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A meeting of the Federal Open Market Committee was held
on Tuesday, July 22, 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.
r.
Mr.

Martin, Chairman
Hayes, Vice Chairman (New York)
Balderston
Fulton (Cleveland)
Irons (Dallas)
Leach (Richmond)
Mangels (San Francisco)
Mr. ills
Mr. Robertson
Mr. Shepardson
Mr. Szymczak
Vardaman
Mr. Triber, Alternate Member of the Federal
Open Market Committee (New York)
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Riefler, Secretary
Thurston, Assistant Secretary
Solomon, Assistant General Counsel
Thomas, Economist
Young, Associate Economist
Rouse, Manager, System Open Market Account
(New York)
Mr. Molony, Special Assistant to the Board of

Governors
Mr. Kenyon, Assistant Secretary,
Governors

Board of

Mr. Koch, Associate Adviser, Division of Re
search and Statistics, Board of Governors
Keir, Acting Chief, Government Finance
Section, Division of Research and Statistics,
Board of Governors
Messrs. Larkin and Marsh, Assistant Vice Presi
dents, Federal Reserve Bank of New York
Mr.

(New York)
Mr.

Stone, Manager, Securities Department,
Federal Reserve Bank of New York (New York)

7/22/58
Reporting on the Government securities market, Mr. Larkin
said there was a continuing availability of the rights and when
issued securities.

Because of the threat posed by this situation,

the System Account continued to buy the when-issued securities in
the market this morning.

It started buying yesterday afternoon

when the atmosphere got worse, and had bought today $78 million of
the when-issued certificates.
done thus far today.

That was all that the Account had

The prices paid ranged from par plus 1/64 to

par plus 3/ 6 4.
The rest of the market, Mr. Larkin said, was not too un
satisfactory.

The intermediate area was showing a modest amount

of strength, which reflected the efforts of the holders of some
of the maturing securities to do their own refunding.
the 2-5/8 per cent bonds had improved a little
were 98-3/8 bid.

As a result

in price and currently

Long-term bonds were practically unchanged from

last night's close, and the bill market was relatively steady.
Mr. Larkin's further report on the market situation is
summarized in a memorandum of today's date from Mr. Thomas,

of

which a copy has been placed in the files of the Committee.
In terms of general approach for the day, Mr. Larkin said
that the Account intended to avoid any security operations except
that if there were foreign purchase orders for bills, such orders
would continue to be filled out of the System Account.

As far as

7/22/58

-3

the rest of the market was concerned, the Account would continue
to buy when-issued securities as it
a rise in price.

had so far, at not too great

It was felt that the rights situation should not

become too attractive in relation to bills.

There had been a dis

cussion about the question of the September rights, which on a

current basis yielded more than Treasury bills, and consideration
was being given to buying some of those rights in the market today.
At least, the Management of the Account would be reviewing the matter
to see if

that might possibly help the situation.

The intermediate

area seemed to be taking care of itself, and the Account did not
contemplate doing anything there, while the long end was steady.
The tentative approach was to stay out of the market for the time
being but, depending on circumstances,

to give it

a touch if

needed

to help the over-all atmosphere.
Mr. Mills said the impression he received from the report
on market conditions was that the Committee might be sidetracking
the main issue.
intervening in all
initial

Last Friday, when the System announced that it

was

sectors of the Government securities market,

the

response was satisfactory,

but reports this morning in the

newspapers and the financial journals raised doubt as to whether
the System was living up to the position it

took in the announcement.

This brought him to the thought that very likely the greatest help
that the System could give the Treasury in its

offering now open

-4

7/22/58

to subscription would be to take a more positive attitude toward
the longer end of the market, particularly those longer issues
that appeared to be drifting this morning.

This would mean that

the Desk would invite offers on selected issues and acquire, within
limits of prudence,

the longer issues as additions to the System

Account,

with the knowledge that this would be an experiment.

However,

if

the experiment proved successful it

would give a tone

and depth to the longer end of the market which would rapidly com
municate itself

as announced System policy to the short end and thus

reduce the problem of assisting the Treasury.
would be an experiment and,
in

As he had said, this

in the event of a higher level of prices
position.

the longer end, the Account might have to recede from its

to him the critical matter was the immediate problem of the

However,
Treasury,

and as of this hour the greatest support that the System

could give would be to take a positive position in

the longer end

of the market.
Chairman Martin stated that he thought this involved a
matter of judgment.

The 3-1/2s were below par last Friday, they

went to nearly 101 yesterday, and they would be entitled to some
reaction without affecting the market at all.

The question was

how much, and that was a line of judgment that had to be made.
He could not say that he fully concurred in the view of Mr. Mills
that marking up the longer-term issues would give tone to the

7/22/58

-5

market because they were marked up fast on Friday after the
System's announcement.
Mr.

Rouse said he thought Mr.

Mills was probably correct

in terms of the effect of operations such as he proposed.

However,

there was the problem of the price reaction to the announcement on
Friday.

Thereafter,

and continuing through yesterday, there was a

continuous and orderly market without System participation.

Going

on from here on any substantial basis would raise the very serious
question of how to face the situation afterward, and that was a
problem he had not resolved in
right in

his own mind.

Mr. Mills was probably

saying that the biggest help to the Treasury would be across

the-board action in

bonds,

but he (Mr.

Rouse) would be reluctant to

undertake such a program because of the situation that could develop
after the books on the Treasury offering were closed.
Mr.
Messrs.

Hayes stated that after listening to the comments of

Mills,

System was in

Martin, and Rouse, he leaned to the view that the
the middle of this and that the big problem was the

Treasury financing, which could be a very serious failure.
reason, he would lean toward experimenting a little
Mr.

Mills suggested.

Time,

Within

along the lines

he noted, was of the essence.

If

some

thing could be done along those lines--and here he was not referring
to pushing prices up rapidly--that would appeal to him.
Chairman Martin again stated that it

was a matter of judgment.

The Account Manager must make up his mind and do what he thought

7/22/58

-6

would be helpful.

Referring, however, to the current price level

of the long-term bonds, for example, the 3-1/2s, the Chairman ob
served that it

would be hard to get down from that area if

Account got loaded up with bonds.

the

The best thing for the Treasury,

he said, might be to pick up attrition with a bill
than to make a market that might not hold.

offering, rather

However,

the Manager

must decide.
Chairman Martin also stated that he had told Under Secretary
of the Treasury Baird that he would inform Mr.

Rouse of the view Mr.

Baird had expressed this morning that the System was not doing
enough in

the when-issued securities.

The Chairman then said that he did not think it should be
assumed that the market could be remade in a period of two or three
days,

and Mr. Robertson said he agreed completely.

Mr. Irons also

expressed agreement, stating that he questioned tampering with the
market for a day or two.
the problem.

Messrs. Robertson,

that they concurred in
Mr.
large.

To do so,

Mr.

he felt, would only compound

Balderston, and Shepardson indicated

Irons' comment.

Hayes then said that the attrition might be extremely

The question was the extent to which it

was the System's

responsibility to keep the attrition within reasonable limits.
Mr.

Irons inquired whether the System would have a moral

obligation to maintain a price level if it were to go into the long

7/22/58

-7

market now as suggested by Mr.

Mills.

saw no moral obligation.

Mr. Rouse stated that he

By going in

on a large scale the System

might be accused of rigging the market for the Treasury.

That was

on the assumption that, following the System's withdrawal,
market might drop off somewhat.
no quarrel with going in

if

Mr.

Rouse said that he would have

the market began to fall,

buying to steady the situation.

the bond

However,

that is,

before going in in

a

wholesale way he would like to have an expression from the Committee.

Chairman Martin said that personally he thought it would be
a mistake to go in wholesale, for the System could then legitimately
be accused of rigging the market.

The System went in

to correct a

disorderly condition, and he did not think there was justification
in pushing the market up to create confidence.

Marking up the market

was a different matter from a steadying operation.
Mr.

Hayes said it

seemed to him that in

was not facing up to the real problem.

a way the Committee

The System went into the

market because of a disorderly condition, there being an absence of
bids for the intermediate and long-term bonds.
there was the Treasury refunding.
be corrected if

At the same time

The disorderly tendencies could

the market stayed the way it

was today,

but there

might be extremely high attrition and that was another problem the
Committee must face.
Chairman Martin commented that the System is

always faced

with that problem and should not be panicked into picking up attrition

-8

7/22/58
in

advance.

On the other hand, if

the market did not take the

issue, the System must consider financing the Treasury by buying
what was left over.

That would be a problem confronting the System

for a period of several months unless conditions should change.
would be difficult to find a middle ground,

It

and the problem must be

faced up to by the System.
Mr. Rouse then stated that he was planning to go ahead as
indicated and that he would do some touching up in the longer end
of the market if

that seemed advisable.

Chairman Martin noted that the refunding might turn out a
lot better than some people expected, and Mr.
encouragement in

the roll-over decision made by a large public utility.

Mr. Robertson then commented that if
Mr. Rouse,

meant steadying the market,

marking up prices,
Mr.

Rouse reported finding

touching up, as used by

that was fine.

If it

meant

he was against it.

Rouse replied that he thought his position was clear.

His intention was to make purchases in the longer-term market in a
modest way if

it

began to drift down but he would not push prices

up.
Members of the Committee indicated that action along those
lines would be agreeable to them.
In a concluding comment,

Mr. Larkin stated that System pur

chases of when-issued securities today were now well over $100 million.

7/22/58

-9
The meeting then adjourned.