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FEDERAL RESERVE POLICY FROM THE INSIDE address by KARL R. BOPP Vice President, Federal Reserve Bank of Philadelphia before the M.B.A. Club, Wharton School University of Pennsylvania November 16, 1948, 12 noon Off the Record The Apocrypha of Central Banking - Non canonical books Text: have been faithfUl to thee, Cynara, in my fashion." - Ernest Dowson (Some non-finance majors, hence) SCAFFOLD OF THEORY A. Objective - to influence flow of expenditures 1. Indirectly through volume of money 2. Through reserves and reserve requirements Federal Reserve System Gold Governments Discounts B. $23 bil. 23 " Notes Deposits $24 bil 22 » ihe $64 question is: Should flow of expenditures be restrained or encouraged? 1, Obviously a matter of judgment 2. Memoranda on current and prospective (a) Economic developments (b) Monetary developments - 2 - C. What should the Fed do - if anything? 1. Budgetary surplus 2 • i» nothing -o 3* Voluntary restraint 4. Increase in price of reserves (a) (b) 5* II. Short rates Long rates Increase reserve requirements FEDERAL RESERVE PROGRAM OF RESTRAINT SINCE JULY 1947 A. Reducing holdings of short-term Governments July 1947 1« 2. Increase in rate of bills Increase in rate of certificates B. November 1947 - request for additional authority over reserves C. November-December to the Federal 1» 2. D. - heavy selling of long bonds Reluctant purchases on the scale down December 24 - abrupt lowering of pegs 1948 January - increase in discount rate from 1 to 1 l/4# E. February 27 - central reserve city requirements increases 2 £ j F. April - repeat request for additional powers G. The summer interruption 1. May 13 - announcement on June and July refundings H. June 11 - central reserve city requirements increased 2$ I. August - increase in discount rates fran 1 l/4 to 1 l/2% J. Special session of Congress 1. Consumer credit controls 2 ' Increased authority over reserve requirements . Inference to use before ^ support prices K. September 16-24 - reserve requirements increased by 2 £ and 1 1/256 j - 3 - III. FEDERAL RESERVE SYSTEM A • Checks and balances vs. centralized authority and responsibility 1. 2. No single person wholly satisfied 3- B. Democracy inherently too little and too late Institutional inertia not limited to the Federal Reserve System Fear of depression has aggravated hesitancy with respect to putting on the brakes 1. 2. C. 1920-21 Present and prospective international commitments On the spot vs. — 1929-33 - 1937-33 pointing the finger 1. Policy-makers 2. Our experience in field conferences (a) (b) D. vs. technicians Discussion only Voting on issues Never surrender the right to criticize Nov. 16 a.m. TREASURY FINANCING Secretary of the Treasury Snyder announced that holders of Treasury notes and certificates of indebtedness which will mature on January 1, 1949* will be offered a one-year 1-1/4 per cent certificate of indebtedness. The maturing securi ties are the Series A 1949 notes and the Series A 1949 certificates of indebtedness now outstanding in the aggre gate amount of $6,126,729,000. At the same time the Secretary stated that holders of the 2 per cent Treasury bonds of 1948-50 outstanding in the amount of $571,431,150 which have been called for redemption on December 15, 194&, will be offered a one-year 1-1/4 per cent certificate of indebtedness. RECENT CHANGES IN MONEY RATES