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1950 A meeting of the Board of Governors of the Federal Reserve System With the Federal Advisory Council was held in the offices of the Board of Governors in 'Washington on Tuesday, November 18, 1952, at 10:30 PRESENT: Mr. Martin, Chairman Mr. Szymczak Mr. Evans Mr. Mills Mr. Robertson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Brown, Messrs. Bucklin, Smith, Gund, Fleming, Davis, , Lochead and Ray, Beals, d, Ringlan Alexander, the from Council y Advisor Federal Members of the , Seventh Sixth, Fifth, First, Third, Fourth, Eighth, Ninth, Tenth, Eleventh, and Twelfth Federal Reserve Districts, respectively. Mr. Prochnoa, Secretary of the Federal Advisory Council Before this meeting the Federal Advisory Council submitted to the Board of Governors a memorandum setting forth the Council's views en the subjects to be discussed with the Board at this meeting. The 8tatement of the topic, the Council's vie-As, and the discussion with 13ect to each of the subjects were as follows: 1. The on the Board would appreciate the views of the Council the during Prospective business and economic situation next three to six months as well as any comments that the members of the Council might wish to make as to the prinhave cipal purposes for which loans from commercial banks also would Board been made during the Fall period. The like to have the Council's suggestions with respect to System credit policies in the months immediately ahead. 1951 11/18/52 -2- The Council believes the business and economic situation for the next three to six months will continue to be substantially the same as the Council reported at its meeting Jith the Board in October. Unemployment is at a postwar low. Wages are at peak levels. Disposable personal income is at an all-time high, and retail sales continue to be generally good. Industrial Production is up. Private capital expenditures and outlays for defense are large. However, wholesale and commodity prices, including prices of base metals, corn, cotton and meats, have shown sfte decline. The decline in basic commodity prices may be important because of its possible world-wide effect. Profits from !any businesses may be lower, but the general business outlook 'or the next three to six months is good. , While the Council has not been asked to express its opinion for a period some beyond six months, members of the Council find outlook economic 9Prehension in their districts concerning the now for the last half of 1953. If the drought conditions which not are prevail over relatively wide and important farm areas elieved, or if the apprehension regarding the outlook for the last six months of next year should materially increase, the might be some decline in the economy before the end of trult e first half of 1953. Without presenting statistical information which the Board ,currently receives, the Council believes that loans this Fall :aye been used largely for food processing and carrying agrisIrla,1 products, for holiday trade, for the purchase of durable ca3t1 The consumers, and for expansion by public utilities. a for except bver-all loan Pattern this Fall has been seasonal, of sales d 411 ge.in consumer loans which partly reflect increase a ;e-Levlsion sets in areas where new stations are operating, and argo output of automobiles following the steel strike. ' m, Unless and until the business and economic outlook changes ,erially, the Council suggests, as stated in its memorandum to iz Board on October 7, 1952, that the present rediscount rate arid reserve erve requirements be continued. The Council also believes e in recent policies followed by the Open Market Committe ths have operated satisfactorily, and it recommends a continuaonile° of these policies which have maintained a reasonably firm money market and an orderly market for government securities. President Brown commented that this meeting was being held just bfore a new administration and a new Secretary of Treasury would be , 11/16/52 -3- corai118 into office and just before some changes in membership of the Federal Advisory Council would take place at the year-end, as a result Of which it WAS difficult to discuss some questions such as debt manageTnent, The short agenda for this meeting, he said, reflected to some extent these ci rcumstances as Hell as the fact that the Council had fli(3t with the Board only six weeks ago. President Brown then read topic 1 and the answer given by the Federal Advisory Council as set forth above, stating that the answer was 4 composite statement of the Council t5 views in which Mr. Henry C. Alexander concurred. (Mr. Alexander had attended the meeting of the e°1111c11 yesterday and the day before in the absence of Er. Jackson, member of the Council from the Second Federal Reserve District.) In commenting on this topic, President Brown said that there had been little change since the report on the business outlook given bY th - n C ouncil six weeks ago, except that some industries had been affected 1, the the drought in Texas, Kansas, Nebraska, and on up to 4riadd. an border. The farm implement industry was one of these, he 8;11.4 't having found that farmers had stopped buying machinery be' callse theY did not now know whether they would have a crop next year. As a rept,14_ it was inventories of unsold Carm machinery were heavy and while not too serious in the economy as a whoLe it was serious in that 53 11/r/52 —4— Particular industry. Throughout the whole economy, President Brom Said, businessmen are apprehensive as to the latter part of 1953, feeling that in that period almost every kind of goods will be in g(*1 supply. If this feeling of apprehension became strong enough, but d mean not only cutting down of plant expansion programs it probable cutting down on current production generally in order to avoid excessive. inventories. President Brown noted that the antici"of a slump in the latter part of 1953 might of itself be a Pati Ps ychological factor bringing about some falling off in production within the next six months. express its President Brown stated that the Council wished to al the loiation of the Onen Market Committee's operations, that while 1°11 Y market had been tight it had not been too tight, and that on the huts of comments made by Mr. Henry C. Alexander, there was no more thourels, increase in the 6"6 on the part of the money market banks of an Prime commercial loan rate. in the Tenth Federal Mr. Beals then commented upon the drought Reserve District, crop would be stating that although this year's wheat the — 'cond largest crop on record, the prospect for a crop next year Was United States winter nil* Mr. Beals noted that one-third of the Wheat crop wheat as had is ordinarily harvested in Kansas, that such bee,, "Planted this fall had been in dust, and that unless good rains 1954 11/16/52 cams almost immediately there would be virtually no crop next year. He noted that the drought also had seriously affected the livestock ilathistry which relied to an important degree on wheat pasture for feeding livestock, that this situation accounted for a collapse in Prices of feeder cattle which were now bringing ten dollars a hundred 183s than a short time ago, and that the lack of market was forcing Yr. Beals manYlivestook raisers to put cattle on commercial feeds. tated that a similar situation extended most of the way from the Canadian border to the Gulf of Mexico in the great plains area, citing ex8 of old residents that this was the most severe drought over 1)1 " Porienced in some sections. Beals Mr. Ray stated that in general the description given by Yr. Was Reserve Disapplicable to about two-thirds of the Eleventh Federal ry which was trict but that that district also had a great deal of indust royalties 71317 active with virtually no unemployment, that oil and gas Were helping to maintain incomes of farmers, that the cotton crop in the Thl zu-eventh District would total around 3.5 million bales this year Ithich is a half million more than had been anticipated earlier this continu"aeon, and that building activity in the area was generally ing strong. s outlook for Mr. Ray did not wish to minimize the seriou th el'cl) and livestock producers but felt that the situation in the Eleven 1955 W18/52 -6- District was not quite as serious as he understood it was in the Kansas C47 and Minneapolis Districts. Mr. Ringland stated that the Minneapolis District was predomiItlY agricultural, that there was a great feeling of discouragement because of the drought, and that while the situation was not yet hopeless, rainfall would have to come quickly if crops in the Ninth District Were to be was to reasonably satisfactory next year and if the area maintain its income. Mr. Gund stated that economic activity in the Fourth District, which had been country, the most active defense production area in the YTas adjustcontinuing on a steady basis, although here and there some zents in place. Except production schedules and outlook were taking ' the atomic energy plant being developed in Pike County, Ohio, fel Plant exPansion in the Fourth District had come to an end for the time being. Mr. Lochead felt that "apprehension" was too mild a word to clescr'h 1-0 the situation in the Twelfth Federal Reserve District, that there WaS real Coast States. concern regarding the outlook in Pacific aa looked for automobiles, refrigerators, and many other goods to be in Oyer.. while the 8413PlY during the next year or two, and stated that Pao.; 'lc Coast was growing in population it would be difficult for deriland t become -esP up with the supplies of consumer goods that would 1956 11/118/52 -7- a vailable. Mr. Lochead expressed the view that banks and other credit Pvtors we re loaning too freely on consumer equipment. Mr. V. J. Alexander said that while the bankers should run their banks SO develop, that they would be prepared for a depression should one they should not talk on the outside as though they expected such a development. of In response to a request from President Brown for the views the Board, Chairman Martin speaking for himself said that the comments on the drought situation were a new element on which he had had little in- g to be 1)1718:tion, that the signs of strength in the economy were nothin there aPPrehensive about but were "froth" on the inflation wave, that was little and that the outlikelihood of another wave of inflation, look for the next three to four months seemed to be quite good. The real question, he felt, was whether business would make adjustments that wo,0 ,L.L d have to be made in prices, selling techniques, and output qUotas • next year, ; if such realignments were not going to be made in the the Chairman countrY might have more of a recession than necessary. -" said that it was not possible simultaneously and continuously to have readjustments of price stability and full employment, that price the later the Ort he had mentioned must take place, and that sooner or ' ecoPappearance of a would be faced with the question whether at the 1957 11A3/52 -8- buYers l market it was going to make the necessary adjustments in the 814/P1Y-demand relationships or whether business would call on the Governm ent for measures to avoid such adjustments. He felt the economy would have to have a readjustment and that regardless of the ajlinistration in office, measures which would vitiate the process of suP94-demand adjustments were not desirable. Chairman Martin then asked for the views of the Council whether the present expansion in business loans would be topping out in the next few weeks and followed by a decline. President BroArn commented that all members of the Council expected a decline in commercial loans after mid-December, probably at a greater 41, -.an seasonal rate until late in the spring. An exception to that trend would be loans to finance the tobacco crop. In response to a question from Governor Szymczak, President they "IL stated that most of the members of the Council had indicated w°111d not favor a renewal in the Defense Production Act of authority 'gulation of consumer credit, that it was not felt desirable to have the regulaton of real estate credit become effective again, and that While program was standby authority for the Voluntary Credit Restraint able it would not be wise to try to put such a program into effect ier Present conditions or those which the Council anticipated. 1958 11./18/52 -9- 3. Survey on the impact of the Excess Profits Tax on commercial banks. Although this item was not placed on the agenda for discussion at this meeting, the Council would like to suggest that a study be r!'" at the end of 1952, continuing the informative study made on .,t_hls subject covering the year 1951, so as to bring it up-to-date y showing the impact of the Excess Profits Tax on banks in 1952. The Inclusion of 1952 in the study may reveal a significant change in the impact of the tax in that year as compared with 1951. President Brown called upon Mr. Fleming,who stated reasons why he felt it would be desirable to have information available on the impact of the e_ 4cess profits tax on banks even though there was considerable feeling that tv,_ " tax might be permitted to expire without renewal in 1953. ' Chairman Martin stated that the Board appreciated the suggestion ofth 41ulcil and that it would consider it at an early date. ' 2. At the meeting of the Council on October 7 the Board gave the Council a letter requesting its views on what should be the objectives of the System's program of bank and Public relations. At that time President Brown stated that the members of the Council would do their best to have some suggestions formulated for consideration at the November meeting of the Council with the Board. il has met for only a few hours since its last meeting Council Ttee in October. The short time available to the Council srdecx!ia.st=sion of this subject has necessarily precluded full conof the various phases of a bank and public relations proforL the Federal Reserve System. However, the Secretary of the _uncil, who has had considerable experience in the educational field inlythe subjects of banking and finance, has prepared a memorandum trall a number of suggestions for a program. The Council has seen (3 memorandum and believes the Board might find in it suggestions 13(3 interest and value. Copies of the Secretary's memorandum will given to the Board. With Z 1959 11/16/52 -10The Council believes there is a lack of fundamental understanding by bankers, businessmen, government officials, and the public generally, of the functions and operations of the Federal "serve System. To be effective in correcting this lack of understanding, any program of bank and public relations must be organized solely for information and education and not for propaganda or for high-pressure "selling" or the System. To pursue any other objective would have unfortunate repercussions on the System and w?uld defeat the program. The program should be organized on a district level through the twelve Federal Reserve Banks and with the s. cooperation of the commercial banks in the respective district President Brown said that it was difficult for the members of the C°11/ic 11, scattered as they were in all parts of the country, to formulate "on this matter. While none of the members of the Council were \lel sPecialists -al public relations, they felt the memorandum prepared by Prochnow had many good suggestions. Without necessarily endorsing "11'7 suggestion in the memorandum, the members of the Council felt it w°111d be helpful to the Board to consider the suggestions made. Several members of the Council expressed the view that the System 8110.41(1 avoid any appearance of "high-pressure selling" or propaganda for the s Ystem, that through the such work as was done should be carried out Feder,' °L4' Reserve Banks, and that it might be helpful to obtain suggestions Of bus. Inssemen who were not bankers as to how' they would deal with the Probis 1of improving public understanding of the Federal Reserve System. Reserve 141's Ray stated that the directors of the Dallas Federal had discussed this matter at their most recent meeting and that he wee con vinced that a great deal could be done by the use of Reserve Bank 1960 11/10/52 -11— rs and directors, who could give talks and in other ways promote better understanding of the Reserve System. This concluded consideration of the matters listed on the memo- 1111 of topics for discussion at the meeting of the Board and the Fed" r eral Advisory Council. President Brown inquired as to whether the Board had any indicatinr, '" as to whether anything would develop in the forthcoming session of the Con gress as a result of the Patman Subcommittee report and whether there natdo "a3 anything the members of the Council could do pending determi- n of the membership of the new committees and what the new Congress might be underd" He expressed the view that perhaps nothing should "bY the Council until the situation was further clarified. Chairman Martin responded that the Board had no information as t° what might as develop in the Congress in the way of legislation or a l'esult of the Patman Subcommittee report. legislaGovernor Mills inquired whether the Council knew of any tion . ln the commercial banking field that the Board should concern itself abotit 'and President Brawn said he knew of nothing. Reference was made ill the taxes excess profits —"Lung discussion to the question of relief from and legislation to provide uniform tax treatment for banks and 1, 14 1)111 . '&4 '4 and loan associations. 961, 11/18/52 -12- Governor Robertson then made a statement at Chairman Martin's recillest ou the bank examination school which was being conducted in 1184 --LugLon by the three Federal supervisory agencies. He said that Otlerive-week session of the school had been completed, that a second ivaa now under way, that its purpose was to train "green" assistant exSO as to speed up their development, and that while the school experimental, it was hoped that it would be an aid in improving alitY of examining staffs and making service on such staffs more the" att,ractive to desirable individuals. All of the members of the Council indicated that they felt the traim_ "4-Lig Program outlined by Governor Robertson was a step in the right tirection. It was understood that the next meeting of the Council would be PebrillarY 15-17, 1953. "AO irPihi. 4_4 .416. ""'" -1406FACTAALA.-dilLAL-A.06 ecretary
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