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FIFTIETH
Annua{ Report
OF THE
BOARD OF GOVERNORS
of the Federal Reserve System
COVERING OPERATIONS FOR THE YEAR
Period
Description
Purpose
lanuarymid-May
Reduced System holdings of U.S. Government securities and then increased them in line with seasonal
and moderate growth needs of the economy. Total
holdings rose about $470 million on balance, owing
mainly to net purchases of issues maturing in more
than 1 year. Member bank borrowing rose slightly to
a level of about $150 million in the first half of May.
To offset seasonal downward pressures on short-term interest rates
early in the period and to provide for growth in bank credit and
the money supply at a rate consistent with minimizing capital outflows in accordance with the policy of slightly reduced reserve
availability adopted at the December 18, 1962, meeting of the
Federal Open Market Committee.
Mid-Maylate-July
Reduced the degree of reserve availability slightly further. System holdings of U.S. Government securities
increased nearly $1.2 billion, about one-fifth representing net purchases of issues maturing in more
than 1 year. Member bank borrowing increased further, averaging $275 million over the period.
To achieve a slightly greater degree of firmness in the money market in order to minimize the outflow of capital while continuing
to provide reserves for moderate monetary and credit growth.
Mid-July
Raised the discount rate from 3 to 31h per cent.
Raised maximum interest rates payable by member
banks on time deposits (other than savings) and
certificates of deposit with maturities of 90 days to
6 months from 2Y2 to 4 per cent and with maturities
of 6 months to 1 year from 3V2 to 4 per cent.
To help reduce short-term capital outflows by firming U.S. short-term
money market rates and permitting member banks to compete more
effectively for foreign and domestic funds.
Reduced a little further the degree of reserve availLate-Julyability. System holdings of U.S. Government securiDecember
ties increased about $1.1 billion, of which more than
one-half represented purchases of securities with
maturities of more than 1 year. Member bank borrowing averaged about $325 million over the period.
To attain slightly more firmness in the money market, in the context
of a higher discount rate, with a view to minimizing the outflow
of funds abroad while offsetting seasonal reserve drains and providing for growth needs of the domestic economy.
Raised margin requirements on loans for purchasing
or carrying listed securities from 50 to 70 per cent
of market value of securities. Also increased retention requirements on proceeds of sales from undermargined accounts from 50 to 70 per cent.
To help prevent excessive use of stock market credit, which had increased sharply since July 1962, when margin requirements were
lowered from 70 to 50 per cent.
November
8
9
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
The Federal Reserve Bank of New York is authorized and directed
to purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Currency
Operations reaffirmed by the Federal Open Market Committee on March
5, 1963:
actions in U.S. Government securities, repurchase agreements,
and bankers' acceptances, in the form in which that directive was
outstanding at the beginning of the year 1963. The language of
the directive is set forth in the preface to this record of Open
Market Committee policy actions for 1963.
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
Austrian schillings
Swedish kronor
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Scanlon, and Shepardson. Votes against this action:
None. Abstaining: Mr. Robertson.
The Federal Reserve Bank of New York is also authorized and directed
to purchase, in accordance with the Guidelines and for the purpose of
allowing greater flexibility in covering commitments under reciprocal
currency agreements, any or all of the foregoing currencies through for
ward transactions, up to a combined total of $25 million equivalent.
Total foreign currencies held at any one time shall not exceed $1.3
billion.
Mr. Robertson, who had voted against the adoption of the
continuing authority directive in its present form on March 6,
1962, abstained because he continued to feel that the directive
was inadequate and did not provide sufficient guidance and
restrictions.
The Committee also reaffirmed its authorization regarding
open market transactions in foreign currencies and its guidelines
for System foreign currency operations, in the form in which both
of these were outstanding at the beginning of the year 1963, as
set forth in the preface to this record of policy actions.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, King, Mills, Mitchell,
Robertson, Scanlon, and Shepardson. Votes against
this action: None.
Votes for this action: Messrs. Martin, Hayes, Bald
erston, Bopp, Clay, Irons, King, Mills, Mitchell,
Robertson, Scanlon, and Shepardson. Votes against
this action: None.
3. Review of continuing authorizations.
This being the first meeting of the Federal Open Market Com
mittee following the election of new members from the Federal
Reserve Banks to serve for the year beginning March 1, 1963,
and their assumption of duties, the Committee followed its cus
tomary practice of reviewing all of its continuing authorizations
and directives. The action taken with respect to the continuing
authority directive on foreign currency operations has been
described in the preceding portion of the entry for this date.
The Committee reaffirmed its continuing authority directive
to the Federal Reserve Bank of New York with respect to trans-
The reaffirmation of the authorization for System foreign cur
rency operations was with the understanding that the program
continued to be regarded as experimental in nature.
March 26, 1963
Authority to effect transactions in System Account.
Reports indicated that business and financial sentiment with
respect to short-run prospects for domestic activity had strength
ened since the preceding meeting of the Committee as favorable
economic data predominated. A recent survey indicated that
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
business planned to increase fixed capital outlays in 1963 by 5
per cent, instead of the 3 per cent increase reported by a survey
last autumn. Business plans for inventory holdings called for a
stepping-up of expansion in the second quarter of this year, partly
as protection against a possible steel strike in the summer. New
orders received by machinery and other durable goods producers
had risen somewhat further in February; and stock market prices
had maintained the higher level to which they rebounded in early
March. Also, consumer plans to spend for automobiles, other
durable goods, and homes indicated continuing strength of
demand.
While these portents of further expansion in activity substan
tially reduced whatever expectations there had been for an
imminent cyclical recession, they were not sufficient to suggest
a major improvement in unemployment. In fact, unemployment
had increased again in February, reaching a seasonally adjusted
rate of 6.1 per cent of the civilian labor force. The rise reflected
the fact that the increase in the labor force was greater than the
moderate rise in employment.
Industrial production remained essentially unchanged again
in February. Construction expenditures declined, but new
housing units started increased a little from the reduced January
level. Retail sales showed little change in February around the
advanced January rate but, with automobile markets continuing
strong, sales rose further in early March. Industrial commodity
prices continued stable.
In the financial area corporate and municipal security issues
in March were relatively large and appeared likely to continue
so in April. Nevertheless, yields on corporate bonds had changed
little in recent weeks, while yields on State and local government
securities had declined. Large-scale Federal refundings and cash
borrowings also took place, with yields on U.S. Government
securities remaining in a relatively narrow range. Yields on 90
day Treasury bills, at 2.90 per cent, continued below the Federal
Reserve discount rate, while yields on long-term Treasury issues
edged up to an average of 3.94 per cent in the week preceding
this meeting.
Seasonally adjusted bank credit expansion continued large in
January, February, and early March. Business loans, however,
had shown mainly seasonal changes following a rapid increase
in late 1962. Real estate and consumer loan demand continued
strong.
Free reserves of member banks averaged $300 million in the 3
weeks ending March 20, little changed from the average for the
month of February. The seasonally adjusted money supply rose
in the first half of March following a slight drop in February.
Time and savings deposits, seasonally adjusted, continued to
expand rapidly, but at a somewhat slackened pace in February
and the first half of March.
The deficit in U.S. international payments in the first quarter
of 1963 was tentatively estimated to be moderately lower than
the quarterly average for the years 1962 and 1961. The first
quarter figures were unfavorably affected by the dock strike and
a bunching of foreign bond issues but favorably affected by large
repayments of bank loans and probably some flows of funds
connected with the recent weakness of the pound sterling, Both
in 1962 and 1961, however, results of the first quarter had turned
out to be considerably better than those for subsequent quarters.
(In 1963 the contribution of one favorable but seasonal influence
-the reversal of year-end window-dressing operations by for
eign banks-was much reduced.) Exchange markets showed,
on balance, little net change, except for the pressure on sterling.
The Committee indicated general satisfaction with the degree
of monetary and credit ease that had prevailed in recent weeks,
and none of the members suggested a major change in policy in
either direction. However, in view of the cumulative consequences
of large balance of payments deficits, a minority felt it desirable
to start moving toward slightly less reserve availability and
slightly higher Treasury bill rates. Some other members indicated
that they might have been attracted to this policy position except
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
for the Treasury financing program under way and ahead. Still
others, however, expressed serious doubt that a less easy mone
tary policy, within the ranges discussed, would have any appreci
able effect on the balance of payments position, and they felt
that a more pronounced shift would have unfavorable conse
quences for the domestic economy.
The majority position was clearly for maintaining essentially
the status quo during the ensuing 3-week period. Nevertheless,
in order to keep the current economic policy directive as
accurately descriptive of current conditions and policy as
possible, minor technical wording changes were adopted. Accord
ingly, the following directive was issued to the Federal Reserve
Bank of New York:
toward a slightly lesser degree of monetary ease since he was
convinced that somewhat higher interest rates and reduced credit
availability could bring important benefits, both actual and psy
chological.
It is the Committee's current policy to accommodate moderate growth
in bank credit, while aiming at money market conditions that would
minimize capital outflows internationally. This policy takes into account
the continuing adverse U.S. balance of payments position and the in
creases in bank credit, money supply, and the reserve base in recent
months, but at the same time recognizes the limited progress of the
domestic economy, the continuing underutilization of resources, and the
absence of general inflationary pressures.
To implement this policy in a period of a Treasury bond financing,
System open market operations during the next 3 weeks shall be conducted
with a view to maintaining about the same degree of firmness in the money
market that has prevailed in recent weeks, while accommodating moderate
reserve expansion.
Votes for this action: Messrs. Martin, Balderston,
Bopp, Clay, Irons, King, Mills, Mitchell, Robertson,
Scanlon, and Shepardson. Vote against this action: Mr.
Hayes.
Mr. Hayes recognized that the scope for policy change during
the forthcoming 3-week period was distinctly limited by the
Treasury financing program. However, because of the gravity
of the threat to the position of the dollar due to cumulative effects
of balance of payment deficits, he would have favored moving
April 16, 1963
Authority to effect transactions in System Account.
The economic situation had improved noticeably in March,
with widespread gains registered by various measures of activity
and with business sentiment distinctly better. Industrial produc
tion rose 1 percentage point to a level fractionally above the
September 1962 high. Production of steel increased substantially,
along with orders, partly reflecting inventory accumulation in
anticipation of a possible strike in the summer. Nonagricultural
employment rose further, with increases reported for most major
types of industry and activity. The unemployment rate declined
appreciably in March to 5.6 per cent of the civilian labor force,
but it appeared that both this decline and the rise in the preceding
month probably reflected, in part, difficulties in measuring
seasonal changes.
Retail sales rose further in March, with automobile markets
continuing exceptionally strong. GNP was tentatively estimated to
have risen in the first quarter to an annual rate of $572 billion, a
higher level than had been expected earlier.
Industrial material and other wholesale price averages
remained little changed in March and early April. Very recently,
however, certain producers of steel had announced price increases
for a portion of their products, and it was regarded as quite pos
sible that others would follow suit. Stock market prices advanced
further in recent weeks to within about 5 per cent of the December
1961 peak, the record level of corporate profits reported for the
fourth quarter of 1962 having been a contributing factor.
Against the background of indications of greater business
strength and selective commodity price increases, a relatively
@FedFRASER