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FORTY-NINTH
Annua{ Report
OF THE
BOARD OF GOVERNORS
of the Federal Reserve System
COVERING OPERATrONS FOR THE YEAR
Period
Action
Purpose of action
Reduced System holdings of U. S. Government
securities by about $500 million through net
sales and redemptions. Member bank borrowings from the Reserve Banks averaged
less than $100 million.
Authorized open market transactions in foreign
currencies.
Increased System holdings of U. S. Government securities by about $1.3 billion, of
which half represented purchases of securities with maturities of more than 1 year.
Member bank borrowings from Reserve Banks
continued to average less than $100 million.
To permit further bank credit and monetary expansion by
absorbing only part of seasonal inflow of reserve funds,
mainly from post-holiday return of currency from circulation, while minimizing downward pressures on short-term
interest rates.
To moderate and offset short-term pressures on the dollar in
the foreign exchange market.
To promote further bank credit and monetary expansion while
avoiding sustained downward pressures on short-term
interest rates.
Mid-J uneIncreased System holdings of U. S. Governlate October ment securities by about $200 million with
net sales and redemptions of Treasury bills
of about $700 million being more than offset
by purchases of coupon issues, of which twothirds were issues maturing in more than 1
year. Member bank borrowings from Reserve
Banks averaged less than $100 million.
July
Reduced margin requirements on loans for
purchasing or carrying listed securities from
70 to 50 per cent of market value of
securities.
To permit moderate increase in bank credit and money supply while avoiding redundant bank reserves that would
encourage capital outflows, taking into account gradual improvement in domestic economy and possibilities for further advance, while recognizing the bank credit growth of
past year and continuing adverse balance of payments.
October
To help meet seasonal needs for reserves, while minimizing
downward pressures on short-term interest rates, and to
provide for the longer-term growth in bank deposits needed
to facilitate the expansion in economic activity and trade.
JanuaryFebruary
February
Marchmid-June
Reduced reserve requirements against time deposits from 5 to 4 per cent, effective
October 25 for reserve city banks and November 1 for other member banks, thereby
releasing about $780 million of reserves.
Late October- Increased System holdings of U. S. GovernDecember
ment securities by about $1.0 billion, with
more than half of the net increase in issues
maturing in more than 1 year. Member
bank. borrowing from the Reserve Banks
rose gradually over period, but only to an
average of about $200 million.
6
To take into account the recent sharp reduction in stock
market credit and the abatement in speCUlative psychology
in the stock market.
To help further in meeting seasonal needs for reserve funds
while encouraging moderate further increase in bank credit
and the money supply and avoiding money market conditions unduly favorable to capital outflows internationally.
In mid-December open market operations were modified to
provide a somewhat firmer tone in money markets and to
offset the anticipated seasonal easing in Treasury bill rates.
7
ANNUAL REPORT OF BOARD OF GOVERNORS
accord a higher priority to domestic goals. In his judgment, this
was the wrong time to shift toward a policy calling for any lesser
degree of monetary ease.
FEDERAL RESERVE SYSTEM
Total foreign currencies held at any one time shall not exceed $500
million.
Votes for this action: Messrs. Martin, Hayes, Balderston,
Bryan, Deming, Ellis, Fulton, King, Mills, Robertson, and
Shepardson. Votes against this action: None.
June 21, 1962
Authority to purchase and sell foreign currencies.
At this meeting, held by telephone, the continuing authority
directive to the Federal Reserve Bank of New York with respect
to System foreign currency operations, as adopted by the Federal
Open Market Committee on February 13, 1962, and amended
May 29, 1962, was further amended, effective immediately, to
add the Canadian dollar to the list of foreign currencies that the
New York Bank was authorized and directed to purchase and
sell. This action was taken in view of the imminent prospect of
a reciprocal currency (swap) agreement being entered into be
tween the Federal Reserve System and the Bank of Canada as
part of a broad package of financial assistance-including as
sistance from the International Monetary Fund, the Bank of
England, and the U.S. Export-Import Bank--designed to rein
force the Canadian Government's efforts to defend the Canadian
dollar against a speculative wave that threatened to force the
Canadian dollar off its recently established par value. As
amended, the continuing authority directive read as follows:
The Federal Reserve Bank of New York is authorized and directed to
purchase and sell through spot transactions any or all of the following
currencies in accordance with the Guidelines on System Foreign Cur
rency Operations issued by the Federal Open Market Committee on
February 13, 1962:
Pounds sterling
French francs
German marks
Italian lire
Netherlands guilders
Swiss francs
Belgian francs
Canadian dollars
July 10, 1962
1. Authority to effect transactions in System Account.
Economic activity, as interpreted in reports at this meeting,
appeared to be in a period of hesitation. Although advances had
continued in May and early June, they tended to be smaller than
in earlier months, and adverse trends were reported for some key
series. The unemployment rate, for example, was up slightly in
June.
Retail sales, which were off slightly in May, appeared on the
basis of weekly data to have declined again in June. Business
inventory accumulation continued in April and May, but at
sharply reduced rates. On the other hand, a survey conducted in
late June indicated that business plans for new plant and equip
ment outlays this year were still largely unchanged, suggesting
that they had not been adversely affected by the decline in stock
prices. Construction activity continued to rise in June, with
gains widely spread among major types of construction.
A principal feature of financial developments since the June 19
meeting was the less easy tone in the money market. The 3
month Treasury bill rate rose to just under the Reserve Bank
discount rate (3 per cent), and Federal funds traded at the dis
count rate most of the time. Yields also had risen on municipal
and corporate bonds as well as on U. S. Government bonds.
Member bank borrowing at Federal Reserve Banks increased
moderately, and free reserves of member banks were somewhat
lower than in the preceding 3 weeks.
Bank credit outstanding increased in June, with the increase
centered more in loans than investments; the loan increase was
widely distributed among types of loans. Loans to brokers and
@FedFRASER