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A meeting of the executive committee of the Federal Open Mar

ket Committee was held in the offices of the Board of Governors of
the Federal Reserve System in Washington on Saturday, March 13, 1937,

at 10:15 a. m.
PRESENT: Mr. Eccles, Chairman
Mr. Szymczak
Mr. Ransom
Mr. Harrison

Mr. Sinclair
Mr. Morrill, Secretary
Mr. Goldenweiser, Economist
Mr. Burgess, Manager of the System

Open Market Account
Mr. Carpenter, Assistant Secretary
of the Board of Governors
Mr. Thurston, Special Assistant to the
Chairman of the Board of Governors

Chairman Eccles stated that on Friday afternoon he had dis
cussed with Mr. Morgenthau, Secretary of the Treasury, at the latter's
request, the recent developments in the market for Government securi
ties and the various possible causes.

The Secretary attributed the

drop in the market for Government bonds to the increase in reserve re
quirements which had been ordered by the Board of Governors and ex
pressed the opinion that the downward tendency in the market began in
December, 1936, after the statement was made that the Board had under

consideration the question of the advisability of raising reserve re
quirements.

He indicated a feeling that the Federal Reserve System

should take such steps as might be necessary to prevent any further
decline in prices.

He asked what the Federal Reserve System proposed

to do to meet the situation and indicated that, in the event System

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3/13/37

action was not effective, he would have to consider the use of every
authority the Treasury has, including the use of the stabilization fund
and the discontinuance of the sterilization of gold imports.
sidered it

He con

particularly important to prevent the newly issued 2 1/2%

bonds from going below par.

Chairman Eccles said that he advised the

Secretary that he would call this meeting and after the Committee had
discussed the matter he would advise the Secretary as to the Committee's
views today.
During the discussion which followed there appeared to be gen
eral agreement that the drop in prices in the bond market was in the
nature of a natural adjustment which was due primarily to non-monetary
causes.

Mr. Burgess stated that the selling on the market Friday ap

peared to come to a considerable extent from dealers who were reducing
holdings of bonds acquired as a result of the March 15 financing, al
though selling orders were also coming in from all parts of the country.
The Chairman and Mr. Thurston called attention in this connection to
statements which had been put out within the past week by certain
analysts which were of a character likely to be detrimental to the
Government bond market.

It

was pointed out that should the Secretary

of the Treasury resort to the stabilization fund or incoming gold the
effect would be to increase reserves of member banks, and thereby to
transfer to the Treasury Department a large measure of responsibility
for credit control.
It

was agreed that the Secretary should be advised that the

executive committee felt that it

was desirable to continue to follow

3/13/37

.3.

the present policy of attempting to prevent a disorderly market through
shifts in the System account and the investment of funds handled by
the Secretary of the Treasury, that the committee would be willing to
act alone in its
son,

efforts to avoid a disorderly market if,

for any rea

the Treasury did not wish to participate in the purchases made,

but that it

was apparent that no commitment or guaranty should be given

that market prices would be kept at any particular level, that the com
mittee in carrying out the policy should of course be the judge of the
particular methods or means that should be used, that to this end the
committee is

ready to use all the authority vested in it

Open Market Committee,

by the Federal

and that a meeting of the Federal Open Market

Committee would be called for Monday to consider granting additional
authority to the executive committee for the purpose of meeting the
situation if

the existing authorizations should be found insufficient.

At 11:55 a.m. the members of the executive committee and Messrs.
Morrill, Goldenweiser and Burgess went to the office of the Secretary
of the Treasury where they met with the Secretary, Mr. Wayne C. Taylor,
Assistant Secretary of the Treasury, Mr. D. W. Bell, Acting Director of
the Budget, Mr. Archie Lochhead, Technical Assistant in
office, Mr. George C. Haas,
Treasury Department,

the Secretary's

Director of Research and Statistics of the

and other members of the staff of the Treasury.

Chairman Eccles reported to the Secretary the conclusion reached by
the executive committee in its
It

separate session.

was explained that the committee was entirely agreeable to

the continuance of the existing arrangement by which the Treasury

3/13/37

-4

Department participates equally with the System open market account
in acquiring Government bonds in the effort to maintain an orderly
market.
At this point in

the discussion, the Secretary of the Treasury

and the members of his staff withdrew.
tary asked Chairman Eccles what, if

Upon their return, the Secre

anything, the Federal Reserve Sys

tem was going to do to counteract the firming of long-time interest
rates which he (Secretary Morgenthau) felt was attributable solely to
Federal Reserve System action.
Chairman Eccles stated that it

continued to be his view that

the policy of the Board of Governors and the Federal Open Market Com
mittee should be to maintain easy money conditions, pointing out in
this connection,

however, that in his opinion it

was imperative that

assurance be given that the budget would be balanced in 1938, that any
expenditures that would increase indebtedness should be covered by tax
ation, and that steps should be taken to reduce the outstanding debt
as fast as commercial bank credit expands.

He added that a meeting of

the Federal Open Market Committee would be called for Monday, March 15,
1937,

and that the Committee would be asked to give additional author

ity to the executive committee to make shifts between maturities of
securities in the System account and also authority to increase the
total portfolio of the System open market account, in

the event that

conditions should develop to make that necessary.
Reverting to the question which the Secretary asked Chairman
Eccles about interest rates, Mr. Harrison asked the Secretary whether
he thought that the rise in long-time interest rates which had already

3/13/37

-5

taken place was hurtful to business.
said that, if
asked if

The Secretary answered no but

present trends continued, it

might become so.

When

he had any specific rate in mind that he thought would be

hurtful, he said no, but that would depend upon conditions.
Harrison agreed and said that it

Mr.

was for that reason that the Federal

Reserve System should not attempt to peg rates at any particular point
at the present time, even if

it

had the power to do so.

In response to a question by Mr. Morgenthau, Mr. Burgess ex
plained that he understood that, if

the action referred to above were

taken, transactions would continue to be made in

exactly the same way

as in recent days for the purpose of aiding in the maintenance of an
orderly market, with which procedure the Treasury had been in agree
ment.

Both he and Chairman Eccles pointed out, however, that the

executive committee could not undertake to "peg" the market or make a
commitment that the market would not be allowed to fall
ticular point, but that, if

below a par

there should be unexpected developments,

the matter would be taken up with the Secretary for the purpose of
ascertaining his views.
The Secretary said that in view of these assurances as to the
course of action which would be followed he was willing to await de
velopments during the next few days for the purpose of seeing what ef
fect the operations of the System would have on the Goverment securi
ties market.
Thereupon the conference with the Secretary terminated, and at
2:30 p. m. the meeting of the executive committee of the Federal Open

3/13/37

-6

Market Committee reconvened in the Board's offices, Messrs. Eccles,
Szymczak, Ransom, Sinclair, Morrill, Goldenweiser, Dreibelbis, Burgess,
Carpenter and Thurston being present.
It

was agreed that, in order to be prepared to act, if neces

sary, pending a review of the situation by the Federal Open Market
Committee when it

meets on March 15, it

would be desirable to author

ize the Federal Reserve Bank of New York to make shifts between matur
ities in the System open market account to the limit of the authority
granted by the Federal Open Market Committee to the executive committee.
Accordingly, upon motion duly made and seconded,
and by unanimous vote, the committee directed the
Federal Reserve Bank of New York, until the next
meeting of the executive committee, to replace matur
ing securities in the System open market account with
other Government securities, and to make such shifts
(which may be accomplished when desirable through re
placement of maturing securities) between maturities
of securities in the System open market account as
may be necessary in the proper administration of the
account, provided that the amount of securities ma
turing within two years be maintained at not less

than $1,000,000,000 and that the amount of bonds
having maturities in excess of five years be not
over $600,000,000 nor less than $300,000,000.
There were then presented drafts of the minutes of the two meet
ings of the executive committee of the Federal Open Market Committee
held in Washington on January 26, 1937.
Upon motion duly made and seconded, the minutes
were approved unanimously.
Attention was directed to the fact that on February 24, 1937,
upon being advised that the New York bank had exhausted most of the
authority granted by the executive committee on January 26, 1937, to

3/13/37

.7.

make shifts of securities in the System open market account into other
Government securities having maturities which were not within a range
of one year from those of the securities sold, the members of the execu
tive committee, in accordance with the action taken by the executive
committee at its meeting on January 26, authorized the New York bank,
until the next meeting of the executive committee, to make such shifts
(which might be accomplished when desirable through replacement of
maturing securities) of securities in the System open market account
as might be necessary in the proper administration of the account, up
to an aggregate of $50,000,000,

into other Government securities having

maturities which were not within a range of one year from those of the
securities sold; this authority being in addition to the authority
granted to the bank at the meeting of the executive committee on Janu
ary 26, 1937.
Upon motion duly made and seconded, it was
voted unanimously to approve, ratify and confirm
the action of the members of the executive com
mittee on February 24, 1937, in granting to the
Federal Reserve Bank of New York the additional
authority referred to.
Attention was also directed to the fact that on March 3, 1937,
following consideration of the suggestion that it

might be found to be

desirable to exchange directly with the Treasury Department the remain
ing Treasury notes maturing on April 15, 1937,

in the System open market

account for securities offered by the Treasury in
notes,

the members of the executive committee,

action taken by the committee at its

exchange for such

in accordance with the

meeting on January 26, 1937,

3/13/37

-8

authorized the Federal Reserve Bank of New York to exchange directly
with the Treasury such amount of the April 15 maturity of Treasury
notes remaining in the System account as might not otherwise be dis
posed of in accordance with existing authority, for securities to be
offered by the Treasury to the public in exchange for the April 15
notes; this new authority being in addition to the authority granted
to the bank at the meeting of the executive committee on January 26,
1937, and the authority granted on February 24, 1937,

referred to

above.
Upon motion duly made and seconded, it was
voted unanimously to approve, ratify and confirm
the action of the members of the executive commit
tee in granting to the Federal Reserve Bank of New
York on March 3, 1937, the authority to make the
exchange referred to.
Upon motion duly made and seconded, it was
voted unanimously to approve, ratify and confirm
the transactions conducted by the New York bank in
the System open market account as agent for the
Federal Open Market Committee as set forth in the
weekly reports submitted by Mr. Burgess since the
meeting of the executive committee on January 26,
1937.

Thereupon the meeting adjourned.

Chairman.