View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

A meeting of the Federal Open Market Committee was held
on Wednesday,

July 23,

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


those participating:



Martin, Chairman
Hayes, Vice Chairman (New York)
Fulton (Cleveland)
Irons (Dallas)
Leach (Richmond)
Mangels (San Francisco)


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
Mr. Koch, Associate Adviser, Division of
Research and Statistics, Board of
Mr. Keir, Acting Chief, Government Finance
Section, Division of Research and
Statistics, Board of Governors
Messrs. Conkling and Daniels, Assistant
Directors, Division of Bank Operations,
Board of Governors
Messrs. Larkin and Marsh, Assistant Vice Presi
dents, Federal Reserve Bank of New York
(New York)
Mr. Stone, Manager, Securities Department,
Federal Reserve Bank of New York (New York)



Larkin reported that the Government securities market

was generally steady.


he said, the intermediate-term

issues had quite a run-up in price due to buying resulting from
sales of rights.

In other words, people were doing their own re

funding through the market.
out of exuberance but it

That section of the market had now run

was steady.

The long-term issues were

showing a tendency to drift, but only slightly, while there was a
situation of general availability with respect to the when-issued

Today the System Account had already purchased approxi

mately $130 million of the when-issued securities, on top of
yesterday's purchases of $52 million, which were made at varying

The September rights, Mr.

Larkin said, were still


attractive on a money basis, although not as attractive as they had

Larkin went on to say that in view of the fact that the

longer end of the list

was starting to drift downward and this was

another critical day, the System Account had purchased a modest
amount of bonds with a view to maintaining stability at that end of
the market.
situation is

Larkin's further account of various aspects of the market
summarized in a memorandum from Mr.

Thomas dated today.

A copy of that memorandum has been placed in the files of the Federal
Open Market Committee.



As to the approach of the Account Management,

Mr. Larkin

said that the Desk had been purchasing when-issued securities today
at 100-3/32,

this being in

followed yesterday.

effect a continuation of the approach

As to the September rights, yesterday $73 mil

lion were purchased for the System Account on a market go-around,
but purchases were not made on a continuing basis.

Currently the

Desk did not plan additional purchases of September rights, but it
did find that yesterday's purchases,

including when-issued and

September rights, were a helpful influence to the market situation


As he had said previously, modest purchases had also

been made for the System Account in

the longer end of the list,


approach being to pick up intermediate and long-term issues as they
started to drift downward.

For example,

had been bought today at 100-1/2,

$1 million 3-1/2s of 1990

At the moment the extent of pur

chases of that issue was still $1 million, and the market for them
was a little

higher than it

had been.

Some of those securities

($14.5 million) were purchased yesterday when the market was drifting

Larkin stated that there was one other matter to which

the Account Management would like to call the attention of the Com

Looking ahead, with the System approaching $1 billion of

purchases for the Account,

there was the question of next week's

maturing bills, totaling $167 million, which were held in

the Account.



The possibility of allowing them to run off had not been allowed
for in

the New York Bank's reserve projections,

as furnished at

this meeting, but tentatively they had been earmarked for redemption.
In that connection, the Account has an opportunity to purchase from
a foreign account $30 million July 31 bills in
amount of October 2 bills.
transaction at market rates,


exchange for a like

was the thought to accomplish this

but within the Trading Room.

In other

the System Account would buy $30 million of the July 31 bills

which would be run off to help absorb the large volume of reserves
to be released on August 1, and sell an equal amount of October 2

The question was whether the Committee would agree,

technically the transaction was a swap operation,
did not feel that it
matter which it


and the Management

had the necessary authority to proceed in this

considered to be to the advantage of the System.

Chairman Martin asked Mr.

Larkin at this point about plans

for tomorrow and Friday, to which the latter replied that the Treasury
refunding would be over tonight as far as the market was concerned.
Then the Account would no longer be purchasing rights and when-issued
securities and further System action would depend on the situation
in the rest of the market.
Chairman Martin recalled that System action originally had
been taken in order to correct a disorderly condition in the market.

the System got into supporting the Treasury operation,



which, as Mr. Larkin had said, would be completed today as far as
the market was concerned; that is,

the books would be closed.


said that the Committee should face up to the question of what
should be done between now and the Committee meeting scheduled for
next Tuesday,

at which time there could be another general go-around.

He would judge from yesterday's discussion that whatever further was
done would be only to steady the market and would be done in
of correcting disorderly conditions rather than in

the light

support of the

Mr. Hayes expressed agreement, and there followed some
further discussion of market developments.

Chairman Martin then said that he wished to raise the question
of reporting System transactions in the weekly Federal Reserve Bank
condition statement, to be issued tomorrow; that is, the question of
giving notice to the public of the purchases that the System had made.
The Board of Governors, he said, had been discussing the possibility
of having the statement reflect fully what the System had done.
Mr. Rouse said he could not recall that in the past the
System had made any special statement.

It had allowed bills to run

off and had made no comment on that. This, of course, could be re
garded as a special situation and on that basis a full statement of
transactions might be justified, or it could be decided to qualify
the statement.

Mr. Rouse said that personally he did not think that



the exact figures were too important.
of what had happened,

The market was well aware

and he would be inclined not to take any

unusual action.
Chairman Martin responded that the difficulty was that the
System did take unusual action and had made an announcement that it
was stepping into the market.

The situation could not be treated

as anything except a very unusual one.

It seemed to him that, having

stepped into the market and having moved from correction of a dis
orderly condition to support of Treasury financing, the System had
an obligation to make clear to the public what it had been doing.
The System, he said, would have to live with the matter for some
time to come.

He would be hopeful that there would not be a repeti

tion, but he felt that the System ought to be as straightforward as
possible in a matter of this sort.

In the present circumstances

the integrity of the weekly statement was at stake.
Mr. Hayes stated that there had been discussion of the matter
at the New York Bank.

Mr. Rouse was quite right with regard to what

the practice had been, but personally he (Mr. Hayes) leaned toward
the view expressed by Chairman Martin.

This was indeed a special

operation and the System owed it to the public to furnish some idea
of what the System had been doing.
Chairman Martin noted that a release of information of this
kind might have some impact on the market, which was something that
should be considered.


Irons expressed agreement with the Chairman's position,

stating that a clear statement would be desirable.

He regarded this

as a very unusual situation.
Mr. Leach likewise expressed agreement and noted that in
event the System's purchases of bonds would be divulged in
statement in its


the weekly

usual form.

Chairman Martin then stated that, if

he understood correctly,

all of the members of the Committee seemed quite well agreed that
they would like to make as clear a statement as possible.

That being

the case, work on the details could continue for the balance of the

Also, the Treasury would be advised of the nature of the pro

posed statement.

Fulton agreed that the public should be informed, for

this was a very unusual situation.

Thomas inquired when it

was expected that the Treasury

would announce the results of the exchange offering,

and Mr. Larkin

commented that there had been no indication so far as to how the exchange
was going.

He would guess that, aside from the System's subscription,

total subscriptions might be in the neighborhood of $7 to $8 billion.
Mr. Mangels reported on tentative indications in the Twelfth

He stated that total subscriptions as of yesterday were

very small but that most of the subscriptions would come in this
Chairman Martin then stated that one of the Committee mem
bers in Washington was opposed to the proposed swap of bills



previously mentioned by Mr. Larkin unless there were strong reasons.
Mr. Hayes said that he thought the reason given, namely, to
add to the bills to be run off July 31, was a highly persuasive one.

would be a very natural operation and a logical one.

Mangels, Irons, Leach, and Fulton indicated that they

would favor the proposal, following which Mr.
he was opposed to "swaps" in principle,
off as of the moment.
would have to use its


Robertson stated that

but that the usual rules were

he felt that the Account Management

own judgment.

Mr. Balderston stated that he

would favor as large a runoff of bills as possible.
Returning to the question of the weekly statement,


Martin said that one possibility which ought to be considered would
be just to issue the statement in its
make an announcement in

usual form and then perhaps to

company with the Treasury when the Treasury

announced what had happened on the exchange.

Hayes stated that he would not favor such a procedure.

He would lean toward the suggestion of putting enough in

the weekly

statement to reflect what had been done.
The Chairman stated that he would, also, but that he had
thought the matter should be put on the table because of the effect
of the issuance of the statement on the market.
Chairman Martin then asked Mr. Rouse for his views about
the possible course of the market for the next couple of days after



tonight, and the latter stated that in view of what had already
been done and what the System was doing today, the longer end of
the market should be kept in

about the same position until the

Open Market meeting next Tuesday.

It was not the intent to push

the market up, but on the other hand it was not the intent to let

it go down if a few modest purchases would keep it steady.
Chairman Martin stated that this was a matter of judgment
and that he therefore wanted the matter to be on the table.


a statement by Mr. Hayes that there should be another telephone
meeting of the Committee if anything substantial happened in the
market, the Chairman said that another telephone meeting would be

planned in any event for tomorrow at 11:00 a.m. However, it ought
to be recognized and borne in mind that in correcting a disorderly
condition the Committee had not yet established a peg.
Mr. Rouse said that no peg had been established and that he
would hope to avoid the appearance of one.
Mr. Balderston said he would have no objection if the Account
Management touched up the market a bit between now and the meeting
next Tuesday.

However, any touching up should be on a scale-down

basis or the System would have pegged the market at the levels which
prevailed this morning.
Other members of the Committee expressed agreement with these


After some further discussion of latest market develop


Mr. Thomas asked how well distributed the System purchases

had been from the standpoint of the dealers, and Mr. Rouse stated
that the purchases had not been well distributed.

Of the purchases

those from one dealer were particularly heavy.

Thomas commented that this raised the question whether it

could be

said that one group of dealers was being favored against others
and that certain dealers were being encouraged to stir up business,
to which Mr. Rouse replied that the mere fact of the purchases might
be encouraging them to stir

up business on the theory that the eco

nomic situation had changed and that credit policy probably would
be changed.


tween dealers.


the Desk was not making any distinctions be

was simply buying securities as offered.

The meeting then adjourned.