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A meeting of the Federal Open Market Committee was held
on Tuesday, July 15, 1958, at 9:30 a.m.

This was a telephone

conference meeting and each individual was in Washington except
as otherwise indicated in
ing list

parentheses after his name in the follow

of those participating:


Martin, Chairman
hayes, Vice Chairman (New York)
Fulton (Cleveland)
Irons (Dallas)
Leach (Richmond)
Mr. Riefler, Secretary
Mr. Thomas, Economist
Mr. Young, Associate Economist
Mr. Rouse, Manager, System Open Market Account
(New York)
Mr. Kenyon, Assistant Secretary, Board of

Mr. Keir, Acting Chief, Government Finance
Section, Division of Research and
Statistics, Board of Governors
Chairman Martin stated that this meeting had been called pur
suant to a suggestion made yesterday by the Treasury.

He was not in

Washington at the time and had returned only this morning.
he understood it


to be the thought of the Treasury that there might

be some announcement of action by the Government in connection with
the crisis in the Middle East which would be of such a nature that
the Federal Open Market Committee would want to consider what, if



any, action should be taken with respect to the Government securi
ties market.

As yet there had been no announcement, Chairman Martin

said, but since the meeting had been set up and there might be some

he thought that there might well be a review of

developments in the market.
Chairman Martin then called upon Mr. Rouse for a report,
particularly concerning any developments subsequent to those which
he reported to Washington yesterday afternoon and which had been
related by the Secretary to other members of the Committee.
Mr. Rouse reported an increase in the volume of bank selling
in after-hour trading yesterday, but said that the price declines
were not as sharp as they had been during the day, when the declines
were very large.

There was little indication of buying interest.

The Committee, he said, was of course familiar with the announce
ment by the Treasury last week that it was supporting issues,
particularly the new 2-5/8 per cent bonds of 1965, by purchases
for its own account.

Certain dealers had stated that they did not

feel that the international situation had affected the market
yesterday, but on the other hand some equally competent observers
thought that such developments were responsible in some measure
for the trend of the market in the afternoon.
Mr. Rouse said that it is difficult to determine what
constitutes a disorderly situation in the market.

He was concerned



about the possibility of developments that might come out of the
crisis in

the Middle East, for they suggested the possibility of

a situation involving a total bear market, i.e.,

characterized by

virtual absence of buyers.
Mr. Rouse then commented that an announcement had been made
of a special press conference at the White House,
there was no further information.

but that as yet

Shortly thereafter,



reported that an announcement had appeared on the ticker regarding
the landing of United States troops in Lebanon.

He then read the

text of the White House statment on that subject.

Rouse said he feared that a heavy volume of selling

might develop as the result of that announcement, which raised
the question whether the Account ought to take any action.


then spoke of an indication that the Desk would be authorized by
the Treasury to make further purchases of securities for its

At that point he stated that he was going to talk with

Under Secretary of the Treasury Baird and that he would then return
to the Open Market meeting.
The suggestion was made by Mr.

Vardaman that the members of

the Open Market Committee might be asked to come to Washington today
and be available for the next few days now that troops had been
landed in Lebanon.
Mr. Hayes stated that he would be glad to come but that he
did not think it

was necessary at this time.


seemed to him that



the Committee could make any decisions in telephone conference
Chairman Martin then outlined alternative possibilities.
The Committee could do nothing,


could let the market drop and

decide to come in at lower levels, or it could decide to buy on
a scale down.

He said that he would like to have expressions from

the members of the Committee.
that it

Hayes commented that the market had not yet opened and

was difficult to make a decision until it

the market was doing.


could be seen what

might be that there would not be much

selling; on the other hand, there might be a deluge and, if there
was, he felt that the System Account should buy right away.
Chairman Martin asked Mr. Hayes if

he or Mr.

views as to whether there was a disorderly market,

Rouse had any

and Mr. Hayes

responded that he would rather have Mr. Rouse talk about that.
Chairman Martin said he gathered from Mr.

Rouse last night

that he did not think the market was as yet disorderly, and Mr. Hayes
then said that up to the moment he would say that it was not.


ever, the market was not yet open today.
Mr. Fulton stated that he would rather wait for an indication
of what the market was doing before passing any judgment on the situa

If it developed that there was merely professional probing of

the market, he would stand aside, at least for the time being.




on the other hand,

heavy selling pressure developed, with offerings

by institutional investors,

some action might be called for.

Mr. Leach suggested another meeting of the Committee in about
an hour, or sooner if

the Manager of the Account should want to have

one called.

Rouse then returned to the meeting with advice that the

Treasury had authorized the Desk to activate orders for the Treasury
up to $85 million.

basis, he said.

The authorization was to buy on an "if


The Treasury was apprehensive of wholesale liquida

tion today and felt that the System should be concerned.


was anticipated particularly on the 2-5/8s and the 31/4s of 1985.
In these circumstances, the Treasury had authorized the execution
of orders to try to avoid a sheer drop in prices without any market
activity, which would tend to "scare people to death."

Rouse then expressed the view that the Committee should

wait and make any decision about coming to Washington in

the light

of what developed in the market.
Chairman Martin agreed and said that another meeting of the
Committee in about an hour would be planned.
keep in

He asked Mr. Rouse to

touch with him and said that the Committee would rely on Mr.

Rouse to inform it


he believed at any time that a disorderly

market had developed.
The meeting then recessed and reconvened at 11:00 a.m.,
with the same attendance except that Mr.

Thurston, Assistant Secretary



of the Committee,

and Mr. Molony,

Special Assistant to the Board

of Governors, also were present.

Rouse reported that the market was giving quite a

remarkable performance.


The market was calm and was not losing

There had been some selling of Government securities

and of corporate bonds, but the United States Steel offer of $300
million bonds,

scheduled for tomorrow, was going ahead, as was

the Boeing issue scheduled for this week.

There had been some

price decline in the 3-1/2 per cent bonds of 1990 and the 3-1/4s
of 1985, along with some rather strong offerings of the 2-5/8s
of 1965, and the prices were off from last night's close.


Desk had only bought a little over $15 million for the account
of the Treasury,

the bulk being 3-1/2s which apparently were held

some speculative account.

While there was very little


buying, one bank bought a small lot and one dealer reported getting
some small orders.

By and large, the market was giving a good

As things stood, Mr. Rouse said, he could not say that
there was a disorderly market.
Asked whether it would be advisable to have another meeting
around 2:00 p.m.,

Mr. Rouse suggested standing by at 2:30 to see

whether another meeting was called for after he had brought Chairman
Martin up to date on developments.


a meeting should be called


at 2:30, there would still

be time to act, if



the close of the market.
Agreement was expressed with the procedure suggested by
Mr. Rouse.
With respect to the earlier suggestion that the members of
the Committee come to Washington, Mr.

Hayes stated that in his

opinion this was clearly not necessary at this time.

Rouse then stated that it

had been estimated that the

average of free reserves for the statement week ending Wednesday
should be about $510 million but that there were some doubtful

He would favor buying up to $75 million of Treasury bills

order to be sure that free reserves would average $500 million

for the statement week.



questioned such action.

and Robertson indicated that they

The latter stated that he thought free

reserves had been maintained at too high a level during the state
ment week which ended last Wednesday.
audibile in New York.)

(These comments were not

When the Chairman indicated that some

members had reservations,


Hayes inquired as to the nature of

these reservations but no detailed explanation was heard in New York.

Rouse said that he wanted to assure having average free

reserves of at least $500 million for the statement week with the
Treasury refunding approaching and in

the light of the general



He felt that going below $500 million might give

credence to the rumors of a change in the objective of System
policy which circulated several weeks ago.
Mr. Robertson then stated that he thought the proposed
purchase of bills would be unwise, but that the action would be
within the scope of the authority that had been given to the
Management of the Account.
heard in


Robertson's comment was not

New York.)
Following some further discussion, Chairman Martin stated

to Mr. Rouse that all of the members of the Committee agreed that
the proposed purchase of bills was within the scope of the present

While there was some disagreement as to the advisability

of the action, the Manager of the Account should follow his own
The meeting then adjourned.
Secretary's Note: In the light of sub
sequent market developments, no further
meeting of the Committee was called
during the day.