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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
by uncertainties surrounding the discussion of tax legislation, by
the size of the Federal deficit, and by the continuing balance of
payments problem. Developments abroad, notably the French
veto of British entrance into the Common Market and the Ca
nadian tension over defense policy, added to the atmosphere of
business uncertainty.
While there was agreement that no change in monetary policy
was to be made at this time, some technical changes in the word
ing of the current economic policy directive were deemed ap
propriate in the light of recent developments. After discussion
of these changes, unanimous approval was given to the follow
ing directive to the Federal Reserve Bank of New York:
bill rates rather than with the promotion of a general monetary
atmosphere appropriate to the objectives of the Committee.
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 sub
stantial increases 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, and in view of the forthcoming Treasury
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 and to offsetting
downward pressures on short-term interest rates, while accommodating
moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bryan, Deming, Ellis, Fulton, Mitchell,
Robertson, and Shepardson. Votes against this action:
None.
Although he voted to approve this directive, Mr. Robertson
indicated he did not favor continuing the clause in the second
paragraph: "and to offsetting downward pressures on short-term
interest rates." He felt that retention of this clause, well beyond
the period of strong seasonal rate pressures, suggested Commit
tee preoccupation with the maintenance of a particular level of
March 5, 1963
1. Authority to effect transactions in System Account.
On balance, the domestic economic picture had not changed
significantly since the preceding meeting of the Committee.
Special influences, such as unusually severe winter weather and
strikes in some key industries, had affected some of the sta
tistical readings but most changes, both favorable and unfavor
able, were quite small.
Automobile production and sales continued high in Febru
ary. Total retail sales also continued close to record levels.
Personal income increased in January owing to large dividend
payments on veterans' insurance, which more than offset a
sizable increase in employee contributions to social security.
The labor market showed little change, although the seasonally
adjusted rate of unemployment edged up in January and again
in February.
The industrial production index in January was down frac
tionally from December but stayed in the narrow range that
had prevailed since July 1962. New orders received by durable
goods producers, on the other hand, rose appreciably to a level
slightly above the October 1962 high.
Consumer prices in January reversed the slight decline ex
perienced in December; they were 1.4 per cent above a year
earlier, with higher prices of foods and services mainly responsi
ble. Wholesale commodity prices continued to show little change
from the preceding month or from a year earlier.
Yields on corporate bonds showed little change in the weeks
immediately preceding the meeting, while municipal bond yields
increased moderately in response to continuing heavy dealer
inventories. Yields on Treasury intermediate- and long-term is
sues also rose somewhat, partly reflecting Treasury refunding
ANNUAL REPORT OF BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
activities. Treasury bill rates dropped slightly below mid-Febru
ary levels. A highlight of the period was the apparently successful
Treasury advance refunding operation-not yet completed-in
volving a potential exchange of about $29 billion of outstanding
issues, of which public holdings accounted for about $20 billion.
Capital market financing by corporations and State and local
governments was in moderate volume again in February. Stock
market prices declined appreciably during the 2 weeks preceding
the meeting, after rising vigorously for more than 3 months.
Bank credit rose substantially further in February on a season
ally adjusted basis, reflecting chiefly increases in security loans
and loans to finance companies and a much smaller than usual
decline in holdings of U.S. Government securities. The seasonally
adjusted money supply apparently was maintained close to the
January level, while time and savings deposits increased substan
tially further. Total reserves and required reserves behind private
deposits had declined about seasonally over the past 4 weeks.
Free reserves averaged somewhat lower, and member bank
borrowings higher.
According to tentative preliminary estimates, the balance of
payments deficit was much lower in February than in January.
However, in view of the influence of the dock strike on the trade
figures, the average for the past 2 or 3 months seemed more sig
nificant, and this average showed no improvement over 1962.
Exchange markets and the London gold market were generally
quiet; sterling continued to show counterseasonal weakness.
The Committee was in agreement that monetary policy in the
period until its next meeting should continue along the lines
followed in recent weeks. As usual, there were shadings of opinion
as to the relative importance and usefulness of small changes in
monetary policy, in one direction or the other, either for dealing
with the domestic economy or for coping with the continuing
large deficit in the balance of payments. In terms of the period
immediately ahead, however, there was general recognition that
the continuing Treasury financing operations during most of the
period argued against any significant change in policy.
Although the decision was for continuation of the same degree
of monetary ease as had prevailed in recent weeks, certain minor
technical changes in the wording of the directive were adopted.
Accordingly, the following current economic policy directive was
issued to the Federal Reserve Bank of New York:
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 following a major Treasury financ
ing, 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 and to offsetting
downward pressures on short-term interest rates, while accommodating
moderate reserve expansion.
Votes for this action: Messrs. Martin, Hayes,
Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robert
son, Scanlon, and Shepardson. Votes against this
action: None.
2. Authority to purchase and sell foreign currencies.
Authorization was given to the Federal Reserve Bank of New
York to undertake, on an experimental basis, forward purchases
up to a combined total of $25 million equivalent of any or all
of the foreign currencies authorized for System operations in
order to permit greater flexibility in covering commitments under
reciprocal currency (swap) agreements.
Accordingly, the continuing directive to the Federal Reserve
Bank of New York with respect to foreign currency operations
was amended as follows, effective immediately:
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
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