Discussion — Reading 10: 1952 FOMC Report

This session covers Reading 10: Excerpts from a 1952 report to the FOMC (parts one, two, and three)

The document is the previously secret Fed report that Perry Mehrling mentions in Lecture 19. The Fed is figuring out how they want to run monetary policy after the Treasury-Fed accord of 1951. The report gives us a snapshot of the inner workings of the FOMC, and what the money market and monetary policy looked like at the beginning of the 1950s. It is largely concerned with how to ensure a deep and liquid market for government securities (Treasuries). The preface explains why this is an important policy objective.

Much of the report is a response to feedback the committee received from market participants. They went out and interviewed the money-market dealers to ask about how they could be doing their job better. Lots of stuff in here about different kinds of complaints from various parties, and recommendations for how to address those complaints.

Perry Mehrling says:

"The report itself is on 2005-2034 plus appendices (especially Appendix D 2053-55). The response of the NY Fed is on 2055-2079. We see here a kind of re-negotiation of the relationship between the Fed and the private security dealers, as part of the transition away from war finance conditions toward an imagined post-war normalcy. As always in American monetary affairs, this is a negotiation between the money interest motivated by profit and the public interest motivated by stability. In 1952, the concern was about exit from the abnormal financial conditions of wartime. At present, our concern is about exit from the abnormal financial conditions of the global financial crisis. One way to connect the document to the money view that we are studying is to think of the Fed transitioning from making the inside spread (pegging price), to making the outside spread (preventing disorderly conditions), and from holding the price of money constant to adapting the price of money to current economic conditions."

Study Questions

1952 FOMC Report Discussion Thread