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264 4 meeting of the Federal Reserve Board with the Open Market Investment Cenlitittee for the Federal Reserve System was held in the office of the Federal aeserve Board on Monday, March 26, 1928, at 11:15 a.m. PlaSENT: Governor Young Mr. Platt Yr. Hamlin Mr. Miller Er. James Yr. Cunningham Mr. McIntosh Er. Eddy, Secretary Er. McClelland, Asst. Secretary PRESENT ALSO: Governors Strong, Fancher, Norris and McDougal, members of the Open Market Investment Committee, and Mr. Harrison, Acting Secretary of the Open Market Investment Committee Mr. Parry, Assistant Director, Division of Research and Statistics Yr. Smead, Chief, Division of Bank Operations The Chairman of the Open Market Investment Committee submitted a mem(14441/111, dated Larch 24th, relative to the policy pursued by the Committee 441. the effect thereof since its previous meeting, which he stated should be l'e• act 0Y the Board in connection with the report made by the Committee • : t the illeeting on January 12, 1928. He also submitted a report adopted 4 t• he C ommittee at its meeting this morning setting forth its recommendatlelle as follows: "The committee has considered the memorandum submitted by chairman and has reviewed the results of System open market °Perations during recent months. "While it appeared for a time that the purposes set forth th -e Committee's recommendations of January 12 were being ac0 there has recently been a renewed tendency towards ti' lat seems an unnecessary expansion of credit indicating that fee 4/; discount rate in the larger money markets is not as efctive as had been contemplated. "The therefore recommends that the general policy re 0 e 0 committee d in January be continued until another meeting is held at the time of the Governors' Conference unless or until a change the 265 3/26128 -2- "in the situation makes an earlier reconsideration desirable. The Committee would expect to make such changes in the open market account as are necessary to carry out the policy." Chairman of the Committee stated that the situation has been discussed 14 d etail by the Board of Directors of the Federal Reserve Bank of New York, which 4. eels that the rediscount rate of that bank has not been effective be' 414.° 'Id Of the ability of New York City member banks to liquidate their borrow- the Federal Reserve bank to a very low figure. He said that in the oi1 141 Of the directors of the New York bank, which is concurred in by the nietbers ef the Open Market Investment Committee, some further sales of securities should be made from the System portfolio at this time, although there tn"e further exports of gold which will reduce the amount of sales that may be ilecessary, in the discussion which followed, in reply to an inquiry by Governor the Chairman of the Committee stated that the operations proposed by the Cornmittee, if its recommendations are approved, would be conducted with iiiew to making more effective the prevailing rediscount rates of the Fed(11'41 iteserve banks and not with a view to bringing about an increase in Fed- 441 zieserve bank rates. Me Governor of the Board then referred to the security holdings of the 14 (iividual Federal Reserve banks which are not included in the System '° and which have increased since the establishment of the Open 141'ket tlie 013:vestment Committee by approximately .,;50,000,000. . He expressed that purchases of securities by individual banks for their e 118t on,,4. n4 if made at a time when the System, through the Open LIarket Committee, is selling securities have the effect of offsetting 266 3/26/2a -.3- 15 tha i nfluence of the System operation. The matter was discussed at considerable length and it was agreed that it should be made a subject for considerati0 11 at the forthcoming Conference of .;-overnors. Following the discussion, the members of the Open Market Investment ittee and Messrs. Harrison, Parry and Smead withdrew from the room, and tile Board. discussed the recommendations submitted by the Committee. Mr. Hamlin referred to a request made of him by Senator Glass, Chairman Of the oub-Committee of the Senate Committee on Banking and Currency which is °°11ctlleting the investigation of the affairs of the Federal deserve Bank of 1)4118.8 directed by Senate esolution T152, for a copy of the digest of the reoord of the proceedings held by the board of directors of the Dallas bank -,4ection with complaints made by certain member banks in that district. Upon motion, the Secretary was instructed to transmit a copy of the digest in question tp Senator Glass. 4t 1:30 p.m., the meeting recessed and reconvened at 3:15 p.m., the %no nlenlbers of the Board being present as attended the morning session, /vith t4 e xception of Mr. McIntosh. Consideration of the Committee's recommendation and the operations Plated thereunder, as well as the effect of such operations, was contie the conclusion of the discussion, the following resolution was (Iftered: n Vhereas, at a meeting of the Federal Aeserve Board and the `Ten Market Investment Committee held on January 12, 1926, it ap1:?ared to the members of the Board and the Committee that operain the Open Market Investment Account of the Federal Reserve Ystem should be directed toward bringing about somewhat firmer 11.1°11eY conditions, as far as necessary to check unduly rapid further 14creasas in the volume of credit; 267 3/26/28 -4- "Whereas, the Federal zieserve Board in line with the policy ,,,greed upon on January 12, 1928, voted to authorize the Open 4 4et Investment Committee to make sales of Government securities " ' fram the System Account from time to time during the following two mcinths, and also authorized the Committee temporarily to purchase such securities should developments not then in sight require such action; Whereas, in furtherance of thrJ above stated policy approximately .F0_27,000,000 of securities were sold from the Oren Market blvestment Account, which sales together with an increase in the r!discount rate of the Federal deserve Bank of New York and certain ?I the other banks, resulted in firmer money conditions and lead o d iscontinuance early in February of further sales of securities irom the Account until the effect of sales already made and the chailes in rediscount rates could be more closely observed; . Whereas, the Federal deserve Board at this meeting has considered the written recommendation made by the Open Market Investment Committee today and the verbal assurance received from the members of the Committee that the operations in the Open Market Ilvestment Account should be conducted with a view to makinc_7 more Ifective, and not increasing, prevailing rediscount rates of the ! rederal Reserve banks; "w, Therefore, Be it resolved, That the Federal Reserve Board -12Prove the policy recommended by the Open Market Investmenyoml!Ilttee in its written and verbal reports of this date and author.ZE) said , Committee to make further sales of Government securities rrom time to time up to May 1, 1928, at about which time another Teeting of the Committee with the Federal Reserve Board will be "ld unless a change in the situation makes earlier reconsideration de sirable." Upon motion by Mr. James, the resolution quoted above was adopted, Mr. Miller voting "no". Mr. Hamlin stated that he voted for the resolution in the belief that the Federal Reserve System, by a change of its assets from Government securities to discounted paper, will be in a better position to protect the interests of commerce and agriculture now and in the immediate future without an increase in discount rates. Mr. Cunningham concurred in Mr. Hamlin's statement. Mr. Miller stated that he voted "no" because of (1) the absence of any evidence of expansion of borrowings for commercial purposes beyond what is seasonal and proper in character; (2) the uncertainty still 268 3/25/28 -5- I) characterizing the business outlook following the recent recession of the autumn and winter; (3) the adverse influence on business recovery that increased money rates may be expected to exert; and (4) the almost certain influence that furtly)r firming of money conditions such as is contemplated by the program of the Open Market Committee and a policy of further sales Of securities to the open market may be expected to have in advancing money rates. "I am of the opinion," said Mr. Liner, "that the adoption or the approval bY the Soard of a policy of further firming money conditions will be inadvisable until the whole situation With respect to the probable future course of trade and industry is clearer. The present status of the stock exchange loan account of the banks is not, in mY opinion, sufficient justification for a policy of further firming of money at this time." The meeting adjourned at 4:45 p.m. Secretary. 4pprovea:
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