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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 Wednesday, September 21, 1938,
PRESENT:

Mr.
Mr.
Mr.
Mr.

at 2:30 p.m.

Harrison, Vice Chairman
Szymczak
McKee
Ransom

Mr. Davis
Mr.
Mr.
Mr.
Mr.

Sinclair
Newton
Schaller
Peyton
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Morrill, Secretary
Carpenter, Assistant Secretary
Wyatt, General Counsel
Goldenweiser, Economist
Williams, Associate Economist
Dreibelbis, Assistant General Counsel
Thurston, Special Assistant to the
Chairman of the Board of Governors of
the Federal Reserve System

Messrs. Leach, Martin, Hamilton, McKinney
and Day, Presidents of the Federal Re
serve Banks of Richmond, St. Louis,
Kansas City, Dallas and San Francisco,
respectively
Upon motion duly made and seconded, and by
unanimous vote, the minutes of the meeting of the
Federal Open Market Committee held on August 2,
1938, were approved.
Upon motion duly made and seconded, and by
unanimous vote, the actions of the executive
committee of the Federal Open Market Committee
as set forth in the minutes of the meeting of
the executive committee on August 2, 1938, were
approved, ratified and confirmed.
Reference was made to the informal understanding of the members
of the Federal Open Market Committee reached since the last meeting of

9/21/38

-2

the Committee that, in the absence of Chairman Eccles, Mr. Ransom will
serve as an alternate member of the executive committee.
Upon motion duly made and seconded,

and by

unanimous vote, the service of Mr. Ransom as an
alternate member of the executive committee dur

ing the current absence of Chairman Eccles was
approved, ratified and confirmed and he was se
lected to serve as an alternate member of the com
mittee in future absences of the Chairman, it
being understood that this selection would not
affect the order of service of alternate members
of the executive committee in the absence of other
regular members of the committee or in the absence
of both Chairman Eccles and Mr. Ransom.
Mr. Harrison referred to the resignation of W. Randolph Burgess
as Vice President of the Federal Reserve Bank of New York and as Manager
of the System Open Market Account and stated that the board of directors
of the Federal Reserve Bank of New York had selected Allan Sproul, First
Vice President of the bank, to succeed Mr. Burgess as Manager of the
System Open Market Account subject to his selection being satisfactory
to the Federal Open Market Committee.
accordance with Section 5 of Article II

Mr. Harrison suggested that, in
of the by-laws of the Committee

which provides that the Manager of the System Open Market Account shall
be satisfactory to the Federal Open Market Committee and shall serve at
the pleasure of the Committee,

action be taken by the Federal Open Mar

ket Committee at this time on the selection of Mr. Sproul.
Upon motion duly made and seconded,

and by

unanimous vote, the selection of Mr. Sproul was
approved.

Mr. Harrison reviewed the operations in the system open market

9/21/38

-3

account since the last meeting of the Committee, as outlined in the weekly
reports sent by the Federal Reserve Bank of New York to the members of
the Committee.

He also reviewed the transactions which had been effected

in the account during the last few days because of the unsettled market
conditions resulting from developments in Europe and stated that since
commitments to date would reduce the amount of bonds in the account to
approximately $778,000,000 he felt it
tive committee, when renewing its

would be desirable for the execu

authority to the Federal Reserve Bank

of New York to execute transactions for the system account,

to lower

the amount below which the system holdings of bonds might not be reduced.
Upon motion duly made and seconded, and by
unanimous vote, the transactions in the system
open market account for the period from August
2, to September 19, 1938, inclusive, were ap
proved, ratified and confirmed.
During Mr. Harrison's report Mr. Piser, Senior Economist in the
Division of Research and Statistics of the Board of Governors,

joined

the meeting.
There ensued a discussion of future policy of the Federal Open
Market Committee in the light of continued improved domestic business
conditions,

and what appeared to be the diminished immediate possibili

ties of war in Europe consequent upon the recommendations by the English
and French governments to Czechoslovakia that it

agree to the annexa

tion by Germany of the Sudeten German territory in Czechoslovakia.

It

was suggested that while a relaxation of tension in the European situa
tion would make seriously disturbed market conditions less imminent,

9/21/38
there was still

considerable danger and uncertainty in the situation

which might result in the necessity for emergency action, and that, in
these circumstances, the authority granted to the executive committee
to increase or decrease the system account upon written, telephonic,
telegraphic approval of a majority of the members of the Committee
should be enlarged.

Mr. Harrison suggested that at the appropriate

time the Committee give further consideration to the conditions under
which it

would reduce the system account.
At the conclusion of the discussion,
upon motion duly made and seconded, the fol
lowing resolutions were adopted by unanimous
vote:

That the executive committee be directed, until other
wise directed by the Federal Open Market Committee, to
arrange for the replacement of maturing securities in the
system open market account with other Government securities
and for such shifts in maturities as may be necessary in
the proper administration of the account, provided (1)
that maturing Treasury bills shall be replaced only with
Treasury bills or notes to the extent that they can be
purchased without paying a premium over a no-yield basis;
(2) that, subject to the foregoing limitation, the amount
of securities in the account maturing within two years be
maintained at not less than $1,000,000,000; and (3) that
the amount of bonds in the account having maturities in
excess of five years be maintained at not less than
$500,000,000 nor more than $900,000,000.
That, in addition to such authority as may be con
tained in other resolutions of the Federal Open Market
Committee and until otherwise directed by the Committee,
the executive committee be authorized, upon written, tele
phonic or telegraphic approval of a majority of the members
of the Federal Open Market Committee, to arrange for the
purchase or sale (which would include authority to allow
maturities to run off without replacement) of Government
securities in the open market from time to time for the

or

9/21/38

-5-

system open market account to such extent as the executive
committee shall find to be necessary for the purpose of
exercising an influence toward maintaining orderly market

conditions, provided (1) that the total amount of securi
ties in the account be not increased or decreased by more
than 200,000,000, and (2) that the amount of bonds in the
account having maturities over five years be maintained at
not less than $500,000,000 nor more than $900,000,000.
On behalf of the special committee (Messrs. Davis, Ransom and
Sinclair) appointed to consider Section 6 of Article I of the by-laws
of the Federal Open Market Committee and to submit a report and recom
mendation thereon, Mr. Davis stated that the committee wished to submit
the following recommendation:
"That the last sentence of Section 6 of Article I,
which reads as follows, be eliminated:
'Except as herein provided, no reports on the
meetings of the Committee shall be made to any
person or persons whatsoever.'
"The committee has concluded that the foregoing sentence,
apart from being somewhat redundant, is unnecessarily re
strictive and, when literally construed with the preceding
sentence of Section 6, prevents the members of the Committee
from reviewing with officials and directors of the Federal
Reserve Banks the background and reasons for past actions
or meetings and tends to restrict the members of the Com

mittee from obtaining from these sources valuable back
ground information on matters to be deliberated by the
The elimination of the sentence will not re
Committee.
move the confidential nature of the matters considered and
acted on by the Committee."
In
it

explanation of the recommendation Mr. Davis stated that, if

were approved, the members of the Committee would be authorized to

discuss with the officers and directors of the Federal reserve banks
wholly completed actions of the Federal Open Market Committee but not

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-6

the actions which are currently effective or continuing matters of
policy.

He said that the special committee did not feel that a reso

lution could be written which would define satisfactorily the matters
that properly could be discussed, but that if

it

were clearly understood

that the members of the Committee were expected to regard as strictly
confidential actions and policies of the Committee which were still
currently effective or continuing matters of policy, the Committee
could rely on the judgment of its

members to determine what constituted

past and completed actions of the Committee which they would be at
liberty to discuss with officers and directors of Federal reserve

banks.
Upon motion duly made and seconded, and
by unanimous vote, the recommendation of the
committee was approved, and the by-laws were
amended accordingly.
Mr, Davis stated that at the meeting of the executive committee
of the Federal Open Market Committee on September 15, 1938, an informal
request was made that he and Mr. Sinclair prepare a draft of a letter
to Mr. Burgess with respect to his service as Manager of the System
Open Market Account and that the following letter was submitted for
the consideration of the Committee:
"The members of the Federal Open Market Committee
have learned with regret of your resignation as Vice
President of the Federal Reserve Bank of New York and as
Manager of the System Open Market Account.
"No one in the Federal Reserve System has had a
closer contact than you have had with the development of
the facilities of the System for meeting its responsibilities

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-7

"in the important field of credit control or a more in
timate relation with the execution of the policies which
have been adopted in the discharge of these responsibili
ties. The mature judgment which you were thus able to
bring to the councils of the present Federal Open Market
Committee as the newest instrument provided by the Congress
to carry out the System's task in this field has made your
service as Manager of the System Open Market Account an
invaluable one.
"The close ties of friendship which were formed when
you were associated with the members of the Federal Open
Market Committee in meeting common problems is of great
worth to them and they all join in wishing you every pos
sible success in your new undertaking."
Upon motion duly made and seconded,
the letter was approved by unanimous vote.
Mr. Harrison stated that on two or three occasions recently
he and Mr. Ransom had had an opportunity to discuss with the Secretary
of the Treasury the policy of the Treasury Department with respect to
gold imports,

that a further discussion of the matter was had at the

Treasury Department this morning when reference was made to the fact
that the rapid increase to the present figure of $844,000,000 in the
amount of gold held in the general fund,

of which

was free
$683,000,000

gold, had attracted considerable public attention and comment in the
press and otherwise as to what the policy of the Treasury with respect
to the gold was to be, particularly in view of present indications
that the account would be substantially increased in the near future
by further gold imports.

The Secretary advised, Mr. Harrison said,

that he planned to deposit with the Federal reserve banks from time
to time in

round amounts enough gold to offset gold imports, the round

amounts deposited to be slightly above actual imports with a result

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that there would be a small reduction in

the amount of gold held in

the account as long as the program was continued.
Following Mr. Harrison's statement the meeting adjourned.

Secretary.

Approved:
Vice Chairman.