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(12:15 p . m . , December 15, 1954.)

Summary of Remarks
Wm. McC. Martin, Jr. , Chairman,
Board of Governors of the Federal Reserve System,
at a luncheon of
The Bond Club of New York,
The Bankers Club, New York, New York,
December 15, 1954.

In discussing the role of credit and monetary policy in the economy,
Chairman Martin said:
"In formulating a program to provide credit and money conditions
that will be properly attuned to future economic needs, at least three
things are required.

The first is a painstaking search for all the relevant

facts that may bear upon the economic and financial outlook.

Next is all

the wisdom and insight that experience and operating contacts can bring
to interpretation of those facts.

Third, and perhaps most important, is

humility with respect to any emerging situation.
"Monetary policy must be tailored to fit the shape of a future
visible only in dim outline.

Occasions are rare when the meaning of

developing events is so clear that those who bear the responsibility can
say, 'As of today, our policy should be changed from restraint to ease. '
What is true for a change in policy is also true for a shift in policy
emphasis: it rarely is decided upon in a single day.

More typically, the

outline of a shift in policy emphasis, like the outline of the future,
emerges gradually from a succession of market developments and
administrative decisions.

It is a poor subject for the photo-flash camera

to capture as a clearly defined still life, or for a news story to etch
in spectacular outline.
require several fittings.

Getting a perfect garment for the future may

-2"I feel a sympathetic fellowship with those who are impelled to
anticipate future monetary policy—and I emphasize the word


Anticipating it appears to be quite as difficult as developing it, though
there may be some differences in responsibility.

Perhaps this account

of how policy is developed, in practice, will be of some help to

I would be pleased, at any rate, if it were of help to

general understanding.
"One of the problems that confronts the developers of policy is
the difficulty of forecasting in advance the various factors that will
exert an impact on bank reserves.

Forecasts or projections of factors

absorbing or supplying reserves must be made and considered in planning
open market operations, with full recognition that there is bound to be a
considerable margin of uncertainty about them.

The Open Market

Committee clearly recognizes that uncertainty, and consequently gives
particular attention to whether it would be better in day-to-day operations
to lean in the direction of restraint or of ease.
"However, changing shifts in policy emphasis do not necessarily
mean that a change in policy direction is emerging, much less that a
new policy has been adopted.
in thoughtful analysis.

They may be useful signals, nevertheless,

For by the time the facts of a developing economic

situation are sufficiently clear to lead to the adoption of a changed policy
directive, this much usually will be apparent:

the day-to-day allowances

that have been made for uncertainties in the forecasts of reserve availabilities will have begun to be increasingly resolved in the direction
indicated by a changed policy decision."