view of the absence
of noticeable speculative tendencies or excessive credit
expansion, it would be difficult to defend a continued
decline in the money supply. More abundant reserves can be
supplied in the weeks ahead either by maintaining a somewhat
lower level of net borrowed reserves than has been the aim
in the past--say around $300 million-or by operations that
would supply currently somewhat more reserves than are
In the short run
needed to cover usual seasonal demands.
difference in the conduct and impact
there would be little
In the long run the difference
of these two approaches.

3/1/60

-28

would depend upon what the banks did with the additional
reserves. Subsequent action could be guided accordingly.
Mr. Marget made substantially the following comments with
respect to the balance of payments:
One thing is clear, above all others, with respect
to our balance-of-payments position at this juncture.
It is bound to be affected, to a very considerable degree,
by the changes that seem to be emerging with respect to
what might be called the cyclical constellation as between
our principal trading partners and ourselves.
Things are booming abroad, particularly in the
industrialized countries.
The inflationary pressures
accompanying this boom abroad are strong enough to be of
very real concern to the monetary authorities. The action
by the Bank of England last Wednesday in relation to the
London securities market was only the latest in a series
of actions, by the monetary authorities of the industrialized
countries, which provide a measure of their concern in this
respect. And while this is going on abroad, our own
internal position is such as to lead the authors of the
current staff report on economic developments to use
phrases such as "a questioning mood," "business prospects...
being reappraised," "the strength of demand...undergoing

fresh testing," and so on.
This kind of cyclical constellation--a strong,
inflation-threatening boom abroad and a moderation, at
least, of boom tendencies here--is just the kind of
constellation which, by encouraging exports from this

country and moderating the movement of imports into the
country, should be favorable to further adjustment in our
balance of payments in the direction we desire. And this
is in fact what seems to be happening. December witnessed
an increase in our exports which, to virtually all qualified
observers, seemed surprisingly large; and the preliminary
figures for January--some very misleading interpretations in
the press to the contrary notwithstanding-show exports at
a level which, if anything, was higher than that reached in
Indeed, for two months in succession we have had
December.
exports at a rate close to the one projected for the full
year 1960 by the National Foreign Trade Council balance-of
payments group at its meeting several weeks ago-that is,

3/1/60

-29-

about $18 billion, as against a realized level of exports for
the years 1958 and 1959 of around $16 billion. And on the
import side, one must say of the results suggested by our
advance indicators for January that the drop in imports was
so considerable as to be almost too good to be true, in the
sense that it will almost certainly turn out to have been
temporary, so far as its magnitude is concerned, though
hopefully, not as to its direction.
As I suggested lasttime, there is no reason why one should
always hasten to discount good news when it comes, particularly
when the news is what one would have expected on the basis of
what I have described as the changing cyclical constellation as
between ourselves and our principal trading partners.
But at
least two further comments would seem to be appropriate.
The first
comment is one of common caution. Even if we do
reach and maintain the levels of exports and imports indicated
by the projection of the National Foreign Trade Council
balance-of-payments group to which I referred a moment ago, we
shall still
be running an over-all deficit of between $2-1/2 to
billion deficit of
$3 billion. This is better than the $3.
not
1958 and the $3.7 billion deficit of 1959, but it is still
good enough by far. And we shall not succeed in keeping the
deficit even within these limits if there is any relaxation in
our efforts, on all fronts, to keep ourselves sufficiently
competitive to be able to profit from cyclical constellations
of the kind from which we have been profiting recently.
The second comment is by way of clarification of the state
It has reference to the policy actions
ment I have just made.
that will have to be considered by this Committee if the cyclical
constellation develops in a way that is being forecast in some
quarters: a position of very strong boom abroad, with correspond
ingly high interest rates there, while our own internal economic
situation moves into clear recession. The point I wish to make
here is that it is not to be expected that in the name of
"keeping sufficiently competitive" the monetary authority of a
country evidencing a balance-of-payments deficit should deprive
of all flexibility and all freedom of action regardless
itself
of what is happening to the domestic economic situation, and
These
regardless of what its reserve position happens to be.
when
weigh
duly
will
are considerations which this Committee
only
offer
to
like
should
I
Here
so.
do
to
the time comes
two quotations from recent statements that bear on the subject.
I
One is from Governor Cobbold of the Bank of England.
need hardly remind you that the British reserve position can
only be described as fragile, in comparison with our own
massive reserve position; and yet this is the statement that
Governor Cobbold made on February 12 of this year:

3/1/60

-30
"...With the much greater stability of the exchanges
in the past year or two, and with increasing freedom of
trade and currency movements, comparative interest rates
have become somewhat more decisive, both in shifting
short-term investment from one country to another, and
perhaps even more important, in making borrowing cheaper
in one market than another.
"It seems to me that we should learn to live with move
ments of this sort without taking them too tragically.
Of course it becomes inconvenient if interest rates are
too far out of line for too long, and this must always be
a consideration in the mind of every monetary authority.
But I do not think it should be the dominant consideration,
or that we should be in too much of a hurry to 'keep up

with the Joneses' in raising or lowering interest rates.
Where there is a conflict between these 'overseas'
arguments and the 'domestic'
arguments for interest rate
changes, I would rather see some resort to use of reserves
than a slavish following of interest rate movements made
by other countries for their own reasons."
(I think it is worth adding, at the same time, Governor
"On January 21, however [the date Bank
Cobbold's next sentence:
rate was raised to 5 per cent], there was no such conflict, and
arguments pointed the same way,")
both 'domestic' and 'overseas'
which the Chairman sent
The other quotation is from a letter
This was in response to
to Senator Javits.
on February 19 last
from the Senator which asked the Chairman to comment on
a letter
certain statements that had appeared in a much-discussed article
in the New York Times, suggesting that a very serious conflict
existed as between certain goals of economic policy, and in
particular that because of our balance-of-payments position "a
into
U. S. recession in the near future would be allowed to drift
severe unemployment because the Government would be afraid to act

vigorously against it," "This," said the Times article, "would
come about because anti-recession action-chiefly an aggressive
easy-money policy--could bring on the feared run on gold. This
country's freedom of action domestically will be limited by the
fact that the dollar is a reserve world currency." To this part
the Chairman replied as follows:
of Senator Javits' letter,
"The international reserve position of the United
States is comfortable enough to permit 'freedom of
The balance of
action' in case of a recession.
payments situation in the next.recession is not now
predictable, because it will depend to a large extent
A temporary en
on conditions then existing abroad.
largement of the payments deficit, should it occur
need not be a permanent setback to the process of

adjustment.

3/1/60

-31"What is needed today is not so much to discuss ways
to meet a hypothetical dilemma as to see to it that we
continue to follow policies designed to ensure the
domestic and international financial equilibrium of the
United States, so that the dilema will not arise,"
Mr. Hayes presented the following statement of his views with re

spect to the business situation and credit policy:
While we may face difficult problems today in the matter of
determining operating procedures and the form of the Committee's
instructions, it seems to me that our decision as to credit
policy itself should be relatively easy, since I can see no
basis either in the business situation or in credit conditions
for any substantial policy change.
Such pessimistic views as have been expressed by some busi
nessmen and business economists seem to reflect disappointment
over the actual course of events as contrasted with earlier
exuberant expectations; but there is no evidence to suggest that
1960 will be other than a prosperous year, with an upward trend
Consumer spending will
in the economy through most of the year.
be of key importance for the strength and duration of the expan
sion. So far retail trade figures are very satisfactory but not
spectacular. Construction prospects continue good, aided by a
somewhat increased availability of mortgage funds and a leveling
Revised data now show that inventory
of mortgage costs.
accumulation in 1959 exceeded inventory liquidation in 1958--and
this suggests that further accumulation may proceed at a more
moderate rate than was expected at the end of the steel strike,
low. Plant and
even though inventory-sales ratios are still
equipment outlays should be an area of gradually increasing
evidence of any widespread upward
demand, but there is little
Moderation in inventory
revision of such spending plans.
building and phasing out of spending for fixed capital should
result in stretching out the boom and moderating any subsequent
cyclical downswing.
Price developments also have been rather satisfactory. The
decline in the stock market may to some extent reflect the
emergence of some less fatalistic views with respect to creeping
inflation. Consumer and wholesale price indices have been
generally stable, and sensitive prices have tended to decline.
As for bank credit, the outstanding feature on the loan side
three weeks of February was the strength of business
in the first
rose more than seasonally in a variety of sectors,
which
loans,
a January performance roughly in line with the
with
compared
as
seasonal pattern. Bank liquidity has been further reduced, with
the loan-deposit ratio in New York back to the 69 per cent figure

3/1/60

-32

of November and December and outside of New York at a new high
for recent years of over 59 per cent. In view of this sustained
pressure on liquidity positions, the January-February drop in
interest rates may prove to have been only a temporary respite.
Much will depend on the pattern of corporate financing.
Aggregate credit demands on the capital market from corporations
have remained surprisingly light so far in 1960, but this picture
could of course change quite rapidly.
Because of the distribution
of reserves and an unexpectedly large bulge in float, the feel of
the money and credit markets has recently been comfortable in
spite of the squeeze on liquidity.
In my view the aim of open market operations over the next
three weeks should be to keep about the degree of pressure on the
money and short-term securities markets as now exists, which we
should bear in mind is rather less than the pressure which would
ordinarily be associated with net borrowed reserves of $400 mil
lion or more. I would hope the Manager would be given ample
latitude to deal liberally with the pressures and churning
usually encountered over the middle of March.
If for this
purpose net borrowed reserves are permitted to average well
below the $400-500 million level I think no harm would be done,
since I would look favorably on a tendency for the money supply
to resume some moderate growth in the next month or two.
Repurchase agreements might prove to be the best vehicle for
releasing funds needed at the mid-March period.
At this point I should like to make just a brief observation
on the Committee's current efforts to find a more "objective" and
"quantitative" guide for the Manager's use. I can well understand
the reasons that have prompted this search; and certainly it has
been useful to concentrate our attention on some of the problems
involved and on some of the available statistical data on total
reserves and the money supply. But I think the distinction
needs to be kept in mind between the kind of data to which the
Committee can and does give close attention at each meeting and
the kind of data that might provide a practical working guide to
On the latter score, I
the Manager for day-to-day operations.
believe that our usual instructions couched in terms of "the
same degree of restraint" or "more" or "less" are sufficiently
precise and make it possible for the Manager to react to changing
developments flexibly and in such a way as to carry out fully
the spirit of the Committee's instructions. As we have often
noted, our system of reports, including the daily conference
call, is so extensive that each member has ample opportunity to
inform the Manager if he sees any deviation from the Committee's
I think we would be giving up a highly advantageous
instructions.
technique, developed over many years, if we were to attempt to
couch the instructions in some very exact mathematical terms.

3/1/60

-33-

Of all the tested statistical guides we have available, net
borrowed reserves are still
probably the best, but this guide
is certainly a long way from being sufficient by itself. In
the coming period, for example, I should think that the
volume of borrowing should not rise much above three-quarters
of a billion dollars, even over the tax date, and that if it
were to become larger, the Account should supply reserves
unless (as sometimes happens) the money market should be easy
or quite comfortable at the time, with Federal funds
occasionally trading below the discount rate.
Although most of March will represent a so-called "free
period" from the standpoint of Treasury operations, I can see
no basis whatever for considering a discount rate change at
this time.
As for the directive, I think that we should adhere to
the practice of changing it relatively infrequently-say two
or three times a year--with the understanding that within a
given directive there is room for different shadings in the
degree of ease or restraint, and that the instructions to the
Manager embodied in the minutes (and reported in the policy
record) should continue to reflect these minor variations.
On the other hand, even though we decide, as I think we should,
not to change our basic credit policy at today's meeting, I
would like to see us take advantage of the annual meeting to
effect what I believe would be an improvement in the directive,
the separation of clause (b) into two parts: a new
i.e.,
clause (b) to embody objectives to which we would wish to
adhere on a continuing basis, throughout the business cycle;
and a new clause (c) which would be reserved to take account
of changing cyclical economic conditions and policy purposes
but would at the same time be sufficiently broad so as not to
require frequent changes for mere variations in shading. The
Thus, the new
present clause (c) would be relabeled (d).
clauses:
following
the
include
would
directive
(a) to relating the supply of funds in the market
to needs of commerce and business,
(b) to fostering sustainable economic growth and
expanding employment opportunities and the conditions
of reasonable price stability conducive to both,
(c) to maintaining a policy of moderate credit
restraint that will support current expansionary
developments in the economy while guarding against a
renewed outbreak of inflationary pressures, and
(d) to the practical administration of the
Account ....

3/1/60
Mr. Erickson said that construction contract awards in the
First District in January were 3 per cent under the previous year,
slightly less than the national average.

Public works and utilities

were down 68 per cent, reflecting one large contract in

January 1959,

but nonresidential contracts were up 61 per cent from January a year

ago.

Residential contracts were up 17 per cent from January 1959 and

January 1959 was 32 per cent ahead of January 1958.

The number of

residential units in January was up 25 per cent, which might reflect
open weather in parts of the area and represent a borrowing from the
spring season.

For the first

seven weeks of this year, department

store sales were 4 per cent ahead of last year.
stores were also up 4 per cent, whereas in

Sales at downtown

1959 their sales were

equivalent to 1958, which might suggest that the trend to suburban
stores had turned.
Mr. Erickson also said that in the first eight weeks of this

year bank loans were down $83 million, compared with an increase of
$3 million in the same period last year.

District banks were net

purchasers of Federal funds for the past three weeks, but they had
not used the discount window more than before.
between $20 and $25 million.

Borrowings averaged

The January survey of 81 mutual savings

banks, holding about 56 per cent of total savings deposits,
that the deposit increase in

January was 4.8 per cent,

rate of gain in over two years.

Withdrawals in

showed

the lowest

January,

at the rate

of 12 per cents probably included withdrawals to purchase one-year

3/1/60

-35

bills, which were popular with some people in the district.

The

savings banks' mortgage position was up 11 per cent from a year
ago; 67 per cent of their deposits were in real estate mortgages,
A representative of one of the largest banks said recently that he
estimated his bank would be able to loan only one-half as much this
year as last year due to the decline in

deposit growth and also due

to the fact that in 1959 the amount the savings banks could put in
mortgages in Massachusetts was increased and advantage was taken of
that opportunity last year.

The banks were getting about a 12-1/2

per cent payoff on present mortgages, however, and that would serve
as a basis for further extensions of mortgage credit.
Mr. Erickson said that for the next three weeks he would
continue a policy of watchful waiting.

He foresaw that there might

be a difficult time over the 15th of March.

While he would not favor

changing the discount rate at this time, he would change the directive.
In the latter connection, he was rather intrigued by parts of the
proposal of Mr. Hayes.

Pending thorough study of that proposal,

however, he would just as soon keep the present form of directive
and adopt language for clause (b) along the lines suggested by Mr.
Balderston at the February 9 meeting, which would provide for
operations with a view to fostering sustainable growth in economic
activity and employment while guarding against excessive credit
expansion.

As to open market operations for the next three weeks,

he would keep the same degree of restraint.

He would leave it

to

3/1/60

-36

the Manager in this period to conduct operations so as to maintain

that degree of restraint,
Mr. Irons said that the Eleventh District continued to enjoy
the generally high level of economic activity that had characterized
the area for the past several weeks.

However,

there were some sectors

of activity within the total that might be said to be less vigorous.
These included petroleum, with a tendency to build up excessive stocks,
and construction, which was off a little

more than seasonally.

There

was the continuing situation in regard to the defense plants, and
employment in

the plants, and there was the usual uncertainty at this

season of the year regarding agriculture, especially in view of
unseasonal weather recently.
Turning to the financial picture, Mr. Irons said that the large
banks, especially in Dallas, showed a tight credit position and a low
level of liquidity.
investments,

They had been showing only a moderate decline in

possibly because they were out of bills and other short

term investments and were reluctant to sell other issues.
a substantially larger deposit decline.

There was

There had been an increasing

number of reports of deposits being used for the purchase of short
term Government securities and of country banks drawing on their
balances with city correspondents.
suggest the likelihood that money
district, at least temporarily.

Reports were general enough to
might be shifting out of the

While there had been fairly strong

requests for borrowing from the Reserve Bank, in the latest week

3/1/60

-37

borrowings declined somewhat.
a bit of easing in

This might have been attributable to

the money markets and the fact that on some days

Federal funds were selling below the discount rate; it

might also

reflect the fact that the Reserve Bank had held discussions with
those member banks that had been borrowing in substantial amounts
and rather continuously.
In summary,
and bankers in

Mr. Irons said, the psychology of businessmen

the district was less strongly optimistic.

They were

less inflation minded, not pessimistic but not as optimistic as six
or eight weeks ago.
Turning to the national picture, Mr.
shades of uncertainty at the present time.
had been expected.

Irons referred to the
The picture was not what

Looking just at the 15-day period ahead, he came

out in his thinking along the following lines,

Instead of continuing

the existing degree of restraint but making any inadvertent errors
on the siae of ease, he would favor a conscious but moderate lessening
of restraint between now and the next meeting of the Committee, having
in mind the economic situation and the seasonal demand for funds which
was tied into the tax payment period.

That lessening of restraint

might be reflected in relationships such as average net borrowed
reserves dropping perhaps to the range from $275 to $325 million.
The Federal funds rate would be under the discount rate at least
part of the time, and the seasonal upward pressure on short-term
rates would be largely

met in such a way as to lessen that pressure.

3/1/60

-38

He would look on this period as a sort of testing period to see what
might happen under these circumstances with a little

lessening of

restraint.
Mr.

Irons noted that the position he had expressed would

argue for a change in the directive, but he saw no reason to change
the discount rate at this time.

Language for the directive along

the following lines would be illustrative of his thinking:
The Committee instructs the Account to engage in operations
in the open market so as to lessen restraint and pressure
on bank reserves moderately, to avoid seasonal credit factors
distorting the pattern of short-term rates, and to test the
market's response to a moderate lessening of restraint by
maintaining average net borrowed reserves at a lower levelperhaps in the range of $275-$325 million, and by influencing
market conditions so that the Federal funds rate will tend to
fluctuate moderately below the discount rate and other
short-term rates will tend to move within reasonable range
of the discount rate. The Account is expected to assume
sufficient leeway to meet day-to-day situations of un
anticipated tightness or ease, when necessary, as reflected
by the tone and feel of the market.
With further reference to the problem of the directive, Mr.
Irons said that he had been thinking along somewhat the same lines as
Mr. Hayes.

However,

he would regard a statement of the kind suggested

by Mr. Hayes as setting forth objectives, more than a directive to
the Desk.

The Committee had continually as objectives the relating of

the supply of funds in

the market to the needs of commerce and business

and the fostering of sustainable economic growth and employment
opportunities.

In these respects,

the Committee would be setting forth

3/1/60

-39

something in the nature of an objective that would seldom be changed.
Within that framework he would issue at each meeting a detailed and
specific directive such as he had suggested.

Realizing that a large

group of people around a table could hardly develop such a directive,
he would suggest a procedure under which,

after the go-around,

the

Chairman would summarize and present a consensus on which the members
would agree.

Then the Secretary of the Committee, working with the

Manager of the Account, would draft the specific directive on the
afternoon of the meeting.

This would be subject to the approval and

confirmation of the Chairman of the Committee and would be the
directive for the next three weeks,
Committee.
three weeks,

subject to ratification by the

Anyone objecting could bring the matter up in the next
but it

would take a majority of the Committee to sub

scribe to the difference.

He felt that in practice the differences

would be so minor that there would be no problem.
would meet an administrative problem,

The procedure

and at each meeting the Manager

of the Account would be given a specific directive.
Mr. Mangels said that Twelfth District activity continued at
satisfactory levels.

At this time of year, a decline in

figures would normally be expected, but,
areas,
board.

employment

except for defense-related

there was an employment increase in

January almost across the

Although employment at aircraft plants continued to decline,

unemployment in the Pacific Coast States in
about the same as in

January was 4.1 per cent,

July 1957 and .3 per cent below December 1959.

3/1/60

-40

Construction contracts awarded in January were down 16 per cent from
a year ago, mostly in the residential field, reflecting adverse
weather and mortgage market conditions.
orders improved in the first

Lumber production and new

half of February, partly as a result of

increased exports to Great Britain and Commonwealth countries.
Department stores sales in

January and into February showed increases

against year-ago figures, but automobile registrations in
showed a sharp drop in early February.

California

Grapefruit growers were netting

80 cents a box in

California and 50 cents in Arizona, as compared with

$3.50 last year.

However,

prices for winter vegetables were up.

On the financial side, Mr. Mangels said that loans of report
ing banks increased only $23 million in

the three weeks ending

February 17 despite two loans of $28 million and $5 million, respec
tively.

Purchases and sales of Federal funds were about even during

the past week, while for the coming week district banks expected to
buy about $250 million net.

In the three weeks ended February 17,

the banks sold about $220 million of securities from their portfolios.
Borrowings from the Reserve Bank continued relatively high, although
not as high as they had been.
particularly the former,

Both time and demand deposits,

continued to show a decline.

During January,

share accounts at savings and loan associations in California increased
$322 million.

One large San Francisco bank reported that some public

treasurers were running off bill holdings.
Mr.

Mangels said he continued to sense fairly general evidence

of tightness.

With the March 15 tax period approaching, there would

3/1/60

-41

be some further demands for credit.

That would likely have an effect

on short-term rates, which in turn might cause some further specula
tion regarding the possibility of increases in the discount rate and
the prime rate.

While the economy was operating at a satisfactory

level, activity was not so strong as to justify a change in the
discount rate.

With regard to operations of the Account during the

forthcoming period, he would favor net borrowed reserves of around
$300 million, and he would not be unhappy if
fell to $250 or $275 million.

net borrowed reserves

As to the directive, he would go

along with language such as suggested by Mr. Balderston
February 9 meeting.

While he thought that Mr.

at the

Hayes and Mr. Irons

had made good points, their suggestions would require more time for
study than could be given to them today.
Mr. Deming reported that total Ninth District employment in
January was .5 per cent ahead of a year earlier, in contrast to a
national gain of 1.6 per cent.

In part, the lesser gain in the

district reflected a sharper than usual seasonal drop in farm
employment.
January,

Nonagricultural employment was at a record high for

but seasonally adjusted manufacturing employment had not

quite reached the pre-strike level of last July.
of the labor force, unemployment was still
it

had declined from year-ago levels.

fairly high even though

In the Twin Cities the un

employment rate in January was 5.3 per cent, in
cent a year earlier.

With the growth

contrast to 6.3 per

Employment was expected to rise over the next

3/1/60

-42

few months, but the increase forecast between now and May was less
than the usual seasonal amount.
Continuing,
copper strike in

Mr. Deming said that Anaconda had settled its

Montana after a long fight.

It was reported that

the settlement was more favorable than those negotiated earlier in
some other areas, costing perhaps about two-thirds as much over the
next two and one-half years as in other cases.

New techniques in

mining, stimulated by rising labor costs, had sharply reduced copper
industry employment in Montana over the past three years.

Even with

production holding at about the same level, employment, when everyone
got back to work in the mines, smelters, and refineries,
would be about 8,500, in

apparently

contrast to 13,500 three years ago.

The Minnesota personal income figure for January was up
slightly from December on a seasonally adjusted basis, with the gain
fractionally smaller than that registered for the country.

Relative

to a year ago, the gain was 2.3 per cent, about a third that for the
nation.

This reflected in part the farm income situation, but that

was not the whole story; the district simply had not recovered fully
from the steel strike lows.
have become a little

Expectations of businessmen seemed to

less fulsome than was the case six or eight

weeks ago, although there seemed to be no feeling that the economy
was turning down or even leveling off.

He would not even characterize

the current feeling as "cautious" optimism; it
perhaps,

might be described,

as "realistic" appraisal, and recognition that this year

3/1/60

-43

might be better than any previous year, without being quite as good
as expected earlier.

Expectations of the general public seemed quite

optimistic, as indicated by the results of a Statewide consumer out
look survey made by a Minneapolis newspaper in the second half of

January.
Mr. Deming said that the points he had mentioned for the
district, taken in conjunction with those made for the nation as a
whole, including the existence of excess capacity and relatively
high unemployment,

seemed to add up to an economic picture that caused

one to be less concerned about the development of unsustainable expan
sion and inflation, at least in the short run.

He agreed with the

view that the Committee might well change the directive at this time
and that it
reserves.

might follow a somewhat more liberal policy in supplying
He liked the phrasing Mr. Irons had used:

lessening of restraint.

conscious

He saw no need to change the discount rate

at this time.
As to the wording of the directive, he would be agreeable to
language along the lines that Mr. Mills had been suggesting recently.
This would provide for fostering sustainable economic growth and

expanding employment opportunities while continuing to be alert to
the resumption of inflationary credit expansion.

With reference to

changes in the form of the directive such as had been suggested by

Messrs. Hayes and Irons, Mr. Deming indicated that be was sympathatic
but felt that the suggestions needed more study.

3/1/60

-44
Mr. Allen said that, all

things considered, he regarded the

business situation as satisfactory at this time.
was less ebullient in

Business psychology

some respects, a desirable development.

It

seemed clear that sales of consumer durables, particularly automobiles,

were not meeting earlier expectations.

Inventories of new cars would

probably cross the million mark today or tomorrow, and production
would doubtless be geared to sales from here on.
depressing factor in

A psychologically

Detroit was that the car manufacturers were

finding their break-even points higher as the lower-profit compact
cars became a higher percentage of output.
in

However, the basic trends

the economy, as evidenced by income and employment, remained strong.

In January, personal income increased from December nationally and was
estimated to be 6.6 per cent above the same month of 1959, a gain
larger than the 5.9 per cent rise reported for the entire year 1959
over 1958.

It

was also worth noting that the January increase was

exclusive of the rise in
cent.

the Social Security tax from 2.5 to 3 per

Also, individuals whose cumulative wage and salary income

exceeded $4,800 during 1959 began to pay the Social Security tax once
again in

January 1960.

Thus, the rise in personal income was in fact

greater than indicated by the foregoing figures.
Mr.

Allen noted that employment continued to rise on a

seasonally adjusted basis through January, in the Seventh District
as well as nationally.

Two of the 16 largest centers in

the nation

were classified as of January as having less than 3 per cent current

3/1/60

-45

and prospective unemployment.

One of them, Milwaukee,

in the production of capital goods, and it

appeared that activity in

the capital goods sector would continue to rise.
showing more strength than anticipated.
carpets, tires, farm machinery,

is important

Home building was

Producers of various textiles,

and construction machinery had raised

prices from 1 to 5 per cent since the start of the year.

A National

Industrial Conference Board survey of consumer buying intentions,

released last week, showed that individuals were highly confident
and planned to increase their purchases of houses, appliances, and
automobiles very substantially over year-ago levels.

The head of a

factory-locating service reported that his firm's backlog of work was
the largest in history; from past experience, he estimated that capital
expenditures nationally would be about 15 per cent higher this year

than last.
Mr. Allen commented that banking statistics showed substantial
credit demand in February.

Business loans for all reporting banks in

the country rose $427 million in the three weeks ended February 17,
several times the increase in the like period a year ago, and the
Seventh District picture was the same, with most of the loan growth

in the Chicago money market banks.
Summarizing, Mr. Allen said he thought that economists and
businessmen in the Seventh District did not interpret recent develop
ments as marking a general letdown in the economy.

Instead, they

had lowered their sights moderately from the extravagant ideas of a

3/1/60

46

few months ago.

Business and investor psychology seemed to be the

major factor contributing to the uncertainty in the short-term out
look.

He doubted that any further worsening in this factor was in

prospect, and he believed that the best policy was to wait and see.
Therefore, he felt that monetary policy was,

and had been in recent

months, about as close to right as could be expected.

The decision

of a few weeks ago to refrain from raising the discount rate had
proved to be correct, at least thus far, and that move could still

be made whenever conditions might justify.

Based on his view of the

business picture, he would do nothing at this time; that is,

be would

not change either the directive or the discount rate, and he would not
seek to vary the degree of restraint that had been achieved.
As to the directive, Mr.

Allen said that he would defer further

comments until the discussion of operating policies, because it

was his

view that the operating policies and the directive could well be
combined in one statement, at least as a transitional move.
Mr. Leedy said there had been no changes in the Tenth District
since the February 9 meeting that seemed worthy of recording in detail.
The trends he referred to at that time had continued.

Based on

preliminary reports, employment in the principal centers, with one
exception, continued favorable.

Business loans continued to grow,

and borrowings from the Reserve Bank were still at a high level.
Department store sales since the first

of the year had not been at

as high a level as in the rest of the country, but some of that

3/1/60

-47

probably was due to severe winter weather.
Mr.

Leedy said he subscribed to the view that in the period

immediately ahead, when there would be some need for additional re

serves, they should be supplied.

He would attempt to feed in a

modest supply of reserves without undertaking any sharp change in
the existing level.

While no one was completely satisfied with net

borrowed reserves as a yardstick,
some use of it,

apparently it

was necessary to make

and he would not be concerned if

down to around $300 million.

the level should drop

He would not want the Federal funds rate

to get far below the discount rate and remain there long, but he would
feel his way in the direction of feeding some modest additional amount
of reserves into the banking system.
Mr. Leedy said that, although he would not suggest doing it
now, he felt that consideration should be given to the elimination
of a directive of the kind ordinarily approved at each meeting.

In

his opinion, such a directive contained a great deal that was in the
area of Committee responsibilities and little

in

guidance for the period until the next meeting.
no strong objection to a format such as Mr.
had the feeling that little

the way of exact
While he would have

Hayes had suggested, he

purpose was served by repeating every

time the things that were the Committee's continuing responsibilities.
For the time being,
the directive.
lines that Mr.

however, he would make no change in the format of

For clause (b),
Mills or Mr.

he would adopt language along the

Balderston had suggested,

or perhaps

3/1/60

-48.

some combination, that would provide for operations with a view to
fostering sustainable economic growth and expanding employment op
portunities and to maintaining a policy of modest credit restraint.
He would not suggest that there be any change in the discount rate
at this time.
Mr. Leach said recent and current reports indicated that
Fifth District business activity was following fairly generally the
pattern of national developments.

The substantial expansion in

January had been followed by some moderation of earlier estimates
of the upsurge in coming months.

Reports from the textile industry

were representative of the change in sentiment.

In January,

order

the industry were very large and man-hours worked

backlogs in

increased; these and other indicators gave no signs of current
weakness.

In the past couple of weeks, however, there was same

talk that the textile boom may have topped out.

Loans of district

weekly reporting banks increased more than seasonally during the
past two weeks, but officers of large member banks were virtually
unanimous in

saying that while loan demand had been strong, it

not been as strong as they had forecast around the first
Continuing,

had

of the year.

Mr. Leach said that he would like to make a few

comments with respect to the general procedure of the Committee and
its

directive to the New York Bank, and advance what he hoped would

be a helpful suggestion.

As he sensed the situation, there had been

3/1/60

-49

some difference of opinion as to what extent the directive was
intended to serve as a statement for the policy record and as to
what extent it
New York Bank.

was intended to serve as a real directive to the
Also, he was not convinced that the procedure now

followed, as outlined in the memorandum of October 9, 1959, from
Chairman Martin to the Committee,
voting problem.

offered the best solution of the

Therefore, he wished to offer for consideration a

three-part program which would follow the go-around.
The program would involve, first,

the adoption of a short

statement of general policy which would correspond in general to

what in the past had been included in clause (b) of the directive.
There would then be a recorded vote of members of the Committee on
this general policy, which would be treated in
general policy and not as a directive.

the policy record as

Ordinarily, he would expect

this general policy to be renewed until there was a change in general
economic conditions.

There might be, say, four or five changes a year,

as there were in clause (b) of the directive in 1956, 1957, and 1958.
His recommendation for general policy at this particular meeting
would be the language suggested at the February 9 meeting for clause
(b) of the directive, which would provide for "fostering sustainable
growth in economic activity and employment while guarding against
excessive credit expansion".

In passing, he felt that the policy

record would have been better if

the directive had not remained

3/1/60

-50

unchanged since May 1959.

The directive might have at least shown

that the Committee was aware of the uncertainties created by the
steel strike.

Some might consider this of little

he did not agree.

importance, but

Outside appraisal of Committee actions during the

last nine months would be based to some extent on the published
directive.
Mr.
policy, it

Leach next suggested that, having adopted a general
would then be in order for the Committee to get more

specific; that is,

to indicate whether the Committee desired for

the ensuing three weeks the same degree of restraint, more restraint,
or less restraint.

The Chairman would present the consensus as he

perhaps using such expressions as a little

saw it,

more restraint, resolving doubts, etc.

If

less or a little

the Committee agreed that

the Chairman had accurately expressed the consensus, the Chairman
would give members of the Committee an opportunity to record dis
senting votes.
At this point,

Mr. Leach said that his recommendation for

specific policy at this particular meeting would be a little
restraint than had been maintained.

less

This would recognize the change

that had occurred in the economic outlook and would permit more growth
in the

money supply.

He would not be concerned if

developments in the

near future should cause the Committee to tighten again, for to him
that would be evidence of flexibility rather than admission of a
mistake.

3/1/60

-51
Under his proposed program, Mr. Leach said, the next item in

order of consideration would be the directive to the New York Bank,
which would be treated as an internal matter and would not be referred
to in the policy record.

The directive could be divided into a

continuing directive embodying standard instructions and a current
directive which would contain both the general policy and the more
specific instructions to which he had referred.

In other words, it

would embody what had been agreed upon as to general policy and then
cover specific policy for the next three weeks.

On the latter, his

recommendation at this time would be for a little

less restraint.

With regard to the question of improving instructions to the
Account Management,

Mr. Leach said he was sympathetic to any and all

efforts to develop better measures for expressing the Committee's
intentions.

No one would welcome more the development of a single

tangible indicator to replace the "feel of the market" approach.
So far, he had found none that seemed practicable for day-to-day
operations,

but he would favor further study of the suggestions that

had been made, and any others that might be made.

In the meanwhile,

he hoped the Committee would substitute for "feel of the market"
some other expression that would convey the idea of careful analysis
of the situation rather than a "feel" for it.

The best that occurred

to him at the moment was "giving consideration to all market factors,"
but he hoped someone else could suggest a better term.

Another

expression subject to misinterpretation outside the System was "give

3/1/60

-52

the Manager of the Account latitude."

Of necessity, the Manager must

have latitude to exercise judgment in the day-to-day execution of the
Committee's instructions.

This was not to deny, of course, that the

Manager's job was more difficult at some times than at others.
In conclusion, Mr. Leach said that he would not favor a change
in the discount rate at this time.
Mr. Mills said that movements in the economy since the February
9 meeting had served further to strengthen his belief that the System's
credit policy had been, and continued to be, too severely restrictive.
Moreover,

the very sharp and continuing contraction in the money

supply was a clear warning that if the System was to make a contribu

tion to economic growth and stability, it was imperative that some
relief be given to the reserve positions of the commercial banks,
which had been subjected to heavy pressure going back over many
months.

Accordingly,

the System might be well advised to move toward

a $300 million level of negative free reserves, but in doing so ap
proach that level as a testing period.

This would guard against

inspiring any impression that there was in progress a major reversal
of System policy that would in turn permit speculative activities in
the Government securities market.
With respect to the directive, Mr.
for any particular wording,

except that the Committee should move

quickly to a revision that would lift
the first

part of clause (b).

Mills said he had no brief

the shadow of inflation out of

3/1/60

53
Mr.

Robertson stated that his comments probably would fall

somewhere in the middle of the range of those that had been expressed.
In the light of the comments by Messrs. Noyes,

Thomas, and Marget, he

would favor using the forthcoming seasonal situation to inject reserves
into the banking system in the hope that this would expand the money
supply.

As he understood it,

a short-term period was involved, and

he would fully contemplate moving back in the not too distant future.
For the moment, however,

he would concur in the view of most of those

who had spoken this morning.
With reference to the form of the directive, Mr. Robertson
said that he would suggest eliminating from the present directive
clauses (a), (b),

and (c).

he was not sure what it

He would eliminate clause (c) because

meant, and clauses (a) and (b) really repre

sented continuing policy rather than a directive to the Manager of
the Account.

Turning to Mr. Hayes'

suggestion, Mr.

Robertson sug

gested incorporating his paragraphs (a) and (b) into a continuing
statement of Committee policy.

In lieu of the present directive, he

would substitute a statement such as Mr. Hayes had labeled paragraph
(c).

The directive, which he thought should preferably be called the

"instruction," would give the Manager of the Account authority to
moderate credit restraint to a degree that would support current
expansionary developments in the economy while guarding against a
renewed outbreak of inflationary pressure.

That would be the

specific instruction for the ensuing three-week period, after which

-54

3/1/60
it

would be amended.

In the policy record, he would have the con

tinuing policy stated once,
just the changes in

and then, for the record of each meeting,

clause (c).

the Committee had changed its
conditions varied, and it
tions to the Manager in

That would provide a picture of how

instruction from time to time as economic

would carry out the need for issuing instruc
a way that would be more readily understood by

the reader of the policy record.

The reader would not have to go

through a long dissertation on instructions, some permanent and some
not meaningful,
Mr. Robertson indicated that he would defer other comments
until the Committee dealt with the question of continuing operating
policies.
Mr. Shepardson said that the economic review indicated con
tinuance of strong underlying factors throughout the economy.
Expectations were not as exuberant as they were earlier, which be
thought was a wholesome and healthy situation, and there was still
a strong outlook ahead.

It

had been mentioned that retail sales

were not quite as high as expected, but bad weather might have had
some effect.
Mr.

Shepardson said it

concerned him that there had been

not only a lack of growth but actual curtailment in the money supply.
If

the System was to provide for sound growth, there must be sound

growth in
when it

the money supply.

The System should look for opportunities

could help to provide for some of that growth without

3/1/60

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undesirable effects.

For that reason, and in view of the general

tone at the present time, it
relax pressure.

seemed to him that the Committee could

He rather liked the way Mr. Rouse had put it-relax

the restraint--rather than developing ease.
to maintain a posture of restraint, but it

The System still

needed

was in position to relax

for the immediate future and test the results.

Accordingly, he would

favor the suggestion made by several others of looking toward a target
in the area of $300 million of net borrowed reserves in the forthcoming

period.
After stating that he would not favor a change in the discount
rate, Mr. Shepardson turned to the directive and said that, not knowing
how fast the Committee could proceed on extensive changes, he would
concur in a change at this time along the lines suggested by several
persons so as to provide in clause (b) for fostering sustainable growth
in economic activity and employment while guarding against excessive
credit expansion.

He saw real merit, however, in a revised approach

to the directive which would provide for a separation of the Committee's
continuing objectives, and in another section a relatively long-term
statement of policy which would be changed infrequently when there was
a definite and clear change in direction.

The third section, it

seemed to him, should define more specifically than heretofore short
run variations in the degree of ease or restraint.

In summary, he

contemplated three categories with a statement in the third part that
would more accurately reflect variations from time to time.

This would

3/1/60

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avoid getting into a position of having a statement continued for a
year,

or many months,

under varying conditions.

He would like to

study such an approach further, but for the moment he would suggest
a change in clause (b) along the lines that he had mentioned.
Mr. King said that the continuing trend of the money supply
to decrease,

or at best remain relatively steady, was a clear indica

tion of the cumulating pressure of the Committee's policy of restraint.
In his opinion, action to effectuate a reversal of this trend of the
money supply was desirable at this time.
change in

the discount rate.

He thought it

from a technical viewpoint, and it

He would not recommend any
was in the right place

certainly would not be appropriate

to talk of a decrease with the international picture in
would recommend a change in

mind.

the directive along the lines of

He
Mr.

Balderston's proposal at the February 9 meeting and would hope that
the Committee might adopt a target figure of about $200 million of
net borrowed reserves.

He would suggest a figure that low because

net borrowed reserves for the four weeks ending February 24 averaged
$370 million.

If

the average had been $500 million, he would have

felt that a target of $300 million would be all right.

However, with

an average of $370 million, he felt that a target of $300 million
would be a timid approach to the problem.
pressure was to be accomplished,

If any reduction in actual

he believed it

would require a target

figure in the $200 million range.
Mr.

King suggested that the System might be entering a new era

of monetary policy.

Since the time of the Treasury-Federal Reserve

3/1/60

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accord, the System had struggled with a money supply too large for
the economy, but there were increasing indications that the country
had pretty well grown up to this inflated money supply.

In the past,

the System constantly had to be on guard against further expansion,
but it

would now have to become more sensitive to the other side of

the problem as well.
As to the directive, Mr. King suggested that the problem was
primarily one of what the Committee did rather than how the directive
was worded.

On balance, he was rather inclined to stay with what had

been tried and found workable.

At the present time, he would suggest

a change in clause (b) along the lines proposed by Mr. Balderston at
the February 9 meeting.
Mr, Fulton reported that business activity was still
level in the Fourth District.

There seemed little

at a high

basis for pessimism.

Expectations were that business would remain reasonably good, with
fair profits, and businessmen were not looking for any unsustainable
highs.

In steel, a rate of production of around 80-85 per cent of

capacity for the year as a whole was anticipated, which would afford
good and steady employment.

The prediction was now for production of

about 125 million tons for the year,

and higher tonnage was being

obtained with fewer people, reflecting improvements in the mills.
Inventories of customers seemed quite well satisfied, and customers
were not stockpiling.

Some had cut back the number of days' inventory

on hand and were depending on the mills for prompt delivery.

A check

3/1/60

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indicated that softness in the appliance industry seemed to center
largely in washing machines and home dryers, which were in an over
inventoried position.

Otherwise, the appliance industry as a whole

was looking forward to a fairly good year.

With new car inventories

at around one million, production of parts was being cut back
persistently in the Fourth District on a temporary basis and shorter
workweeks also were in prospect.

It had been indicated that auto

mobile manufacturers would have their first showings of the new 1961
models a little earlier than usual.
Continuing, Mr. Fulton said it appeared that building and
improvement plans of manufacturers were going along about as pro
jected.

One recent survey showed that 92 firms were expecting to

increase expenditures 15 per cent in 1960 and 25 per cent in 1961,
with emphasis on labor-saving machinery.

As much as possible of the

financing would be from self-generated funds.
holding up well in the district.

Building activity was

The only thing of real concern at

this time was the unemployment picture, which had not improved
commensurately with the improvement in business.

Unemployment was

centered to a considerable degree in unskilled workers and women,
while the demand for skilled workers was strong.

Total bank loans

were up from last year, although there reported to be no real rush

for credit, and deposits were down.

In the past three weeks, however,

member bank borrowing had averaged only from 2 to 4 per cent of the

System total, which was quite low.

3/1/60

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Turning to policy, Mr. Fulton expressed the view that the

Desk had done a good job.

He felt that restraint was warranted.

Possibly it was not warranted to the extent that it

had been earlier,

but he would not like to see any precipitate easing.

A policy of

meeting the requirements of the period immediately ahead would be
appropriate, without any real easing.

He would not favor doing

anything with regard to the discount rate at this time.
Mr. Fulton felt that the directive could well be changed
along the lines suggested by Mr. Balderston at the February 9 meeting.
With respect to Mr. Hayes'

suggestion, he was a little

the wording of the proposed clause (c).

concerned about

This would call for guarding

against a renewed outbreak of inflationary pressures, and in view of
price increases and other pressures from that area he did not think
that inflationary pressures actually had been allayed.

Mr. Hayes'

language would indicate to an outsider that the hazard of a renewal
of inflationary pressures was something that the System should look
at again, while Mr. Fulton felt that the hazard was still present.
Mr. Bopp said that in view of the considerable speculation
recently as to whether business would accumulate inventories as
rapidly as expected at the turn of the year, the Philadelphia Bank
had made a spot survey of local manufacturers of metal products.
This survey revealed that most of the manufacturers considered their
present inventories too high and somewhat unbalanced.
shortages of some items and surpluses of others.

They had

Inventories were

3/1/60

-60

accumulated rapidly in November and December in anticipation of a

large outflow of incoming orders, but final demand appeared not to
be as great as expected.

Some firms, therefore, were now less opti

mistic about 1960, although they still expected it to be a reasonably
good year.

The changed outlook suggested that firm would be trying

to operate more economically by holding down their inventory require
ments.
Reserve pressures on the large Philadelphia banks had
increased substantially, Mr. Bopp said.

The combined basic reserve

deficiency had risen in each of the three latest reserve weeks from
a daily average of $12 million to $109 million.

To meet the drain

on reserves, banks had purchased Federal funds and, to a smaller
extent, borrowed from the Reserve Bank.

In the past three weeks,

net purchases of Federal funds (excluding repurchase agreements)
by reserve city banks averaged $52 million daily; they had risen
from sales of $3 million to purchases of $85 million.
from the Reserve Bank had averaged $14 million.

Borrowings

Borrowing from

the Reserve Bank by country banks during the past three reserve
weeks also averaged about $14 million.

As to policy, Mr. Bopp felt that a modest lessening of the
degree of restraint would be appropriate, and that a change in the

directive along the lines of the suggestion of Mr. Mills or the
suggestion of Mr. Balderston would be appropriate.
favor a change in the discount rate at this time.

He would not
Offhand, Mr.

3/1/60

-61

Bopp said, the suggestions of Messrs. Hayes and Irons contained appeal.
However, he would like more time to think them through before the Com
mittee settled on any basic change in the form of the directive.
Mr. Bryan said there was nothing of particular significance
in recent Sixth District figures.

The Reserve Bank had made a spot

check, principally among bankers but also a few businessmen and former
directors in the principal cities, from which it

appeared that there

had been some shifting in sentiment and that optimism was less than

it had been.

On the other hand, the only real pessimism that was

discovered, in New Orleans,

probably related to the oil industry.

All in all, there was nothing in the district that seemed visibly
alarming, and by the same token there was no evidence of a hilarious
boom.

Borrowings from the Federal Reserve Bank remained high in

relation to the System total, but the Reserve Bank had had some
success in discouraging certain borrowers.
Mr. Bryan agreed with Mr. Irons that the Committee, as a group,

was not going to be able to draft a directive at each meeting.

There

must be some mechanism so that when the Committee had indicated the
nature of the directive it wanted, the drafting could be turned over
to some person or persons.

For the present, he would like to see the

inflationary shadow taken out of the directive.

As for more fundamental

changes in the format of the directive and how the drafting of the
directive might be handled, he noted that there had been a number of
interesting suggestions during this meeting.

3/1/60

-62
Continuing, Mr.

Bryan commented that what he would have said

himself regarding the money supply and reserves had already been said.
He then referred to his experimentation with the possibility that the
directive might be issued in terms of a total reserve concept.
things worked out in

As

February, actual reserves were more than $390

million less, on a daily average basis, than the center of the
target he had suggested.

If

the target had been hit, he presumed

there might have been somewhat less bank liquidation of securities,
somewhat less of a rise in rates, and, he suspected, somewhat greater
repayment of loans to the Reserve Banks.

He did not wish to assert,

however, that this necessarily would have been a wise result; it
would have to be tested in

the light of subsequent developments.

At

the same time, in the light of the money supply and reserve figures
in

comparison to last year and in view of total reserves being deeply

under a trend line,

he had some concern, particularly because he

guessed that there had been somewhat more than a typical reduction
in required reserves of the banking system in this period.

System

policy had more than offset the ease that would have occurred by
this reduction in required reserves.
Mr. Bryan said that he would like to experiment further with
a possible target in terms of total reserves and requested permis
sion to introduce a chart into the minutes of this meeting.

Chairman Martin stated that the chart would be incorporated

in the minutes. 1/
1/ The chart is attached to these minutes as Item No. 1.

3/1/60

-63
Mr. Johns said he would like to associate himself with the

views expressed by Mr. Allen.

He particularly liked Mr. Allen's

method of expression, although the views stated were substantially
similar to those expressed by two or three others.

Mr. Johns

realized that this established him as one of a relatively small

minority.
Continuing, Mr. Johns said he would prefer no change in the
discount rate at this time, although he thought some argument could
be made for at least a technical adjustment, especially in view of
the fact that if

the Committee continued to follow an even keel

policy during periods of Treasury financing there might not be
another opportunity to change the discount rate for quite a period
of time.

Later, the System might wish that the discount rate was up

to or above short-term market rates.

Nevertheless, as he had said,

he would prefer not to take discount rate action at this time.
Instead, he would suggest that if a need to change the rate should
become pressing while the Treasury was pre-empting the stage, the
Committee might be forced to re-examine the even keel policy.

He

would not be averse to such a re-examination in any case.
Mr.

Johns went on to say that if his own view on policy

should prevail, he would suggest that there be no change in the
directive at this time.

However, since he felt quite sure that

this view would not prevail, it would seem appropriate to revise
the directive in some way consistent with Committee policy.

These

3/1/60

-64

comments did not mean that he had no interest in
problem regarding the format of the directive.

the longer-range
However,

he felt

that the problem could be handled without relation to current
Committee policy.
After commenting favorably on the discussion this morning,

particularly the part having to do with operating procedures and
the form of the directive, Mr.
was still

Szymczak said he thought the economy

on the expansionary side and the situation therefore was

likely to develop into inflation.

However, in view of the money

supply and the seasonal situation, he felt that the Committee should
ease its

policy of restraint slightly at this point.

To give an

indication of the degree he had in mind, he would suggest net
borrowed reserves in the range of $300-$400 million.
favor changing the discount rate at this time.
it

He would not

As to the directive,

was his thought that perhaps the word "inflationary" should be

included, and that the wording of clause (b) otherwise might be
along the lines that had been suggested by Mr.

Balderston.

He

would prefer to have the word "inflationary" stay in the directive
as of now.
Mr. Balderston commented that, as many had pointed out, the
money supply apparently had continued to decline since the February 9
Committee meeting.

He assumed that fact would be confirmed when the

February figure became available.

As a matter of fact, the seasonally

3/1/60

-65

adjusted monthly figure had been declining since last July with the
exception of one month.

With a decline in turnover outside the

financial centers, the level had been about
changed since the first of the year.

24

.9,

apparently un

He believed one could not

assume that depositors would find additional means of economizing
on cash.

This situation caused him to be concerned today, as he was

three weeks ago, about the money supply.
Mr.

Balderston noted from the reports of Messrs. Noyes and

Thomas that banks had continued to divest themselves of Government
securities.

This process had placed the money supply under more

restraint than he believed appropriate for this stage of the current
recovery and in view of the current business uncertainty.

Also, the

percentage of companies able to better their year-ago earnings had
been falling, reflecting competitive pressures and rising costs.
He would use the coming weeks,
experiment with less restraint.

as suggested by Mr. Robertson, to
In short, during this period he

would add more reserves than those necessary to take care of seasonal
and other temporary vagaries of the market.

If the economy had now

grown up to the reserves the System introduced in 1958, then to
direct the Desk merely to take care of the seasonal needs of the
next couple of weeks would not cause a change in the fundamental
problem discussed at the February 9 meeting and this meeting.

It

would be necessary to do more than that.
With regard to the directive, Mr. Balderston said that
until the form of the directive could be renodeled, perhaps along

3/1/60

-66

the lines suggested by Messrs. Hayes,

Irons, Leach, Robertson,

and Shepardson, all of whose suggestions he found helpful, he
would favor the change in wording that he had suggested at the
February 9 meeting.

Clause (b) would then provide for "fostering

sustainable growth in economic activity and employment while
guarding against excessive credit expansion."

Until the next Com

mittee meeting, he would suggest a target of net borrowed reserves
of about $300 million in

view of the fact that the average since

the turn of the year had been about $375 million, as pointed out

by Mr. King.
Regarding the format of the directive, Mr.

Balderston ex

pressed the hope that the Committee would continue to study the
matter between now and the next meeting.

He felt the suggestion

made by several persons that the Committee needed a three-fold
directive would help straighten out a dilemma he had observed.
As he saw it,
orders,

the Committee needed a policy statement,

and an interim instruction.

What Messrs. Bryan and Mills

Thomas provided at the February 9

had contributed and what Mr.
meeting would not help in

connection with interim instruction to

the Desk, although the suggestions of Messrs.
would help the Committee in
time.

standing

checking its

Perhaps words would suffice,

could quantify those words in

Bryan and Thomas

objectives from time to

but he hoped that the Committee

some fashion.

Where the Committee

3/1/60

-67

had been wrong in recent months, he thought, was in permitting a
fixed target of net borrowed reserves to distort the goal to which
he felt the Committee had been driving.

He did not believe that

the Committee had intended to continue restraint to a point where
the money supply failed to increase.

He was grateful to Mr. Bryan

for contributing something that, although it

might not help in

instructing the Desk week by week or meeting by meeting, would
test the Committee's work over longer periods.
Chairman Martin said his concern about the money supply
began at the turn of the year.

In expressing that concern, however,

he wanted to emphasize that he felt System policy had been about
right, straight through from last July.
had done a better job than it

In his view, the System

could have hoped for.

It would take

a long time to present all of the background of his thinking on
this subject, but he would like at least to reiterate what he said
at the January 12 meeting; namely, that he saw more hope than he
had seen for a long time.

He saw long-range solutions to problems

now that a year ago seemed insoluble.

At that time, the Treasury

financing problem seemed hopeless, and the hope of getting the
Treasury in the position of having a budget surplus seemed relatively

hopeless.

Today, one could take a good deal of encouragement.

In

his judgment, the tendency on the Hill as of today was not to spend.
While there might be shifts in the budget recommended by the President,
he felt the tendency was to keep in balance and perhaps have a surplus

3/1/60

-68

as large as projected, if not larger.

This would have a stabilizing

effect on the economy.
Since the time of the January 12 meeting,

Chairman Martin

said, all were aware that the country was probably going to experience
the jitters of February and March,
other year.

and that was occurring as in

every

He had tried to compare the situation with the nine

previous years during which he had been associated with the Treasury
or the Federal Reserve.
differences,

While he did not think he could assess the

he had hesitantly come to the conclusion that there

might be developments this time of more importance than usual.

Since

Mr. Shepardson mentioned farm prices at a recent Committee meeting,
he had talked to many people, and there appeared to be something going
on in

the farm picture that was a little

deeper than a year ago.

The oil industry also concerned him; he was not sure it
hurdle, for a glut was developing that bothered him.

was over the
There were a

number of other things that he would not detail, but they seemed to
be straws in the wind.

In this connection, he emphasized that he

had prefaced these remarks by saying that he was very hopeful.
Chairman Martin said Mr. King had put his finger on something
that he (Chairman Martin) had been going to say himself, although
perhaps not quite in the same words.

Mr. King had mentioned that if

there was a long-run solution to the problem of inflation over the
next few years, then the System must start thinking about the money

3/1/60

-69

supply in relation to business attitudes in a different way than
heretofore.

Illustrative of this was the fact that a leading

student in the field, who thought that inflationary psychology had
diminished a great deal in the last three months, now asserted that
there would be a problem of business attitudes in living on the
profit margin without inflation, because business generally had
gotten accustomed to living with inflation.

While this related to

the profit margin problem and not to the level of activity, it was
of concern in considering the money supply.
The Chairman said that in the 1957-58 recession, which was a
phase of the inflationary process of the last 10 years, the country
did not get adjustments in prices, other than interest rates.
the money supply was expanded substantially.

Then

Whether the country

had completely grown up to the expanded money supply, he did not know.
Certainly, however, the System had done a fair job of mopping up that
expansion.
The rest of the world, Chairman Martin noted, was concerned
about inflation.

The European boom was exceeding expectations and

foreign countries were showing more zeal in handling inflation this
time than heretofore.

How successful they might be was another

story, but the mere fact that a boom had developed might cause it
to be more short-lived.
These were all things, the Chairman said, to which the
Committee must be alert.

It must not be assumed that inflation

3/1/60

-70

was the order of the day.
accepted it

Manufacturers who had subconsciously

as part of the profit margin might now find themselves

in the position of seeing their cost-price relationships changed.
Of course, there might be another revival and the country might go
on a spending binge, in which event the System might want to raise
the discount rate.

The Committee might well want to tighten credit

further before this was all over.

In long-range perspective, however,

he had the feeling that the next time would be the end.

It would be

the last phase of this particular operation, assuming that the

budgetary and fiscal situation and Governmental attitudes did not
change substantially.

In making this last comment, he was not

talking about the elections but about other aspects of the matter.
Continuing, the Chairman said he thought that in a time like
the present, the System should not just let the money supply con

tinually diminish.

This might be translated in terms of moving

toward net borrowed reserves at a level of $250 or $300 million.
This was an imperfect method, but the emphasis would be on moving,
however one wanted to describe it.

He thought that doing this on

a temporary basis, even with the expectation that the Committee
might have to reverse itself, was the part of wisdom and caution.
He believed the longer-term future was well within the System's
control if it

recognized the need for development as well as the

danger of inflation.

a balance.

What the System was trying to do was to keep

3/1/60

-71
It

consensus,

was clear today,

Chairman Martin said, that the general

with which he agreed, favored moderately less restraint

in the immediate future than had prevailed.

He did not want to

jump to the conclusion that the Committee would want to continue
that course indefinitely, but he would like to see a slight pickup.
He emphasized the point he made at the Committee meeting on February 9

that a good many informed people thought the System was already easing
credit.

Those people would be quite disturbed, in

knew there had been no tendency to ease; that, if

some cases, if

they

anything, the System

had absorbed all the ease coming into the market and nevertheles
there had been easing in the market.

This was a phenomenon that had

not been seen for some time in the money market, and many people in
For the first

the financial community were concerned about it.

time,

a small number of people felt that the country was in a recession,
It was part of the

and this was also a factor to keep in mind.
psychological turn.
proved wrong, if

He felt those people were wrong, and would be

they meant a broad movement.

If

they meant,

however, a period of reduced activity, they might be quite right.
Chairman Martin again said that he thought the consensus
today quite clearly favored a move in the direction of slightly
less restraint, however that might be worded.

When it

came to the

matter of the directive, he felt certain that the Committee could
not write the directive around the table.
in

He was quite interested

the suggestion of Mr. Irons, with whom he had not discussed the

3/1/60

-72

matter previously, and he felt that the suggestion should be discussed
at some time.

The possibility of having the Secretary of the Com

mittee and the Account Manager write a directive following the meeting
interested him.

It might be a good exercise for the Account Manager

to put on paper his understanding of the instructions at the meeting.
He would not want to make a decision of that kind offhand, but it
something to look at.

was

He felt that the directive and the operating

procedures did to some extent go hand in

hand.

The Chairman then suggested that the Committee continue the
discussion of the directive and the continuing operating policies,
with Messrs. Young, Thomas,

and Rouse present.

Accordingly, all of the members of the staff except Messrs.
Young,

Thomas,

and Rouse withdrew from the meeting at this point.

With the thought of providing full information on the issues
before the Committee, namely, the present form of the statement of
continuing operating policies and the form of the directive to the
Federal Reserve Bank of New York, the Secretary had distributed, at
the Chairman's request:

(1) pertinent extracts from past minutes

relating to the statement of operating policies; (2)

suggestions for

changes in the statement that had been advanced by members of the
Committee and its

staff; (3)

a special defense of "bills only"

prepared by the Treasury staff for the use of the Secretary of the
Treasury; and (4) an inventory of issues in

connection with the

statement of continuing operating policies prepared by the Secretary
of the Committee.

3/1/60

-73
With respect to the statement of continuing operating

policies,

the consensus that developed from this meeting was

favorable to reviewing the matter, but it

was evident from the

discussion that careful thought and full discussion would be re
quired before any change was made.

Accordingly, it

was agreed

that the existing statement of operating policies would be con
tinued on a temporary basis, with the understanding that the
question would be brought up again for discussion as soon as the
members of the Committee had had an opportunity to develop their
thinking further, especially in the light of whatever conclusions
might be reached on the Treasury's suggestions mentioned below.
With regard to suggestions by the Treasury that the Com
mittee might provide some assistance in connection with two
forthcoming refinancings,
Mr.

two staff memoranda (one prepared by

Keir of the Board's staff under date of February 26, 1960,

and the other prepared by the Securities Department of the Federal

Reserve Bank of New York under date of February 29, 1960) were
referred to the staff committee consisting of Messrs. Young,
Thomas,

and Rouse for further study and recommendation at the next

meeting of the Committee.
With respect to the format of the directive, it

was under

stood that no change would be made at this time but that the matter
would be given further study in connection with the study of the
statement of continuing operating policies.

It was unanimously

3/1/60
agreed,

-74however, that a modification of the wording of clause (b)

of the first

paragraph of the Committee's directive was called for

at this time, and that operations for the System Account should be
with a view, among other things,
in

"to fostering sustainable growth

economic activity and employment while guarding against excessive

credit expansion."

Thereupon, upon motion duly made
and seconded, the Committee voted
unanimously to direct the Federal Re
serve 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 fostering
sustainable growth in economic activity and employment
while guarding against excessive credit expansion, 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 securities 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
(2)
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
indebtedness as may be necessary from time to time

3/1/60

-75-

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.
It was agreed that the next meeting of the Federal Open
Market Comittee would be held on Tuesday, March 22,
10:00 a.m.
Thereupon the meeting adjourned.

Secretary

1960, at

RESERVE TARGET FOR MARCH USING TOTAL RESERVES
(Daily average figures---000,000 omitted)

(1)

March growthamount

1/

(at 2% annual rate)

(2)

Target for February

(3)

Actual reserves - February

(4)

Shortage in reserves from February target

(5)

Add normal increase in reserves between
February and March

$

$ 18,585
18,188
$

$ 18,188

397

397

37

$ 18,225
(6)

Target for March

(7)

March target range for practical
administration of account

31

18,225
$ 18,653
18,603 to

18,703

1/ March growth amount at 3 percent annually would be $47.0 million, at 4 percent annually would be
$62 million.

I§