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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 Monday, March 13, 1939, at

10:30 a.m.
PRESENT:

Mr. Eccles, Chairman
Mr. Harrison, Vice Chairman
Mr. McKee

Mr. Draper
Mr. Leach
Messrs. Szymczak and Davis, Members of the
Federal Open Market Committee
Mr.
Mr.
Mr.
Mr.
Mr.

Carpenter, Assistant Secretary
Wyatt, General Counsel
Goldenweiser, Economist
Dreibelbis, Assistant General Counsel
Sproul, Manager of the System Open
Market Account

Mr. Thurston, Special Assistant to the
Chairman of the Board of Governors
Mr. Piser, Senior Economist in the Division
of Research and Statistics of the Board
of Governors

Chairman Eccles reported that during the late afternoon of Friday,
March 10, 1939, Mr. Ransom received a telephone call from the Secretary
of the Treasury, the substance of which Mr. Ransom immediately communicated
to the Chairman.

The Chairman said that the Secretary expressed the view

that the Government securities market was going up too rapidly, that he
believed something should be done to meet the situation, that he had given
the Federal Reserve Bank of New York an order to sell $10,000,000 of bonds
from the trust accounts administered by the Treasury, and that he would
like to know if

the Federal Reserve System would join with the Treasury

in the sale of bonds under an arrangement similar to that under which

3/13/39
securities had been purchased in the past by the System and the Trea
sury when the market was under pressure.

Chairman Eccles said that,

after discussing the matter with Messrs. Goldenweiser and Piser, it
was decided that this meeting should be called for consideration of
the question.

He said that Mr. Ransom was confined to his home with

a cold today and for that reason was not able to attend this meeting.
At the request of the Chairman, Mr. Piser read a memorandum
prepared by him under date of March 11,

1939, and Chairman Eccles

read a memorandum prepared by Mr. Goldenweiser on the same date.

The

memoranda discussed the advisability of sales of securities from the
System open market account, pointed out that conditions in the market
were not disorderly but represented an adjustment to underlying condi
tions, and concluded on the basis of reasons stated in the memoranda
that such sales would not be desirable at this time.
The committee discussed the question presented by the Secretary
of the Treasury as well as other matters affecting the current money
market situation, including the existing large amounts of excess re
serves and the indication that these reserves will increase substan
tially in the near future, the Government silver policy, and the gold
situation.

It

was the general consensus that any action taken in

fur

therance of a program of sales of bonds could have only a temporary
influence in

slowing down an upward movement of the market because the

strength of the market was due to fundamental causes which would not
be reached by the action suggested.

3/13/39
Question was raised as to what the Secretary hoped to accom
plish by the proposed action and whether he had anything in mind other
than a temporary step to meet the immediate situation.
It was agreed that Chairman Eccles should
advise the Secretary of the Treasury that the
executive committee had discussed the matter
presented by him, that in the existing circum
stances the committee did not have authority
to sell bonds from the account other than in
connection with shift transactions, and that
before deciding whether a meeting of the full
Committee should be called the executive com
mittee would like some further information as
to what the Secretary had in mind.
Chairman Eccles left the room and upon his return stated that
he had talked with the Secretary over the telephone and that he had
agreed to meet at 3:15 p. m. today with such members of the executive
committee and its

staff as the committee might wish to have participate.

It was agreed that Messrs. Eccles,
Harrison, Leach, Goldenweiser and Sproul
should attend the meeting with the Secre

tary of the Treasury.
Upon motion duly made and seconded, and
by unanimous vote, the transactions in the
System open market account during the period

from March 7 to March 11, 1939, inclusive,
were approved, ratified and confirmed.
It

was agreed that there was no reason for making any change

in the authority granted to the New York bank to execute transactions
in the System open market account.
Thereupon, upon motion duly made and sec
onded, and by unanimous vote, the executive
committee directed the Federal Reserve Bank of
New York until otherwise directed by the execu
tive committee,

3/13/39
(1) To replace maturing Treasury Bills in
the System open market account by purchases of
like amounts of Treasury bills or Treasury notes
with the understanding that the total amount of

securities in the account maturing within two
years shall not be reduced below $1,000,000,000;
or, from time to time, to allow such bills to
mature without replacement or pending subsequent
replacement (a) when market conditions are such
as to make it impossible to procure other bills
or notes without paying a premium over a no-yield
basis, or (b) when such notes are not obtainable
without undue disturbance to the market, provided
that if Treasury bills in the account are allowed
to mature without replacement the total amount
of securities in the account be not decreased by
more than $100,000,000;

(2) To make such other shifts of securities
in the account (which may be accomplished when
desirable through replacement of maturing se
curities) as may be necessary in the practical
administration of the account, up to an aggre

gate of $200,000,000 of purchases and a like
amount of sales or redemptions, provided that
the total amount of securities in the account
maturing within two years be not reduced below
$1,000,000,000 and that the total amount of bonds
held in the account be not reduced below
$700,000,000 and that the total amount of bonds
in the account having maturities over five years
be not increased above $850,000,000;
(3) To increase or decrease temporarily the
amount of securities in the account between

weekly statement dates by not more than $50,000,000
when necessary in making replacements or shifts

pursuant to the above provisions of this resolu
tion, provided that the amount of securities in
the account as of any weekly statement date shall
not be changed from that of the preceding weekly
statement date except pursuant to the other pro
visions of this resolution; and
(4) Upon approval by a majority of the mem
bers of the executive committee, which may be
obtained by telephone, telegraph, or mail, to
make such other shifts or such purchases or
sales (which would include authority to allow
maturities to run off without replacement) for
the account as may be found to be desirable

-5-

3/13/39

within the limits of the authority granted to
the executive committee by the Federal Open
Market Committee.
At 12:45 p.m. the meeting recessed and reconvened at 4:35 p.m.
with Messrs. Eccles, Harrison, McKee, Draper, Leach, Szymczak, Davis,
Carpenter, Wyatt and Thurston in

attendance.

Chairman Eccles stated that the representatives of the execu
tive committee had met with the Secretary of the Treasury at 3:15 p.m.
and that he (Chairman Eccles) had stated that because of the illness
of Mr. Ransom, who had received the Secretary's original telephone call,
and the questions that had arisen in

connection with the Secretary's

inquiry whether the System would cooperate in a program contemplating
the sale of bonds, the executive committee would like some further in
formation as to what the Secretary had in mind.
The Secretary of the Treasury stated, Chairman Eccles said,
that he felt the upward movement of the Government securities market
was too rapid and might result in a disorderly market,
something should be done about it,

that he felt

that he had ordered the Federal

Reserve Bank of New York to sell $10,000,000 of bonds out of Treasury
trust accounts, that the Treasury had between $70,000,000 and $80,000,000
of additional bonds which it

was prepared to sell if

conditions warranted,

and that he would like to have the System consider whether it

participate in such a program.

would

Chairman Eccles stated that he advised

the Secretary that the executive committee did not have authority to
sell securities from the System account except in

connection with shift

3/13/39

-6.

transactions and that before bonds could be sold from the account it
would be necessary to have a meeting of the Federal Open Market Com
mittee to decide the question.

The Secretary of the Treasury replied

that, as he had stated before, he felt the System portfolio should be
a flexible one, that action should be taken by the System to slow down
a rapidly rising market in the same manner as it
prevent disorderly conditions on a decline.

had taken action to

He then asked for an ex

pression of opinion as to whether there would be any objection on the
part of the System to the Treasury selling bonds at the present time
for the purpose he had indicated.

Chairman Eccles said that the repre

sentatives of the System present had stated their personal views that
if

the Treasury had securities available in its

trust funds for this

purpose there would be no objection from the standpoint of the money
market and that it

would be a good thing for the Treasury to sell bonds.

Chairman Eccles added that it

was pointed out to the Secretary that the

sale of bonds was merely a temporary expedient to meet an immediate
situation, that the underlying strength in the market was a result of
the huge amount of excess reserves which would increase considerably
in the future, and that there were two problems to be considered, (1)
what should be done to meet the fundamental problem of excess reserves
and problems related thereto, and (2) what action should be taken to
prevent a too rapid rise in Government security prices.

Chairman Eccles

stated further that the Secretary expressed the opinion that the Federal
Reserve System should initiate any consideration of the problem of ex-

cess reserves and said that he would be glad to consider any comments
that the System might have to make regarding the matter, and that per
haps this was a subject which properly could be referred to the Fiscal
and Monetary Committee.

The statement was also made to the Secretary,

Chairman Eccles said, that, if

the Treasury would issue an additional

amount of Treasury bills instead of issuing additional securities of
the Reconstruction Finance Corporation, the System would be able to
exchange bonds held in the System account for bills (which it

is

not

able to do at the present time without further distorting the market
for bills),

and thereby exert some restraint on the Government bond

market without having to run the risks inherent in reducing its
folio by the outright sale of bonds.

port

The reply of the Secretary to

this suggestion was that he was not willing to issue additional bills
at this time in

view of the fact that he already had a working balance

of approximately $2,500,000,000.

Chairman Eccles said that the suggestion was also made that an
immediate step which might be taken to restrict the growth of excess
reserves

would be for the Treasury to transfer some of its balances

with depositary banks to the Federal Reserve banks and the Secretary
suggested that Messrs. Goldenweiser and Sproul explore that suggestion
further with Messrs. Bell, Assistant to the Secretary of the Treasury,

Haas, Director of the Division of Research and Statistics, and White,
Director of the Division of Monetary Research, of the Treasury Depart
ment.

3/13/39

-8
During the discussion of Chairman Eccles' report Messrs.

Goldenweiser and Sproul joined the meeting.
Mr. Goldenweiser stated that he and Mr. Sproul had met with
the representatives of the Treasury designated by the Secretary for
the purpose and discussed with them the desirability of the Treasury
transferring some of its

balances from the depositary banks to the

Federal Reserve banks for the purpose of holding down the volume of
excess reserves of member banks and that while the Treasury repre
sentatives agreed that it
the funds in

would be possible gradually to draw down

depositary banks as the Treasury needed funds, they felt

that the operation involved some risk of the depositary banks being
alarmed and of interfering with recovery objectives and that the Trea
sury might not want to take this risk.

Mr. Goldenweiser added that the

Treasury representatives suggested that if
felt that the matter was important it

the Federal Reserve System

should recommend the action to

the Treasury.
Inquiry was made whether the questions before the executive
committee could not be communicated to the absent representative mem
bers of the Federal Open Market Committee by telephone and any action
decided upon taken under the authority of the second of the resolutions
adopted at the meeting of the full Committee on March 7, 1939.

The

opinion was expressed that the questions involved were important enough
to justify a meeting of the full Committee.
At the conclusion of the discussion
it was agreed that a meeting of the full
Committee should be called to convene in

-9

3/13/39

Washington on Monday, March 20, 1939, at
10:00 a.m. and that the agenda for the meet
ing should include the following topics:
1.

Whether the System would be willing to participate with
the Treasury in the sale of bonds for the purpose of
checking a too rapid rise in the Government securities
market.

2.

Whether bills held in the account should be allowed to
mature without replacement for the purpose of meeting
the present situation in the Government securities mar
ket or for any other reason.

3.

What should be done to meet effectively the situation
resulting from the increasingly large amount of excess
reserves of member banks.
In connection with the discussion of the date for the meeting

inquiry was made whether March 20 would be early enough in
the market should begin another advance and it

the event

was stated that since

the Treasury had a substantial volume of bonds available for sale to
check a too rapid rise there appeared to be no necessity for calling
the meeting before that date.
Thereupon the meeting adjourned.

Secretary.
Assistant