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BOARD MEETING January 6, 1955 (Review, refreshing memories of new Directors.) The Federal Reserve System - of which Federal Reserve Bank of Philadelphia is a part - is a unique institution E.g. 1. Interested in low unit costs - efficiency - controlling expenses; enthusiastic staff to produce not merely happy - but happy in doing a good job BUT Not in earnings or profits - which, however, we have - well, in abundance 2. We operzte in the public interest BUT are not a part of Government Our unique characteristics have been developed out of experience We live in a money and credit economy purchases are votes on how we use our resources allocation of our resources EITHER A OR B A profit/loss economy There are times when we want BOTH A AND B only we haven't enough total resources to have both e.g. Korea P^ There are other times when we want NEITHER A NOR B e.g. the depression P , Bap.^ j Conditions: Money will not manage itself Free markets can allocate real resources efficiently only if the money market is managed. The Government is an interested parly - largest borrower and is not a good manager Congress has created the Federal Reserve System to regulate the supply of money and the terms under which it may be enlarged or reduced. - 2 - Objectives: General - Martin Detroit speech The purpose of the Federal Reserve System "is to see that, so far as its policies are a controlling factor, the supply of money is neither so large as to induce destructive inflationary forces nor so smaHas to stifle our great and growing economy." Specific Stable price level Maximum sustainable employment Problems: 1. Are they compatible always? - if not, which should have priórity? (a) At what wage rate? 2. Time lags (a) In securing information E.g. Dept, of Commarce Census estimates of employment and unemployment relate to week including 8th of month - come out on 20th of next month - 6-10 weeks late! (b) Between an act and its effect Guides to action Options Rely on latest information - past forecasting the future as to what is happening to P. and E. UltiHate decision is that the tone of the money market is (a) about correct (b) too easy (c) too tight Measures of Results (a) (b) the amount of funds Reserves of member banks Excess reserves Free reserves the rates of interest Instruments of Policy Reserve Requirements The Discount Rate Open Market operations Margin Requirements The Structure of the System Not a neat, logical structure - but it makes sense, if we keep a few principles in mind. (a) Our traditional abhorrence for concentration of power (b) Ad hoc changes to meet particular problems - patch-work (c) National policy determined ty a group, a majority of whose members live at the center ¿nd a minority at the periphery looking to the center (d) Wide variety of experience and interest The Federal Reserve Banks (a) The directors Class A bankers - lenders B nonbankers - borrowers G public Qumip« - again to prevent concentration of power (b) President and 1st Vice President Appointed b y directors but subject to approval of Federal Reserve Board The Board of Governors (a) (b) Presidential appointment Senatorial advice and consent 7 members - 14 year terms The Federal Open Market Committee The Federal Advisory Council