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A meeting of the Federal Open Market Committee was held on Monday, July 21, 1958, at 11:00 a.m. This was a telephone conference meeting and each individual was in Washington except as otherwise indicated in parentheses in the following list of those participating: PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Hayes, Vice Chairman (New York) Balderston Fulton (Cleveland) Irons (Dallas) Leach (Richmond) Mangels (San Francisco) Mills Robertson Szymczak Shepardson Vardaman Mr. Treiber, Alternate Member of the Federal Open Market Committee (New York) Riefler, Secretary Thurston, Assistant Secretary Solomon, Assistant General Counsel Thomas, Economist Young, Associate Economist Rouse, Manager, System Open Market Account (New York) Mr. Kenyon, Assistant Secretary, Board of Governors Mr. Keir, Acting Chief Government Finance Section, Division of Research and Statistics, Board of Governors Messrs. Larkin and Marsh, Assistant Vice Presidents, Federal Reserve Bank of New York (New York) Mr. Stone, Manager, Securities Department, Federal Reserve Bank of New York Mr. Mr. Mr. Mr. Mr. Mr. (New York) Mr. Larkin reported that the Government securities market was moving up in price this morning, continuing the movement that 7/21/58 .2 developed late last Friday after the announcement appeared on the ticker that the Federal Open Market Committee had authorized the Manager of the System Open Market Account to purchase, in the open market, Government securities other than short-term securities. The movement on Friday, he said, was difficult to measure in terms of 32ds, but roughly the price advance in the last quarter hour of trading amounted to 1/ or 3/8 of a point. ranged up to an additional 14/32ds. bonds of 1990, This morning the gains For example, the 3-1/2 per cent which on Friday were purchased for the System Account below par, were up this morning to 100-7/8. Mr. Larkin said that offers were remarkably small, both in numbers and volume; so far this morning there had been only a few offers of bonds. Hence no action had been taken today by the System Account with respect to intermediate or long-term issues. On Friday between 3:00 and 3:30, roughly $32 million of notes and bonds in five different issues were purchased for the System Account. Nothing had been done on the rights. Mr. Larkin continued by saying that the consensus of the market now is that the average rate at the Treasury bill auction today would be below one per cent, although some people in the market thought that the rate might go up to one per cent or a little There was conjecture in Treasury bills; that is, higher. the market as to what the System might do in whether it would sell bills or let them run -3 7/21/58 off, particularly the latter. not improved. huge amounts, As to the rights, the situation had They were available in the market; although not in offers were appearing. level than one of magnitude. It was more a matter of the Together with the general atmosphere, the situation was not one which would encourage the exchange of maturing securities. Mr. Larkin then went on to report other aspects of the market situation this morning, serve projections. Thomas dated today. Thomas' including the picture on bank reserves and re His report is sumarized in a memorandum by Mr. In accordance with the customary practice, Mr. memorandum has been sent by wire to all of the Federal Re serve Banks and a copy has been placed in the files of the Federal Open Market Committee. In concluding his report, Mr. bond market was taking care of itself. Larkin said that the Treasury There were some signs of a two-way market developing as prices went up, but that remained to be seen. The System Account did not intend to follow prices up, but rather to stay out of the market. Mr. Larkin then referred to the question of whether anything should be done with respect to the rights and when-issued securities. All things considered, the Account Management had decided to purchase the when-issued securities rather than the rights on the theory that this would contribute more help and would defer the release of re serves until the first of August, when perhaps the problem could be -4 7/21/58 dealt with better than tomorrow or Wednesday. Mr. Larkin noted that the System Account held nearly $200 million of Treasury bills which would mature this Thursday and said that the Management was considering the possibility of running off some or all of them. until it However, a final decision would not be made could be seen what happened as far as market conditions were concerned. At present, it was the intent to run the bills off, but this was subject to change depending on market developments and the need for Federal Reserve operations in the market. Mr. Leach inquired whether the Treasury bought any securities Friday and whether it had any orders in now, to which Mr. Larkin replied that the Treasury was out of the market today and that it not buy anything during the last hour on Friday. did He added that the authority had been virtually used up. After Mr. Robertson expressed agreement with the thought that the System should not be buying at the higher prices reported by Mr. Larkin, the latter commented that prices had been marked up rather sharply and that it remained to be seen whether they would hold. He went on to say that the Desk had a couple of foreign orders for Treasury bills, which at present it intended to supply from the System Account. Mr. that it Irons commented that he thought the System had done all could from the standpoint of correcting a disorderly market. He favored the idea of running off the Treasury bills. He then asked -5 7/21/58 whether the System would gain much in the long run by making purchases of rights or when-issued securities. Mr. Larkin said he would like to think that some operations in that sector of the market would be helpful and might encourage holders of the maturing securities to exchange if the fence. they had been on Otherwise, as a leading dealer said Friday, the Treasury refunding could turn out to be the worst failure in Treasury financing. the history of Unless the rights improved in price, it might turn out to be just that. Mr. Irons stated that this would be a precedent suggesting that whenever a Treasury issue looked doubtful the Federal Reserve should step in. He warned that the Committee should realize what it might be building up for itself in the future. Mr. Larkin responded that this was a most unusual situation, particularly in view of the international situation. He said that the Account Management did not have in mind the establishment of a precedent. It was something that the Management abhorred as much as anyone. There was full agreement, he said, that this should not be regarded as establishing a precedent. Mr. Robertson said that he concurred in the views expressed by Mr. Irons, and Mr. Larkin said that the points Mr. Irons had raised were recognized and accepted. Mr. Larkin also said he had been informed that prices were holding where they were at the start of the telephone meeting. (It was now 11:30.) -6. 7/21/58 Mr. Thomas was then asked by Mr. Larkin if had any comments to make on the approach outlined. plied in the negative. The meeting then adjourned. Secretary Chairman Martin Mr. Thomas re
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