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1125 A meeting of the Board of Governors of the Federal Reserve 8Thtem vms held in Washington on Monday, September 8, 1941, at 3:10 Poz. PRESENT: Mr. Ransom, Vice Chairman Mr. Szymczak Mr. Draper Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics Mr. Ransom stated that he and Mr. Goldenweiser had just returned from a conference at the Treasury which was attended also by 11/441" Secretary Dell, Messrs. 'White, Haas, Bernstein, and Lyndow of the Irl'easurY staff, and at which there was a further discussion of the %nda which had been prepared for, and discussed in part at, a simconference at the Treasury on Friday, September 5, 1941. Fe eald that it became evident at the conference today that some of the Tr eaeQ7 representatives were under the mistaken impression that the N'I'esentativ es of the Board favored a program deliberately designed tcl 'the purpose of raising interest rates, that this impression aparose from a memorandum prepared by Mr. Hersey of the Division search and Statistics several months ago in which reference was t44(le a rate of 4.3%, and that it was made clear to the Treasury Or Ile t0 NIT% tivi:entatives that the memoran dum did not express the views of the i°11 of Research and Statistics or the Board, that it was not the 1126 9/8/41 -2131111°°es of the representatives of the Board to propose a program that necessarily would result in an increase in interest rates but rather elle designed to assist the defense effort in the most effective my and serve as a means of counteracting inflationary developments. Mr. Ransom made the further statement that he felt that repNientatives of the Treasury with whom he and Mr. Goldenweiser had been . conferring might finally feel that the Board was justified in 13113t1.:Y increasing reserve requirements to the limit of its statutory authority but that so far as they were concerned the question whether 1/e/l authority to absorb additional amounts of excess reserves should be 8°11ght as a program with Treasury approval would depend upon find- 141ga method of exercising such authority that the Treasury would reeard a ppropriate to the present situation. He further said that the Nastkr7 of re presentatives were not favorably impressed with the idea additional authority along the line of the present authority, namely, &tithe f°r1ri of percentages increases, but he thought that they were : 4 el'estecl in exploring the question as to what other forms such au1 sould take and had discussed the "ceiling plan", which would tl°t laecilice existing excess reserves but would require that after a aDecified date dollar for dollar reserves be maintained against furthe, 111'illcreasee in deposits, and that they had discussed other possible 6141° 'e°1*inations of plans, and modifications of the present plan. The suggestion was made at the conference today, Mr. Ransom klci) tho - the Board and the Treasury agree upon a rate pattern and 9/8/41 a method of maintaining that pattern, but that Mr. Bell suggested that a natural market should be maintained and that if the public had the impression that the market was being "rigged" we would be Pped. Mr. Ransom added that the Treasury representatives ap- Peared to feel that the use of the remaining authority of the Board to increa reserve requirements would not have much effect upon the rliar'ket3 hut that if it were made known that additional authority was to b.„' asked for and that the System was going to move forward step by eteP to absorb all excess reserves, the reaction on the market would be bad, and that, whatever program was agreed upon, there should be ' angement under which the System would take appropriate action to meet anY unforeseen repercussions on the market. staff *. Ransom made the further comment that some of the Treasu ry believed that the instrument of selective credit control could be tlse d much more widely than was being done at the present time and that b... 44k supervisory authorities might produce constructive results thecki _ 441g loans on inventories and perhaps ultimately, if the preserit em ergencY necessitated such action, arrive at a point where the bailkint sYstem would be discouraged from making non-defense loans. After referring briefly to the consideration that had been tilien. at the conferences on September 5 and today to the first four 6,1410 Of the conference agenda Mr. Ransom stated that refere , nce was Made to the question whether the Treasury should absorb a portion 1128 9/8/41 —4— °f existing excess reserves by the sale of securities held in trust a.ccounts and by transferring funds from special depositaries to the Federal Reserve Banks but that these steps were not the subject of mlIch discussion. He stated that on the general problem of excess rean attempt was being made to formulate two statements, one of which would express the views of the Board's representatives and the ther the views of the members of the Treasury staff, and that Ir. G°Idenweiser had prepared a draft of statement for discussion which 174s in the following form: "For the consideration of the Board the following 3srocedure with respect to the United States Government Se' market and member bank reserves is proposed: 1. That the Board and the Treasury agree on a Pattern of rates and on ranges of permissible fluctuations. 2. That the Board and the Treasury agree to nrk together for the purpose of sustaining the determined pattern and ranges of rates. That the Board raise reserve requirements to the limit permitted law. 4. That the Administrationby ask that the Board be given additiond powers over reserves the form that these powers should take to be determined by the Board in consultation with the Treasury. 5. That the Board agree to recommend or adopt such additional selective credit controls as may be decided by the supervisory authorities to be desirable and feasible." tha t h uring a discussion of the above statement, Mr. Ransom stated had no reason to believe that the representatives of the Treas- illd be willing to accept such a program, as they would not be 1129 9/841 -5to ask for additional powers over reserves without first agree1n0; upon the form those powers should take, that they felt that the banks might construe a request for additional powers as n indi- eltiOn of a substantial rise in interest rates which might have a verYadverse effect on the market, and that they would not be willing tO ' /3413Prove a request for additional authority which by uniform applieatio , - Would make a large number of banks deficient in required re- "v6, When that result would not follow the application of the Celli ng Plan". The Treasury representatives might agree, he said, to a Program which contemplated the exercising of the remaining author V of the Board and a statement that additional authority would be t'quested to deal with the problem by some method which would not re8lat, In a deficiency in required reserves. Mr. Ransom added that the . discussion the observation was offered that one of the diffi- Of - with the "ceilinr plan" was that there was a considerable amount hank suPport of the present method of determining reserve require- ker,te and that if we should change the basis of computing such reMerits that support might be lost and it might become difficult tc) °IAA; -.0.1 the additional authority because of the proposed new basis %the. lng understood. There Golder ensued a discussion of the "ceiling plan" during which . ielser stated that, while he favored the "ceiling plan" .11c1 had 'lscussed it on numerous occasions with the Chairman, who 1130 9/8/41 -6- "ms understood was not convinced in its favor, he (Mr. Goldenweiser) hadnot advocated it during discussions at the Treasury. In response to an inquiry by Mr. Draper as to whether the ad- ditional authority would be sought by an executive order or by legisla- tion 4r. Ransom and Mr. Goldenweiser stated that it was agreed at the --7 that, inasmuch as the matter had been considered by Congress 48 lat e a8 1935 and specific limitations applied by it, the additional allth01'itY should take the form of a Congressional act rather than an eZecutive order. The members of the Board present expressed agreement With this view. In a further discussion of the statement prepared by Mr. Golden -weisery Messrs. Szymczak and Draper indicated that they would have no ob jection to amending item (4) to state that the form that a4diti °nal Powers should take would be determined by the Board in agree' ent with the Treasury. 141's Ransom stated that there were two possibilities as to what be done at further meetings at which he and Mr. Goldenweiser ntteht, at+ be eem "end with Treasury representatives, that either there would rate re commendations from the representatives of the Board and the Tre 48urY or an agreement on a program to be recommended to the SecNta 17 of vue Treasury and the Board which, of course, would not be g cql the Secretary or the Board, and he raised the question Whe ther e members of the Board would be willing to have him and Mr. 1131 9/E041 —7— erviveiser proceed on the basis of agreeing upon a program for recclErnendation to the Secretary of the Treasury and to the Board. Messrs. Szyrne 4tic and Draper indicated that they would favor having Messrs. Ran ftll and Goldenweiser continue with the discussions on that basis. (Secretary's Note: Mr. Ransom subsequently discussed this procedure with Mr. Eccles by long distance telephone and reported that Mr. Eccles raised no objection to this idea of having the group in question make a joint report to the Secretary and the Board.) troul, There was then presented a memorandum dated August 29, 1941, Thomas, Assistant Director of the Division of Research and Stati ti 8--es, referring to the tempor ary assignment of Chandler Morse, 11114)1' economi st in the Division of Research and Statistics, to the Office of the Admini strator of Export Control, and stating that inas144ch a 8 the Administrator would like to be able to call on Mr. Morse for as 8iStanee following the termination of his temporary appointment (111 Oct er 0 °13-- 'J1 1941 it was believed to be desirable to have him return tO the ID. wolad e lvision of Research and Statistics under an arrangement that nable him to devote part of his time to the work of the Adminiet4v, '4'llithout reimbursement. The memorandum had been circulated kkile the - members of the Board before this meeting and Mr. Goldenweiser ete. , ved "at he favored the proposed arrangement as outlined in the g draft of letter to the Administrator of Export Control: to bay'r. Chandler Morse has told us that you may wish e him continue to give some assistance with the 1_132 9/8/41 -8economic research work in your office after he returns to our , Division of Research and Statistics on October 8. In view of the Board's broad interest in the work of your agency, we shall have no objection to having Mr. Morse render such assistance to your organization as will not interfere with his duties as a member of the Board's staff. "Under such a flexible and indefinite arrangement, we should not expect to ask for reimbursement for his services. We shall assume responsibility for the full mount of his salary and our regular contribution to the "c'tirement System on his behalf when he returns to our office on October 8." Approved unanimously. Mr. Thurston stated that a cablegram had been received in the Chaillman i s office from Mr. Winant, United States Ambassador to England, l'ecitiesting that Mr. Alvin H. Hansen, who is in the employment of the )41 ' d on a part time basis, go to London for the purpose of making a eleh in that city and a quick survey on the British economy, it be--'-icipated that the trip would take about ten days. Mr. Thurston L41 that 11r. Hansen's traveling expenses would be paid by the State 1)%talent, but there remained the question whether he would go as an er111)1017._ 4'*e of the Board. During a brief discussion of the -natter, Mr. 114"°1-4 sta-Leathat the cable from Mr. Winant had been telegraphed to Chail‘man Eccles and a reply was being awaited from him. At this point Messrs. Thurston and Goldenweiser left the meet- irtg 4114 tttel, the action stated with respect to each of the matters herein- eferred to was then taken by the Board: Itemorandum dated September 4, 1941, from Mr. Nelson, Assistant 1133 9/8/41 —9— SecretarY, recommending (1) that M. Peter Sarfaty, a guard, be pro— 44ed to the position of clerk to Building Manager in the Secretary's elfice on a temporary basis for an indefinite period, and that his 881811 be incre ased from $1,380 to $1,500 per annum, effective Sep— tftbel, '°, 1941; (2) that Charles S. Overmiller, an elevator operator, be -Promoted to the position of guard in the Building Operations and Itilintenance Section of the Secretary's Office on a temporary basis for art indefinite period, and that his salary be increased from $1,200 to 41,380 per annum, effective September 16, 1941, with the understanding that if his work is satisfactory during the next six months, a furth er recommendation will be submitted askin g that his salary be increased 54°0 "1 ' per annum; (3) that John R. Houck, Jr., be appointed as an eleliator operator in the Building Operations and Maintenanc e Section Ot the s ec retary's Office on a temporary basis for an indefinite 1411.0c1 . wIth salary at the rate of q1200 per annum, effective as of thg - date Upon which he enters upon the performance of his duties after 114114e the re:lesed satisfactorily the usual physical examination; (4) that gnation submitted by Hugh V. Keiser, Jr., a guard, to be effec— at tv, ue close of business on September 30, 1941, be accepted; and (5) that .-Lohard H. Westlake be appointed as a guard in the Building atio t -- and Maintenance Section of the Secretary' s Office on a elqlorary ‘'asie for an indefinite period with salary at the rate of Per "wm, effective as of the date upon which he enters upon 9/8/41 -10- the Performance of his duties after having passed satisfactorily the usual Physical examination, with the understanding that if his work is satisfactory during the next six months, a further recommendation ll be submitted asking that his salary be increased to '1.1500 per ahniza. Approved unanimously. Memorandum dated September 3, 190, from Mr. Parry, Chief of the D. lvlsion of Security Loans, recommending that Miss Alice Lutz be a.1313c)inted as a stenographer in the Division of Security Loans, with Y at the rate of 14)1,680 per annum, effective as of the date upon Which ehe enters upon the performance of her duties after having passed 44,isra "°rily the usual physical examination. Approved unanimously. ree.d Telegram to the Presidents of all of the Federal Reserve Banks ng as follows: bet "Reg. W-44 .0. The Board has been asked to distinguish 'Heating stoves and space heaters designed for hose' lhold use' and 'Household furnaces'. For purposes st Regulation W, the heat generating unit is a heating th:) ,./re or space heater when it is designed to heat directly is- .8pace in which it is located; the heat generating unit heal furnace when it is designed for the transmission of to bY means of piping or ducts to the space which is roX heated. If a unit is designed to heat directly the is 4. in Which it is located and other rooms by piping it be classified as a furnace." Approved unanimously. 1135 9/8/41 -11Telegram to the Presidents of all of the Federal Reserve Banks readin g as follows: "Reg. W-41. The classification 'Heating stoves and !pace heaters designed for household use' includes gasj tired floor furnaces even though they are permanently 'alit into the floor. This classification also includes smA11 portable electric heaters." Approved unanimously. Telegram to the Presidents of all of the Federal Reserve Banks Nadi ng as follows: "Reg. ve....42. The classification 'mechanical refrigeradoes not include mechanically refrigerated cabinets stpecifically designed for the storage of ice-cream or other °°d products offered for sale." tors? Approved unanimously. Tslegritm to Mr. Dillard, Vice President of the Federal Reserve tarat or c hicago, regarding a loan to a farmer, reading as follows: t_ "Note repayable in one payment is not subject to ,Lgulattion irrespective of security. Section 2(c). tio I9econd question evidently refers to W-15 and seca4L21, 5ke)(3). Consideration is being given to possible ' an tlument to avoid hardship. Would be glad to receive Y suggestions you may have in this connection." Approved unanimously. Let ter to Mr. Bell, Under Secretary of the Treasury, reading "LI-01118: tio„ "There is transmitted herewith for your consideraVi; a letter dated September 5, 1941, from Mr. Rouse, rsaTie President of the Federal Reserve Bank of New York, 'tle8ting, on behalf of the New York State Committee M '16 9/V41 -12- of the Treasury's Defense Savings staff, certain data with respect to sales of Defense Savings Bonds and Stamps. "The Board feels that it is desirable to have comPlete information regarding sales of Defense Savings Bond3 and Stamps made available and hopes that the TreasrY is planning to compile the data referred to by Mr. -10use by States for the country as a whole for the period 1 to August 31, 1941, and thereafter currently by rliTt113. In this connection, the Board will be glad to P t11°11-311 in the Federal Reserve Bulletin from time to lme statistics made public by the Treasury regarding !"les of Defense Savings Bonds and Stamps and will unQ!rtake to furnish State Administrators and such members !!' the State committees as the Defense Savings Staff 4e3r designate, copies of each issue of the Bulletin. If the Treasury feels that certain of the data recRested should not be made public immediately following macl compilation, it is hoped that arrangements can be or e to furnish the information promptly to the State ofrnizations of the Defense Savings Staff, the liaison i .2.cers at the Federal Reserve Banks who are cooperatith them, and the Board of Governors, for their i:Ildential use in furthering the sale of Defense Say1117's he Board will appreciate advice as to the Treasreaction to these proposals." Approved unanimously. Memorandum dated September 4, 1941, from Mr. Parry, Chief of bivA„4 of Security Loans, recommending that 1,150 be added to the elq of S tationery and Supplies in the 1941 non-personal budget Of the Division of Security Loans. the Approved unanimously. Thereupon the meeting adjourned. Secretary. - Vice Chairman.
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