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A meeting of the Federal Open Market Committee was held on
Thursday, December 8, 1955, at 10:20 a.m., E.S.T.

This was a telephone

conference meeting and the location of each individual is indicated in
parentheses after his name in the following list of those in attendances
PRESENT:

Mr. Martin, Chairman (Washington)
Mr. Sproul, Vice Chairman (New York)
Mr.
Balderston (Washington)
Mr. Earhart (San Francisco)
Mr, Fulton (Cleveland)
Mr. Irons (Dallas)
Mr.

Mr,
Mr,

Mr.
Mr.
Mr.
Mr.

Leach (Richmond)
Mills (Washington)
Robertson (Washington)
Shepardson (Dallas)
Szymczak (Washington)
Vardaman (Washington)
Treiber, Alternate Member, Federal Open
Market Committee (New York)

Mr.
Mr,
Mr.
Mr,
Mr.

Riefler, Secretary (Washington)
Thurston, Assistant Secretary (Washington)
Thomas, Economist (Washington)
Vest, General Counsel (Washington)
Solomon, Assistant General Counsel
(Washington)

Mr, R. A. Young, Associate Economist

(Washington)
Mr, Rouse, Manager, System Open Market
Account (New York)
Mr, Carpenter, Secretary, Board of

Governors (Washington)
Mr.
Mr.

Sherman, Assistant Secretary, Board
of Governors (Washington)
Koch, Assistant Director, Division of
Research and Statistics, Board of

Governors (Washington)
Miller, Chief, Government Finance
Section, Division of Research and
Statistics, Board of Governors (Washington)
Mr. Roosa, Assistant Vice President,
Federal Reserve Bank of New York (New York)
Mr.

12/8/55

-2.
Chairman Martin asked that Mr.

Rouse review the situation in

the market this morning,
Mr. Rouse said that this meeting arose out of developments
yesterday afternoon.

In late trading, there was a psychological dete

rioration in the market in the last three-quarters of an hour which
apparently was feeding upon itself.
banks and city banks,

The three groups--dealers,

country

and nonfinancial corporations--may have been

"kidding" each other, but the story got around that country banks were
not interested in bidding in the Treasury's bill

auction tomorrow.

The

city banks thought their corporate customers were not interested, and
the underwriting banks became less interested themselves.

In terms of

rates, the auction price for the new bills was estimated at about
2.35 per cent on Tuesday; yesterday the talk was in terms of 2-1/2 per
cent; and in

the "moonlight" discussions late yesterday there was talk

of the possibility of 2-3/4 per cent, or even 2-7/8 per cent.
position of banks has not been adverse.
first

The money

Net borrowed reserves in

four statement days of the past week were running a little

the
over

$300 million, and in the past three days, while net borrowed reserves
have been over $500 million, the market has been relatively comfortable

because of accumulated excesses.

The situation does, however, reflect

in part the relatively unsatisfactory experience that the market is
having on the recent Treasury financing exchange, with no buying going
on and with the new securities quoted at par with a bid just under par

-3

12/8/55
and some trading under par.

These developments,

as reported by the

senior traders at the principal security houses, were such as to suggest
an incipient disorder in

the market and it

was believed desirable to

alert the Committee to that possibility,
In response to Chairman Martin's inquiry as to his program,
Mr.

Rouse said that the situation in

the market for Government securities

was related to the general situation in

the capital market,

Municipal

inventories of dealers were very heavy, probably in excess of $400
million.

Also, recent issues of corporate securities have not been

successful and dealers'

inventories are building up.

atmosphere of gloom and uncertainty.

There is

Purchases of bills

an

totalling

$85-1/2 million were made for the System account yesterday and the
account was now in
dealers-it

the process of asking for tenders of bills

by

was anticipated that the account would purchase in the

neighborhood of $125 million for cash today.

That concluded Mr. Rouse's

report.
Chairman Martin asked what in

the way of authority Mr. Rouse

thought might be needed during the course of the day, and Mr, Rouse said
he thought the existing amount of authority was satisfactory.
is
ily

still

able to buy bills.

He did not think buying bills

prove to be the answer to the situation if

developing, but Mr.

The account

would necessar

disorder appeared to be

Rouse said he did not anticipate such a development

although there was still

a possibility.

His only suggestion was that it

12/8/55

-4

would be desirable to have the Committee available in case more authority

were needed.

Mr. Rouse also stated that the authority given by the Com

mittee on November 30 for purchases on a when-issued basis of the new
one-year 2-5/8 per cent Treasury certificates had been used to the extent
of purchasing $167 million.

This authority lapsed yesterday since today

the securities became outstanding rather than when-issued securities.
Mr.

Rouse added the comment that the new securities presumably are in

the short-term area encompassed by the Committee's instruction approved
at the meeting on March 2,
justifiable if

it

1955, and their purchase technically would be

appeared desirable that such purchases be made,

Chairman Martin suggested that the Committee stay alerted to
developments in
agreements,

the market today.

His hope would be that repurchase

use of the discount window, and outright purchases of bills

would handle the situation.

Mr. Rouse said that in addition to buying bills outright, he
was making clear to dealers that there was no reason to think that the
repurchase window would not continue to be open through the end of the
year as it has been in previous years.
Mr. Mills stated that there had been a precedent in the past
on occasions where there has been a "stickiness" in

a Treasury financing

offering where the Federal Reserve Banks had communicated with the more
important member banks in their districts to encourage participation in
a particular offering.

In the present case, where the central reserve

12/8/55

-5

city banks were feeling the pinch of tight money more than the out-of
town banks,

there could be good reason for the Federal Reserve Banks,

depending on developments during the day, to contact the out-of-town
banks by way of suggesting reasonable participation in the tax antic
ipation bill

offering and stating that where the discount window is

to support that participation, it

used

would not under present circumstances

be regarded as a violation of the general understanding against contin

uous borrowing.
Mr. Sproul said that he was getting in touch with the banks in
New York and reminding them of their responsibility as underwriters in
connection with a Treasury tax anticipation offering such as this, and
he felt

this would be taken as an indication that the discount window

will be open in

connection with borrowings for reserves needed to perform

that function.
Mr. Mills commented on a point raised by Mr. Fulton that member
banks might need encouragement to understand that if

they were not in

a

position to redistribute satisfactorily the securities they acquired
within the ten to fifteen day period that is

estimated in

some quarters

as the life of their tax and loan accounts, they would have the facilities
of the discount window to carry them for a somewhat longer time until a
desirable redistribution might beeffected,
Chairman Martin stated that this meeting had been for informa
tional purposes only and that no additional authority was being asked at

6.

12/8/55
the present time.

He expressed the hope that the System account would

not have to go into purchases of the new 2-5/8 per cent certificates
any further than it already had done, if that could be avoided.

He added,

however, that the judgment on such purchases had to be related to develop.
ments in the market and that the Committee would stay alerted for any call.
Mr. Sproul referred to t he recent performance of the market in
connection with the Treasury offering and said that the market might give
weight to that factor out of proportion to its real importance,

He thought

it might be helpful if the System account were to buy some of the 2-5/8
per cent certificates, which would fall within the Committee's instruction
that operations be confined to short-term Treasury securities, although
such purchases would not fall within the clause indicating a preference
for bills.
and if

it

However, the New York Bank would keep the Committee informed
thought purchases of the 2-5/8 per cent certificates would be

desirable it would let the members of the Committee know promptly,
Chairman Martin stated that for his part he would be guided by
the judgment of Mr. Sproul and of Mr. Rouse and others on the desk.
Thereupon the meeting adjourned at 10:37 a.m.
Secretary.