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A meeting of the Federal Open Market Committee was held on
Wednesday, November 30, 1955, at 9:30 a.m.

This was a telephone

conference meeting and the location of each individual is indicated
in parentheses after his name in the following list

of those in


Mr. Martin, Chairman (Washington)
Mr. Sproul, Vice Chairman (New York)

Mr. Balderston (Washington)
Mr. Earhart (San Francisco)
Mr. Fulton (Cleveland)

Mr. Irons (Dallas)
Mr. Leach (Richmond)

Mr. Mills (Washington)
Mr. Robertson (Washington)
Mr. Shepardson (Washington)
Mr. Szymczak (Washington)

Mr. Vardaman (Washington)
Mr. Treiber, Alternate Member, Federal Open
Market Committee (New York)
Mr. Riefler, Secretary (Washington)
Mr. Thurston, Assistant Secretary (Washington)
Mr. Vest, General Counsel (Washington)
Mr. Thomas,
Mr. Ralph A. Young, Associate Economist

Mr. Rouse, Manager, System Open Market
Account (New York)
Mr. Roosa, Assistant Vice President

(New York)
Mr. Carpenter, Secretary, Board of Governors

Mr. Sherman

Assistant Secretary Board of

Governors (Washington)
Mr. Koch, Assistant Director, Division of
Research and Statistics, Board of
Governors (Washington)
Mr. Miller, Chief, Government Finance Section,
Division of Research and Statistics

Board of Governors (Washington)



In response to Chairman Martin's request, Mr. Rouse reviewed
the market situation.

He stated that the $12 billion Treasury exchange

offering of 2-5/8 per cent certificates or 2-7/8 per cent 2-1/2 year
notes was extremely well received when it
November 25.

was announced on Friday,

There was a steady offering of "rights," however,

Monday, November 28, it

and by

was clear that a number of large holders of the

maturing issues who needed funds for tax payments, dividends, or other
year-end purposes would not exchange their holdings into the new securities.
Mr. Rouse said that there were also some bank holders of the maturing
securities who decided not to exchange into the new issues.


agreements had been made freely available on Friday and Monday, he said,
and, although the money market yesterday was relatively easy, it


that a substantial additional amount of reserves would be needed and the

System account made outright purchases of bills totaling $131 million,
At the same time, it

executed orders for Treasury and foreign accounts

for substantial amounts of Treasury securities, including securities of
the new offering on a when-issued basis.

At the close last

night, the

amount of securities overhanging the market seemed to be somewhat lighter,
but it still looked as though there would be substantial attrition on the
Treasury's refunding as far as holders other than the System account were

Mr. Rouse reiterated that there was no disagreement anywhere

as far as he could determine as to the attractiveness of the issue in
terms of price or maturity of the securities,

-3Chairman Martin stated that he would next call upon Mr. Sproul
for an expression of his views but that before doing so, he wanted each
member of the Committee to know that the Treasury had made a formal re
quest of the Committee for assistance in connection with the current

Secretary's note: The request to
which Chairman Martin referred had been
made by Acting Secretary of the Treasury

Burgess; during this meeting, a note was
delivered to the Chairman stating that
Mr. Burgess had called him on the telephone

to say that he (Mr. Burgess) had talked with
Secretary of the Treasury Humphrey, who
"confirmed the request with emphasis."

Mr. Sproul then made a statement substantially as follows:
It looks as though we will need to put into the market
during the next week upwards of $400 million of reserves in
order to maintain an even keel. We have here a Treasury issue
which was by all counts properly priced on the market and if
the Committee should take action it would not be in the posi
tion of trying to peg what would seem to be a wrongly-priced

issue. The purchase of when-issued securities would put
funds into the market on December 8, which is the date of
payment for the exchange offering, and which would be getting
toward the peak of the need for reserve funds, on the basis

of the projections made for the Committee.
It seems to me that this is a situation in which credit
policy and debt management can aid one another. If we, as
among the possibilities suggested last night by Mr. Rouse,
should lengthen the term of repurchase agreements to 35 days

to carry them over the year end, which is a period of uncer
tainty, and if we should have authority to buy when-issued
securities which would put reserve funds into the market about
when they will be needed on the basis of our projections, we
would be helping a faltering Treasury issue which is only
faltering because the holders of the maturing issue need cash
and buyers are uncertain as to the availability of reserves
A high
and the course of the market over the next few weeks,

attrition on the Treasury offering would only mean a larger
cash issue when they come to do their cash financing later in
December, Nobody in the market would be fooled by the Com
mittee's stepping in and keeping the attrition down, but it
would moderate the Treasury's problem on the cash financing
in December, which might cause difficulty for them and for us
if it was made say a billion larger than has been indicated.
If the System, as a result of extending repurchase agreements

to 35 days and of buying when-issued securities, should find
that the market was getting too easy in December we would have
the possibility of letting bills run off over the next three
weeks or of selling securities. I cannot say the results will
be disastrous if we do not step in and do what I am now sug
gesting, But I do think it would be helpful and appropriate
in the circumstances from the standpoint of credit policy and

debt management.
Chairman Martin inquired of Mr, Sproul whether, in order to do
what he was suggesting, he agreed that it would require authorization by
the full Committee on the basis of a formal vote, on the grounds that
such action would be a deviation from a policy that had been agreed upon
by the Committee at its meeting in March 193 and last renewed in March
of this year.
Mr. Sproul stated that he agreed that such action would be
necessary in order to follow the suggestion which he had made.
Chairman Martin then made a statement substantially as follows:

We have gotten into a difficult situation. We ought to
try to sell the Treasury better than we have on the soundness
of the policy we have been following since 1953. This whole
question should be taken up at a meeting of the Open Market

Committee when we would have a thorough review of the policy,
because we are going to be charged with going back to 1952 if
we follow the suggestion Mr. Sproul has made. If we do make

an exception to our general policy, we should make it clear
that it is only an exception; otherwise, we should reverse

our entire policy.

It would be very unwise for the Treasury

to think that at any time it gets into trouble on an issue the
Federal Reserve will bail it out.



Mr, Mills next made a statement substantially as follows:
Chairman Martin and Mr. Sproul have just stated what to me
is the case for not adopting a policy of purchasing when-issued
securities or "rights." In other words, if we were to accept
that policy we would be abandoning a position that was taken
after very mature consideration and without, in my own opinion,
being confronted with an issue of a seriousness that would
justify such deviation.
As Mr. Sproul pointed out, there is a
difficult problem but not an emergency.
As Chairman Martin
pointed out, we have a problem but presumably not a problem
that is a serious emergency. There are no indications of
what the amount of attrition would be if we stayed aside from
If there is substantial
purchasing when-issued securities.
attrition, as Mr. Sproul pointed out, that attrition can be
corrected within a matter of some days when the Treasury come
back for new money and the System can then, in an orthodox and
conventional manner, provide the reserve base for the tax
anticipation certificates that presumably will be offered.
There is a reasonable possibility, it would seem to me, that
if the System moved promptly to make direct purchases of bills
today in volume, the reserves so supplied would encourage banks
and dealers to enter the market both for "rights" and when
issued securities, and in doing so reduce the attrition to
If there
limits that would not be a matter of real concern.
should be a deviation from policy, again in my opinion, it
would seem to me that deviation should not go beyond extending
dealers' repurchase agreements over a 35-day period. The
market, as Mr. Rouse pointed out, yesterday was on a firm
basis; the securities offered for the refunding are believed
to be attractively priced; the only problem we are faced with
is a possibility of heavy attrition.

Leach inquired whether the Treasury had asked only for

assistance, or whether it

had specifically requested that the Committee

purchase "rights" to the new securities.
Chairman Martin responded that the Treasury had asked that
the Committee assist in

the refunding operation.

He thought that it

would like to see the Committee purchase maturing "rights" and he was
not sure whether anything else would be of importance at the moment.

Chairman Martin went on to say that he agreed with every.
thing Mr. Mills had just stated from the standpoint of a general posi



Chairman Martin said that he felt quite badly that he had not

the Committee's relations with the Treasury are impor

been more successful in

selling the Treasury on the Committee's policy

a manner in which the Treasury would pick up the attrition on this

issue as Mr. Mills had suggested.


this was not the case and

the problem was something that the Committee should discuss fully in

the near future.

It would be unwise, Chairman Martin thought, for the

Committee to ignore the position in which it had been placed by the
request that had been made on the part of the Treasury for assistance.

Earhart said that he had been one of those who has not

that the Committee should be wed inseparably to a policy which in

general is

a good policy.

At some time there might be circumstances

develop in which the Committee would wish to make an exception to the
general rule it

had adopted.

Up to date he felt

there had been good

cooperation from the Treasury since the policy was adopted, but to him
cooperation was a two-way street.
Committee would not let

He would certainly hope that the

an exception to its

practice or have the market feel that it


be helpful in


had become an accepted

seemed to him that if

the present situation it

that currently are in

rule become an accepted

the Committee were to

should be buying those secu

over supply, such as the "rights" or the


when-issued securities.


might thus have to furnish a smaller

amount of reserves than would be necessary if


tried to help the

Treasury indirectly entirely through purchases of bills,

and there

would be less doubt as to the effectiveness of the assistance.


those reasons, Mr. Earhart said, he would be in favor of making an
exception to the Committee's policy under present circumstances.

Mr. Leach stated that he agreed substantially with the views
expressed by Mr. Earhart.

To him, it was important that the Treasury

had tried to price the issue correctly.

Now that the Treasury had

gotten into difficulty, he would dislike anything which made it


that the System was "running out" on the Treasury, if there were any
way in which it could take care of the situation.

Mr. Leach said that

he had been somewhat doubtful about the general policy which the Com
mittee had been following but he did not think it would wish to try to
change that at

this time.

The help that the Committee might give

should be an exception to the general policy.
Mr. Szymczak said this was an unfortunate position to be in.
The market opened in

ten minutes.

He thought this problem should be

discussed at the next meeting of the Open Market Committee but in the
meantime there was the practical situation to be considered.
tion would be that the Committee make an exception to its
purchases of when-issued securities and that it

repurchase agreements.

His sugges

policy against

extend the period for

At the same time, it should tell the Treasury



that this was a matter that had to be thoroughly discussed within the
Committee and by the Committee with the Treasury in terms of what the
future relationships might be in situations such as this.
Mr. Robertson said that in his view the policy which the Com
mittee adopted in 1953 was not adopted lightly.
adhered to.

He thought it

should be

He could see no basis from the standpoint of either credit

policy or debt management for departing from that policy.

If it


out that there was a large amount of attrition on the Treasury's current
refunding offering, that could be taken care of by an additional issue
of bills

by the Treasury.

Mr. Robertson said that he did not believe

the Committee should be putting reserves into the market at a time when
they were unnecessary by deviating from the policy that had been adopted,
and he did not believe at the moment that the circumstances were such as
to warrant an exception to the general policy against purchasing when
issued securities.
had just said.

Vardaman said he agreed in

substance with what Mr. Robertson

He would much prefer that the Committee take the direct

method of permitting attrition to develop openly in

the Treasury's current

financing and of having the Treasury issue bills to take care of its
needs for new cash.
extent necessary.

Then the System account could buy bills to the
He felt that any purchases of "rights" or when-issued

securities would mean that the Committee was engaging in
the actual market situation.


He did not believe such action would be

-9effective and could not see what would be accomplished by departing
from policy at this


By permitting attrition to develop, the Com

mittee would know exactly what it
to purchase bills in

was doing and it

could then proceed

an orderly way to the extent that seemed necessary.

Mr, Balderston made a statement substantially as follows:
My own view of the situation is similar to that described
by the Chairman,
I have the feeling that our primary obligation
is to put reserves in the market, in the right amount, at the

right time. Our secondary obligation is to help the Treasury,
Since these two obligations--our primary one and the secondary
one--seem to coincide at this time I would depart from our
established principle on this occasion only, and would purchase
up to $400 million of 2-5/8 per cent when-issued certificates.
It so happens, as Mr, Sproul has stated, that that purchase
would fit precisely into our expected need to put reserves into
the market on or about December 8. As to Mr. Sproul's other
suggestion for extending to 35 days the period for repurchase
agreements, I am of the opinion that it might create an undesir
able precedent and cause the dealers to lean on us unduly in
The reason I am willing to depart from our
future financings.
principle in the purchase of the 2-5/8 per cent certificates is
that I believe thorough discussion of the general problem with
the Treasury might avoid a recurrence of a similar crisis in the

future. In this case, I would depart from principle and buy the
2-5/8 per cent certificates.
Mr. Irons

statement was substantially as follows:

I am inclined to agree with the position that Mr. Balderston
has just stated.

I am reluctant to make an exception from the

policy on a spur-of-the-moment and somewhat uncertain basis since
we do not know just what the attrition will be. That does not
mean that I have been completely in accord with the policy as
such, but it is policy, I also feel our first responsibility
is to place the needed reserves in the market and there is a
secondary responsibility to assist the Treasury, This issue
seems to have been well priced and it is not the price that is
causing difficulty. We do need to put in reserves somewhere in
the neighborhood of $400 million, I would be willing to depart

from policy to the extent of buying the 2-5/8 per cent certifi
cates on a when-issued basis within that amount as a step that



would be in

the direction of desirable credit policy and which

would also assist the Treasury, I am reluctant to extend to
35 days the period for repurchase agreements. I would be less
inclined to do that than to purchase the when-issued securities.
The extension of the repurchase period would seem to me to be
more of a step toward assisting the dealers, I would think we
could let it be known there would be repurchase funds available
as needed over the year-end period, rather than to extend the
period for repurchase agreements,

Mr, Fulton said that he agreed with Mr. Balderston's view
that the Committee has an obligation to the Treasury and that the
proposed action would not negate the general monetary policy being
pursued by the Committee,

Under the circumstances,

where the Treasury's

issue was priced with the market and with the understanding that the

Committee was not committing itself indefinitely to "bail the Treasury
out" when its
he felt

financing did not go just right, Mr.

Fulton said that

the Committee was justified in taking the proposed step-that

of buying the when-issued securities under the particular circum

stances that have developed at this time.
Mr, Shepardson said he disliked very much to see the Com
mittee depart on short notice, and upon the first
with a Treasury issue, from an established policy.

signs of difficulty
On the other hand,

it seemed to him that this was a policy on which there had not been
full agreement; it called for further consideration and further "selling"
as Chairman Martin had pointed out.

It would appear possible that by

taking the action suggested by Messrs,

Sproul and Balderston the Com

mittee might create a better climate for further discussion of the



problem and perhaps have a more effective chance for establishing the

validity of the principles the Committee has been following in recent

For that reason, Mr. Shepardson said, he would be inclined to

go along with Mr. Balderston's suggestion for purchasing when-issued
securities but not for extending the term for repurchase agreements.
Chairman Martin called for further comments on the situation
and none of the members of the Committee expressed additional views
at this point.
The Chairman then
a suggestion that it

said that there was before the Committee

should make an exception to its

policy against

purchase of when-issued securities but that the discussion indicated
there was no intention to move in the direction of permitting such
purchases of securities as a matter of policy.
suggestion before the Committee was that it

Specifically, the

authorize the purchase

for the System open market account in the open market, on a when
issued basis, of up to $400 million of 2-5/8 per cent Treasury certif
icates to be dated December 1, 1955

maturing December 1,


Chairman Martin stated that he would ask for a vote on the proposal,
as he had stated it,

unless some member of the Committee wished to

amend the proposal.
Mr. Sproul said that the proposal as stated by Chairman
Martin applied only to the purchase of when-issued securities and not
to the suggested extension of the period for repurchase agreements.



He went on to say that he felt the purchase of the when-issued securities
was more important than the extension of the period for repurchase agree

With respect to the latter, the idea was to aid the dealers in

aiding us. He felt that if

this extension were made the Committee might

have to purchase less securities than otherwise but, as indicated, the
purchase of the when-issued securities up to $400 million was more impor

Mr. Sproul said that he would also like to comment regarding the

market in view of the statement that yesterday it

seemed to be on a firm

It was true, he said, that quotations for the new securities have

been just under par, but in reality the market has been in a state of
suspended animation in which holders were not able to sell all that they
wished to sell.
Chairman Martin stated that if there were no other comments on
his statement of the proposal before the Committee, he would ask for a
vote on the motion.
Thereupon, the Chair put the motion that the
Federal Reserve Bank of New York be authorized to
purchase for the System open market account in the

open market, on a when-issued basis, up to $400
million of Treasury 2-5/8 per cent certificates to
be dated December 1, 1955, maturing December 1, 1956.
The motion was approved, Messrs. Martin, Sproul,
Balderston, Earhart, Fulton, Irons, Leach, Shepardson,
and Szymczak voting "yes", and Messrs, Mills, Robertson,
and Vardaman voting "no".
Chairman Martin stated that he would now ask for a vote on Mr.
Sproul's second suggestion that the existing authority for the Federal



Reserve Bank of New York to enter into repurchase agreements be amended
to extend the maximum period for such agreements from 15 days to 35 days.
The Chairman went on to say that while he thought this was a minor element,
he would be inclined personally to avoid taking that step at this time.

Mr. Sproul said that in view of the sentiment expressed during
the preceding discussion, and the authorization to purchase when-issued
securities, he also would now suggest that no change be made in the exist
ing authorization for repurchase agreements.
Chairman Martin said that under these circumstances it


clear that the Committee would not wish to change the existing authority
for repurchase agreements, and there was no disagreement with this state
In response to Chairman Martin's invitation for other comments,

Mills stated that as he understood the action just taken to authorize

the purchase of 2-5/8 per cent certificates on a when-issued basis, the
operation would not put funds into the market until December 8, the pay
ment date for the new securities.
rapidly tightening market and it

In the meantime,

there might be a

would seem that the Committee should

reach a judgment at this time as to the quantity of reserves that should
be put into the market and just how those reserves should be made avail

Mr, Sproul said that he thought this probably could be handled
through repurchase agreements even though the period for such agreements
was not to be lengthened, since the account management could indicate to



the market that repurchase agreements on the usual basis would be
readily available from the present time through the year-end period.
He concurred in

a comment which Chairman Martin made that the existing

authority for repurchase agreements,

plus the understanding that they

would be made available over the year-end period, would be sufficient
to handle this immediate situation.

Mills commented further to the effect that there might be

a need for direct purchases of securities within reasonable limits, to
be combined with the repurchase agreements.


he gathered from

the discussion that repurchase agreements might be made not only against

but also on "rights" on the new securities, and he raised the

question whether this would be a further technical deviation from the
Committee's general policy.

Sproul stated that the System account had been engaging


this type of transaction right along and that he did not understand


to be a deviation from policy since the Committee specifically had

approved the exclusion of repurchase agreements from the policy of not
purchasing, during a period of Treasury financing,
for which an exchange is

being offered,


maturing issues

(2) when-issued securities, and

comparable maturities for those being offered for exchange.


Sproul continued by stating, in response to Chairman Martin's question,
that he would not rule out direct purchases during this period, and he
noted that yesterday such purchases totalled $131 million.

He also stated



that the System account in its operations would take into consideration
Mr. Mills' suggestion that outright purchases of securities might be
necessary during the period immediately ahead.
Chairman Martin inquired of Mr, Rouse whether any change in
the Committee's general directive to the New York Bank was required.
Mr. Rouse responded that, as he understood it,

the Committee's

action this morning authorized the special and additional purchase of
$400 million of securities beyond the limitation contained in the directive
issued at the meeting on November 16.

Under these circumstances, he felt

no change in the directive issued at the meeting on November 16, 1955,
was needed.
Thereupon, the meeting adjourned at 10:11 a.m.