FOMC Minutes

TWENTY-FIFTH ANNUAL REPORT OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM COVERING OPERATIONS FOR THE YEAR 1938 UNITED STATES OF AMERICA WASHINGTON: 1939 FEDERAL RESERVE SYSTEM RECORD OF POLICY ACTIONS-FEDERAL OPEN MARKET COMMITTEE MEETING ON MARCH 1, 1938 Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Sinclair, Mr. Newton, Mr. Schaller, Mr. Peyton. Authority (1) to Replace Maturing Securities and to Make Shifts of Securities in the System Open Market Account and (2) to Increase or Decrease Sys tem Open Market Account. By unanimous vote, the Committee instructed the execu tive committee, until otherwise instructed by the Federal Open Market Committee, to direct the replacement of ma turing securities in the system open market account with other Government securities and to make such shifts be tween maturities in the account as may be necessary in the proper administration of the account, provided that the amount of securities maturing within two years be main tained at not less than $1,000,000,000 and that the amount of bonds having maturities in excess of five years be not over $850,000,000 nor less than $500,000,000. The Committee also voted unanimously to authorize the executive committee upon written, telephonic, or telegraphic approval of a majority of the members of the Federal Open Market Committee, and until otherwise directed by the Committee, to direct the purchase in the open market from time to time of sufficient amounts of Government securities to meet the requirements of commerce, business, and agri culture by keeping at member banks an aggregate volume of excess reserves adequate for the continuance of the Sys tem's policy of maintaining credit conditions conducive to economic recovery; and to authorize the executive commit tee, upon written, telephonic, or telegraphic approval of a majority of the members of the Committee, and until other wise directed by the Committee, to direct a reduction of the holdings of such securities, to the extent that their reten tion was found to be unnecessary for the purpose of this action. It was understood, however, that the executive committee was not authorized to increase or decrease by more than $300,000,000 the amount of securities held in the system open market account. In the opinion of the Committee the existing amount of excess reserves of member banks was not too large in view of the low volume of busi ness activity, declining prices, and business uncertainty and, therefore, no useful purpose would be achieved at this time by reducing the amount of the securities held by the System. It was agreed, however, that pro vision should be made for prompt action in purchasing securities, when approved by a majority of the Committee for the purpose of keeping at member banks an aggregate volume of excess reserves adequate for the continuance of the system's policy of maintaining credit conditions con ducive to economic recovery, and that similar provision should be made 76 77 for the sale of securities to the extent that their retention would be un necessary for this purpose. It was agreed also that the existing authority of the executive committee to replace maturing securities and to make shifts of securities in the account should be continued in order to enable the executive committee to meet changing market conditions and to im prove the distribution of maturities in the account. MEETING ON APRIL 22, 1938 Members present: Mr. Eccles, Chairman; Mr. Harrison, Vice Chair man; Mr. Szymczak, Mr. McKee, Mr. Ransom, Mr. Davis, Mr. Draper, Mr. Sinclair, Mr. Newton, Mr. Schaller, Mr. Peyton. Authority to Replace Maturing Securities and to Make Shifts of Securities in the System Open Market Account. The following resolution was presented by Mr. Harrison, who moved its adoption: "In view of the fact that the present and prospective amounts of excess reserves of member banks are tending to make it more diffi cult for the System, by means of shifts in the maturities in the open market account, to exercise its influence towards orderliness in the Government securities market VOTED that, until otherwise authorized or directed by the Committee, and in addition to the authority to make shifts in the maturities in the system open market account, the executive committee be authorized to permit fluctuations in the total amount of the account in order more effectively, with the means available and in the light of current condi tions, to exert its influence towards orderly conditions in the Government bond market, provided, however, that the ac count shall not be increased or decreased by more than $200,000,000 from the present level of the account." The presentation of the foregoing resolution followed a detailed dis cussion of developments in connection with the recently announced Government program for the encouragement of business recovery, includ ing the release of gold held in the inactive gold account of the Treasury, the reduction made by the Board of Governors of the Federal Reserve System as of April 16, 1938, in reserve requirements of member banks, and a reduction in the amounts of current weekly offerings by the Treas ury of Treasury bills for sale in the market. Mr. Harrison presented his resolution on the ground that in all the circumstances the executive committee should have authority to permit some flexibility in the system open market account by allowing some reduction in the amount of the account if that should seem desirable as a factor in restraining a dis orderly rise in the market just as in the past, by purchases of securities, it had exerted its influence toward maintaining an orderly market on a decline. In his opinion, some reasonable reduction in the account at such a time should not be interpreted as a reversal of the policy of the Government with respect to excess reserves and probably would serve to make the market less vulnerable in the future. As a substitute for Mr. Harrison's resolution, a mo tion was made and carried unanimously that the execu tive committee be instructed to direct the replacement of

Federal Reserve (1938, February 28). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19380301

@misc{wtfs_fomc_minutes_19380301,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {1938},
  month = {Feb},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_19380301},
  note = {Retrieved via When the Fed Speaks corpus}
}