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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 Monday, March 15, 1937, at 10:40 a.m.
PRESENT:

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

Eccles, Chairman
Harrison, Vice Chairman
Broderick
Szymczak
Ransom
McKinney
Martin
Peyton (alternate for Mr. Day)
Mr.
Mr.
Mr.
Mr.
Mr.

It

Morrill, Secretary
Goldenweiser, Economist
Williams, Associate Economist
Dreibelbis, Assistant General Counsel
Burgess, Manager of the System Open
Market Account

was stated that on Saturday, March 13, 1937, all of

the members of the Committee were notified of the call for this
meeting personally or by wire, that Mr. McKee advised the Chairman
by telephone that he would be unable to attend, that Mr. Davis
wired that he could not be present, and that President Day advised
that he would be unable to attend but would arrange with his al
ternate, Mr. Peyton, to be present.

Mr. Sinclair was confined to

his home by illness and his alternate, Mr. Fleming, was absent on
vacation.
Attention was directed to the fact that this was the first
meeting of the Federal Open Market Committee after March 1, 1937,
that certain changes had taken place among the members represent
ing Federal reserve banks, and that the by-laws provided that at

-2

3/15/37

this meeting the Committee should elect a Chairman, Vice Chairman,
Economist,

one or more Associate Economists, General Counsel and

Assistant General Counsel,

and that it

should select the members

of its executive committes.
The Secretary reported that the following had been elected
by the respective Federal reserve banks as members of the Federal
Open Market Committee for a period of one year commencing March 1,
1937:
Mr. George L. Harrison, President of the Federal Reserve
Bank of New York, with Mr. Roy A. Young, President of the
Federal Reserve Bank of Boston, as alternate member;
Mr. John S. Sinclair, President of the Federal Reserve
Bank of Philadelphia, with Mr. M. J. Fleming, President
of the Federal Reserve Bank of Cleveland, as alternate mem
ber;
Mr. B. A. McKinney, President of the Federal Reserve Bank
of Dallas, with Mr. Oscar Newton, President of the Federal
Reserve Bank of Atlanta, as alternate member;
Mr. Wm. McC. Martin, President of the Federal Reserve Bank
of St. Louis, with Mr. George J. Schaller, President of the
Federal Reserve Bank of Chicago, as alternate member; and
Mr. Wm. A. Day, President of the Federal Reserve Bank of
San Francisco, with Mr. J. N. Peyton, President of the Fed
eral Reserve Bank of Minneapolis, as alternate member.
The Secretary reported that records of the election of each
member and alternate representing the Federal reserve banks or cer
tified copies thereof had been received by the Secretary of the
Committee; that, with the exception of Mr. Day, each newly elected
member and alternate had filed the required oath of office; and that
it

was the opinion of the Committee's counsel that the newly elected

members and alternates present were qualified to participate in the
meeting.
Upon motion duly made and seconded, the
following officers of the Committee were

3/15/37
reelected by unanimous votes to serve until the
election of their successors at the first
meeting
after March 1, 1938:
Marriner S. Eccles, Chairman
George L. Harrison, Vice Chairman
E. A. Goldenweiser, Economist
John H. Williams, Associate Economist
Walter Wyatt, General Counsel
J. P. Dreibelbis, Assistant General Counsel
Upon motion duly made and seconded, and by
unanimous vote, the Committee selected the Federal
Reserve Bank of New York to execute transactions
for the System open market account.
Mr. Harrison thereupon stated that he would recommend to the
board of directors of the Federal Reserve Bank of New York the re
newal of the selection of Mr. W. Randolph Burgess as Manager of the
System Open Market Account.
Upon motion duly made and seconded, and by
unanimous vote, the Committee approved the selec
tion of Mr. Burgess as Manager of the System ac
count in the event of the renewal of his selection
by the Federal Reserve Bank of New York to act in
that capacity.
Upon motion duly made and seconded, and by
unanimous vote, the Committee selected as members
of the executive committee, in addition to the Chair
man of the Federal Open Market Committee, who under

the provisions of the by-laws is also Chairman of the
executive committee, Messrs. Broderick, McKee,
Harrison and Sinclair; as alternates for the members
of the Board of Governors who serve as members of the
executive committee, Messrs. Ransom, Davis and Szym
czak in the order named; and as alternates for the
representative members of the executive committee,
Messrs. Martin and McKinney in the order named.
The Secretary presented the minutes of the two
meetings of the Federal Open Market Committee held on
January 26, 1937, and, upon motion duly made and
seconded, these minutes were approved unanimously.
The Secretary then presented the minutes of the
two meetings of the executive committee of the Federal

3/15/37

-4
Open Market Committee held on January 26, 1937, which
had been approved at the meeting of the executive com
mittee on March 13, 1937, and, upon motion duly made
and seconded, and by unanimous vote, the actions set
forth in these minutes were approved, ratified and
confirmed.
The Chairman then called upon Mr. Burgess for his report,

as Manager of the System open market account, of operations since
the last meeting of the Federal Open Market Committee.

Mr. Burgess

referred to the regular weekly reports which he had made (including

a report which he had submitted as of March 10, 1937) since the last
meeting of the Federal Open Market Committee.

He stated that there

had been held in the System account about $88,000,000 of the 3% notes
maturing on April 15 for which the Treasury had offered 2 1/2% 1949-53
bonds in

exchange on March 15, and that, in

order that the account

might not be in the position of holding the entire amount until
March 15, the maturity of the notes was largely anticipated by sales
and purchases in

the market, to the extent of approximately

$55,000,000 in advance of March 15, leaving approximately $33,000,000
for exchange for the 2 1/2%bonds.
Mr. Burgess then reviewed the trends in the government se
curity market during the preceding ten days.

He reported that the

market had been weak just preceding the Treasury offering on March
8, and this weakness continued after the offering was announced.

No

purchases of securities had been made for Treasury or System account
until March 9 and 10, the second and third days of the three-day
period that the exchange offering was open, when moderate purchases
were made for Treasury account to take care of blocks of bonds which
were causing some congestion in the market.

Purchases were made for

3/15/37

5

Treasury account on these two days and the following day to aid
towards preventing a disorderly market.

On Friday, March 12, Mr.

Burgess reported, the Secretary of the Treasury had asked if

the

System would resume the arrangement under which the Treasury and
the System participated equally in purchases of bonds which had
been in effect prior to an arrangement made about a month ago under
which the Treasury would take all bonds purchased and the System
would take all Treasury notes purchased.

Mr. Burgess reported that,

after consulting with the chairman and Mr. Harrison, he had indicated
to the Secretary that the System would resume operations under the
earlier arrangement,

and on this basis approximately $32,000,000 of

bonds were purchased on Friday and $7,000,000 on Saturday, to be
divided equally between the Treasury and the Reserve System, and op
erations were continuing on this basis.

He indicated that no op

erations had been necessary in the note market for the maintenance
of orderly conditions.
Mr. Burgess reported that, including the effects of trans
actions already arranged,
turities in

the System's holdings of bonds with ma

excess of five years had been increased to $532,000,000.

He also called attention to the fact that, as a result of action taken
by the executive committee on March 13, the New York bank had author
ity to increase such bond holdings to $600,000,000 provided, however,
that security holdings having maturities within two years, which at
present totaled approximately $1,100,000,000,
below $1,000,000,000.

should not be reduced

He pointed out that the total amount of se

curities in the System account had not been changed except temporarily

3/15/37

-6

between statement dates, and that all purchases would be covered by
sales or maturities of Treasury bills this week and next.
Upon motion duly made and seconded, and by
unanimous vote, Mr. Burgess' report was accepted
and the transactions covered by the reports sub
mitted by Mr. Burgess since the period covered
by similar action taken at the meeting of the
Federal Open Market Committee on January 26, 1937,
were approved, ratified and confirmed.
Chairman Eccles expressed the opinion that the recent mar
ket situation, as referred to by Mr. Burgess, was a readjustment
brought about by a number of factors,

that the Government securities

market, particularly the longer term securities, had shown weakness
in part for the reason that the public had began to feel, even be
fore the Board issued its
in reserve requirements,

recent announcement of a further increase
that the market for corporate securities

was out of line, that some issues had been overpriced during the
recent period of extremely low interest rates, and that this weak
ness in the corporate securities had affected the Government secur
ities market.

He referred to the French financial situation, the

British armament program and the demand for war materials from other
countries, labor troubles and the building of inventories in antic
ipation of higher prices in this country, which had resulted in un
justified increases in commodity prices, and discussions with respect
to the possibility of increased relief expenditures and reduction of
social security taxes which might result in a continued unbalanced
budget.

He felt that this situation, together with some feeling on

the part of the public that the Board was moving to stop price

3/15/37

-7

inflation which would result in

firmer money conditions, would natur

ally result in

the prices of long term securities seeking somewhat

lower levels.

He also said that it

should be pointed out that the

action of the Board in increasing reserve requirements did not consti
tute a reversal of its

easy money policy, that the present trend toward

price inflation should be met in

another way and that, as suggested in

a statement which he was issuing to the press today, the time for adop
tion of a restrictive money policy does not arise until there is
production and employment.

It

full

should also be made clear, Chairman

Eccles said, that the market situation is

not due to the action of the

Board in

that after the full increase

increasing reserve requirements,

in requirements takes effect there will be about $500,000,000 of ex
cess reserves and there will still

be ample funds available for legit

imate business use, and that bank deposits are approximately
$2,000,000,000 in

excess of the total in 1929.

He then referred to the continued easy money policy of the
System and the huge excess reserves which had been allowed to accumu
late.

He pointed out that after the Board was given authority in

to increase reserve requirements and, in

spite of the fact that it

immediately urged to exercise the power,

it

1935
was

did not take such action

until excess reserves had reached a total of approximately $3,500,000,000
when, by an increase in reserve requirements,

it

absorbed only

$1,500,000,000, and that later, after $600,000,000 of additional gold
had been imported, resulting in
it

further increases of excess reserves,

had increased reserve requirements to the limit of its

authority but

3/15/37

-8

in the belief that after the increase would become fully effective mem
ber banks would have sufficient excess reserves to insure the continu
ation of the System's easy money policy.

He said that if the Board

were subject to criticism for the course it
because it

had pursued it

would be

had not taken action sooner to stop the decline of interest

rates to the extremely low level that they had been allowed to reach.
He stated that every important step taken by the Board in 1936
with respect to an increase in reserve requirements was discussed
fully with the Secretary of the Treasury before action was taken and
that the recent action effecting a further increase was reviewed with
the Secretary of the Treasury and the President was advised of the pro
posed action before it

was taken, that they interposed no objection at

any time, and that the Secretary had expressed to the President his
feeling of satisfaction with the Board's close cooperation with the
Treasury, and had said only two days ago that he did not feel that any
increase in interest rates that had taken place thus far had had any
bad effects on business.

It was pointed out in this connection that

the present program of the Treasury of sterilizing gold imports to pre
vent their increasing excess reserves of member banks was inaugurated
prior to the recent action of the Board with respect to a further in
crease in reserve requirements.
At this point Mr. Thurston joined the meeting.
In response to an inquiry as to the source of selling orders
which had come into the market during the past week, Mr. Burgess said
that they had been partly the result of dealers reducing their holdings

3/15/37

-9

of bonds acquired in

connection with the March 15 financing and re

flected partly the sale of bonds from all parts of the country,

some

coming from corporations which held April 15 note maturities which they
did not wish to exchange for the bonds offered by the Treasury.
President Harrison expressed agreement with the general posi
tion taken by Chairman Eccles and stated that he did not agree with
statements that action by the Board of Governors in

increasing reserve

requirements was principally responsible for the weakness in

the Govern

ment bond market; that, while the increase might have had some psycho
logical effect, there would have been anyway a gradual readjustment of
the market,

partly because of fear of price inflation.

the opinion that the increase in

He expressed

reserve requirements was fully justi

fied in order to put the System in position to exercise credit control
through open market operations whenever such action appeared to be
necessary.

He also agreed that, while there was no need for the exer

cise of a policy of credit restraint at this time, he could not agree
with the suggestion that the Federal Reserve System should increase the
portfolio as a means of supporting the Government bond market and of
dispelling the rumor that the System proposed to follow a restrictive
money policy.

Apart from the fact, he said, that it

would be construed

as inconsistent with the policy of decreasing excess reserves in order
to give the System control when necessary,

it

might well add unwise

stimulus to the inflation of prices which should be checked rather than

encouraged.
The Chairman then called upon Mr. Goldenweiser for a statement

3/15/37

-10

as Economist of the Federal Open Market Committee.

Mr. Goldenweiser

said that the basic economic situation was good, that recovery was
definitely under way with a very rapid rise in business activity in
December, a slight recession in January and February due chiefly to
labor troubles and floods, and a resumption of the upward trend in the
latter part of February and early part of March.

He pointed out that

recovery was not confined to the United States but that conditions were
fairly good in most of the large countries and that France, in spite
of her financial difficulties, was experiencing a decided economic up
turn.

The fact still

remained, Mr. Goldenweiser said, that recovery

in the United States was still
reached in

other countries,

quite incomplete and below the level
that there was still

duction and a large amount of unemployment,

a low level of pro

that activity in the con

struction and railroad equipment industries was at a relatively low
point and that electrical plants, which were producing a record amount
of power, had not yet engaged to any extent in plant expansion.

He

referred to the large aggregate amount of funds available for business
expansion and to the fact that there had been some increase in
amount of commercial borrowings,

the

accompanied by a decrease in Govern

ment security holdings of banks, which he regarded as a healthy condi
tion on the theory that as lending for commercial purposes increases
bank holdings of Government securities should decline in order to avoid
a further increase in the amount of deposits available for business
expansion.
large and is

He said that the fact that the present supply of money is
concentrated in the financial centers and in the hands of

3/15/37

.11.

people holding it

for investment gives strength to the investment

market, that reactions in the securities market were the result of
psychological factors rather than fundamental economic changes, and
that, while they were to be expected under existing conditions,
should not cause the System particular concern.

they

He felt, however,

that the System was confronted with the important problem of what
its position would be if

the present market situation continues or

another readjustment takes place at a later date resulting in a de
cline in

security prices, when a difference of opinion may develop

with respect to the action that should be taken by the System to
meet the situation.

When that time comes, he said, the System should

consider buying Government securities rather than refusing to take such
action and run the risk of action being taken in another form which
would complicate the machinery of credit control and result in di
vided responsibility for such control.

He also referred to the fact

that the statement issued to the press at the time the Board of Gov
ernors took action to further increase reserve requirements pointed
out that the increase would place the Federal Reserve System in a
position to exercise monetary control through open market operations,
and expressed the opinion that an increase of $100,000,000 or
$200,000,000 in the System account at a time of market weakness
would do no serious harm and that an equal amount of securities
could be disposed of or allowed to run off at an appropriate later
time.

He added that, while there was no economic justification for

an increase in the System portfolio at this time, he felt, for the
reasons set forth above,

that the Federal Open Market Committee

3/15/37

.12.

should give the executive committee authority to increase the Sys
tem portfolio, such action being based on the uncertainty in the
Government bond market and the fact that it

might be found to be

desirable to increase the System portfolio in order to prevent a
disorderly market.
At 1:16 p. m. the meeting adjourned and reconvened at 2:50

p. m. with the same attendance as at the morning session, including
Mr. Thurston.

Mr. Williams said that the feeling had been growing with
him that the present is one of the most difficult periods the Fed
oral Reserve System has been called upon to face.

He referred to

the recovery of business activity to around the previous peak and
said that the movement promises to go somewhat beyond that level,
that in terms of real income and employment the volume of activity
should go to substantially higher levels than the country has ever
seen before, and that when business activity has reached approximately
the present level and there is

a disturbing element present, such as

an unwarranted increase in prices, that element exerts a restrict
ing influence which might halt the recovery before it
thing like a desirable level.

reaches any

He said that the disturbances which

exist at the present time are nonmonetary in

character and if they

are not corrected sooner or later the System will be forced to
take restrictive monetary action to prevent dislocations.
The Government, Mr. Williams said, is

faced with the fact

that up to the present time most of the actions which it has taken

3/15/37

-13

have been generally popular acttons, that from now on the emphasis
will have to be placed on restrictive action, that the feeling is
growing that restrictive action is necessary in order to prevent
inflation, and that, if, in the face of such a feeling, action is
taken which is regarded as inflationary, such as an increase in ex

cess reserves through open market purchases of securities, the dis
continuance of the sterilization of imported gold, or the use of
the stabilization fund, such action would be very difficult to
justify and was, in his opinion, not to be expected unless a
crisis develops.

He added that the specific question before the

System at the present time was whether it should only attempt to
prevent a disorderly market or go beyond that to a point which
might necessitate action which would increase excess reserves.

He

said he would not favor at the present time any action which would
go beyond the present policy of shifting maturities of securities in
the System account in the effort to maintain an orderly market.

In response to an inquiry, Mr. Williams said that he felt

that increasing the amount of securities in the System account be
tween now and May 1, when the last increase in reserve requirements
will be come effective, might be interpreted as a reversal of the
policy followed by the Board in reducing excess reserves of member
banks, and that he felt that the real field for action was in the
field of prices and not in

any field in

which the Federal Reserve

System or the Treasury was authorized to act.
further question, Mr. Williams said it

In response to a

might be wise to give the

3/15/37

-14

executive committee considerable latitude to meet any situation
that might arise before another meeting of the Committee,
In the discussion which followed reference was made again
to the fact that in both of the statements issued by the Board in
connection with increases in reserve requirements it

was expressly

stated that the Board was using a relatively inflexible method of
credit control which would place the System in closer touch with
the situation and that it

would reserve the more flexible instru

ment of open market operations for use in the future as the public
interest may require.

It

was felt by some that if

it

should be

found desirable to increase the System portfolio for the purpose of
preventing an unjustified dislocation in the securities market,

such

action by the System should not be regarded as a reversal of System
policy upon which the increases in reserve requirements of member
banks were based.
It

was felt by some of the members that an increase in the

amount of securities in the System account might be interpreted as
evidencing an inflationary policy and as a signal to convert Gov
ernment security holdings into equities,

All of the members agreed

that in the absence of conditions not now foreseen an increase in
the System portfolio would not be justified at this time, that the
System should continue to operate under the authority to make shifts
in securities in the account, to prevent a disorderly market, and
that for that purpose additional authority should be granted to the
executive

committee to make such shifts of securities.

3/15/37

-15
Upon motion duly made and seconded, and
by unanimous vote, the Committee instructed
the executive committee to direct the replace
ment of maturing securities in the System open
market account with other Government securities
and to make such shifts between maturities in
the account as may be necessary in the proper

administration of the account, provided that the
amount of securities maturing within two years

be maintained at not less than $800,000,000 and
that the amount of bonds having maturities in
excess of five years be not over $800,000,000
nor less than $500,000,000.
Further discussion disclosed a consensus that it

would

be undesirable for the System to continue indefinitely to In
crease the proportion of bonds held in the System account at as
great a rate as had taken place during the past week,
if it

and that,

appeared that the prevention of a disorderly market would

justify further shifts in large amounts, beyond the limits in
the resolution, it

might become advisable to increase the aggre

gate amount of securities held in

the account in order to pre

serve a desirable ratio of short to long term securities in the
account.
The members of the executive committee present were in
agreement that, if

the Federal Open Market Committee should grant

authority to increase the System portfolio,

such authority would

not be used unless an emergency arose which called for such action.
Consideration was then given to the form in which a reso
lution authorizing emergency increases or decreases in the System
account might be adopted.

The matter was discussed in some length,

and various forms which the resolution might take were suggested.

5/15/37

-16

The question was raised whether the executive committee would be
obliged to exhaust its

authority under the resolution just adopted

authorizing shifts in the System account before increasing or de
creasing the total amount of securities held in the account and
the opinion was expressed that, while in the absence of an emer
gency the committee should operate under the authority to make
shifts, the executive committee should be in a position to exer
cise either or both authorities to meet situations which might
arise.

It

was suggested, however, that if

the second resolution

were adopted it should be made clear to the Secretary of the Treas
ury that it

was the plan of the executive committee to continue to

act under the authority to make shifts in

the account,

that on the

basis of the present situation there was no necessity to resort to
the authority to make increases in

the System portfolio, and that

such action would be resorted to only in the event of the develop
ment of new circumstances which, in
committee,

the judgment of the executive

would make necessary an increase in the portfolio.
Upon this understanding and in view of the
circumstances discussed by the Committee and re
ported herein, the Committee, upon motion duly
made and seconded, and by unanimous vote, author
ized the executive committee to arrange for an in
crease or decrease in the present amount of secur
ities in the System open market account by not more
than $250,000,000 in the event of an emergency aris
ing requiring such action before a meeting of the
Federal Open Market Committee can be held.

At this point the Chairman left the room to receive a long
distance call from the Secretary of the Treasury who was in Georgia.
Upon his return the Chairman reported that Mr. Morgenthau inquired

3/15/37

-17

what action had been taken and that he (Chairman Eccles) advised
the Secretary that the Federal Open Market Committee had been in

session all day, that it

had heard reviews of the present busi

ness and economic situation by Messrs. Goldenweiser and Williams,
that the entire situation had been discussed thoroughly, and that
every effort had been made not to overlook any monetary or eco
nomic factor which would influence the judgment of the Committee.
He reviewed for the Secretary the transactions which had taken
place in

the System account today and advised him that the Com

mittee had adopted a resolution authorizing the executive com
mittee to direct shifts of securities in

the System account, that

under this authority the amount of bonds in the account with matur
ities in excess of five years could be increased by approximately

$250,000,000, that if

such an increase were made it would reduce

the amount of securities in

the account having maturities within

two years to approximately $800,000,000 with approximately $500,000,000
falling due within one year, and that it

was felt that it

would not

be good policy to let these maturities go below these amounts, as
a further reduction would place the System in a position where, in
case of necessity, it might not be able to make a restrictive pol
icy effective by allowing maturities in the System account to run
off without replacement.

The Secretary, Chairman Eccles said, con

curred with the Committee's position on this point.
Chairman Eccles also reported that he advised the Secretary
of the adoption of a resolution authorizing the executive committee
in the event of an emergency to increase or decrease the System

3/15/37

-18

account by $250,000,000 without a further meeting of the full Com
mittee.

He reviewed for the information of the Secretary the con

siderations which had been discussed as justifying such a resolu
tion and expressed the opinion of the Committee that the present
situation in

the Government bond market was the result of a gen

eral trend, that contributing factors were labor difficulties,
armament programs and lack of confidence that the budget would be
balanced,

that England and Canada had gone through an adjustment

resulting in increases in

the yields on English and Canadian bonds

to 1/2%,
3
and that the prices of corporate securities in the United
States had been declining since last fall, all of which convinced
the Committee that an attempt to maintain the present prices of
Government securities would be a mistake, particularly in view of
the fact that the trend was in the face of an abundance of funds
for business purposes and was not the result of a monetary situation.
Mr. Eccles said that he stated that the Committee felt that it

should

continue to operate through shifts of securities in the System ac
count to maintain an orderly market and that the portfolio should
be increased only as a last resort in an emergency which would jus
tify such action and would prevent the action being interpreted as
having been taken for the purpose of supporting the Government bond
market, which interpretation might have an adverse effect instead
of a favorable effect upon the market.

He also referred to the

possibility that interest rates had been permitted to fall too low
and stated that it

was questionable whether any effort should be

made to maintain the price of securities which had been issued at

3/15/37

-19

these extremely low rates,

except action to prevent a disorderly

market during the period of adjustment,

that it

was his opinion

that Government securities continued to be an excellent investment
with satisfactory yield and the safest investment that could be
made, and that, while the investor could not be insured against
the effects of wars and unforeseen conditions,

if

the Government

would balance the budget and deal effectively with labor and arma
ment problems which result in abnormal price increases,

there was

no question in his mind that the price of Government securities
would increase instead of decline.

The Secretary, Chairman Eccles

said, did not disagree with this opinion and appeared to be satis
fied with the position which the Committee had taken.
Reference was then made to the authority granted to the
executive committee at earlier meetings of the full committee to
permit fluctuations in the total amount of the securities held in
the System account between statement dates and it

was agreed that

this authority should be renewed for reasons previously stated.
Upon motion duly made and seconded, and by

unanimous vote, the Committee authorized the exec
utive committee to permit such fluctuations, within
reasonable limits, in the amount of holdings of Gov
ernment securities in the System open market account
between weekly statement dates as may be desirable

for the practical administration of the account in
making shifts between and replacements of securi
ties pursuant to the general authority granted by
the Federal Open Market Committee.

3/15/37

-20-

Thereupon at 7:00 p.m. the meeting adjourned.

Approved:

Chairman.