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Describes the circumstances that led to the Accord and the terms of the agreement: removal of the remaining interest rate ceilings in return for a Federal Reserve commitment to support Treasury offerings priced at market.
Having settled, at least for the time being, on free reserves as a policy guide, the FOMC had to identify one or more instruments that it could use to expand or contract the size of the System Open Market Account according to the policy decisions of the Committee. Bills sufficed for operations of a modest size (no more than about $200 million) intended to remain in place for several weeks, but they were not liquid enough for larger operations expected to be quickly reversed. As a result, and in the face of strenuous objections from some Committee members, the Committee came to rely on repurchase agreements when it wanted to sterilize transient fluctuations in autonomous factors.
Examines the February 1961 decision of the FOMC to undertake purchases of intermediate- and long-term notes and bonds with the intent of keeping reserves readily available and perhaps lowering longer-term interest rates – thus marking the end of “bills preferably” – even while putting a floor under bill rates.
Reviews the study of the government securities market undertaken in response to the events of the summer of 1958, including the purported need for expanded public access to market statistics, shortcomings in dealer financing, and prospects for a dealer association aimed at improving market practices.
Describes the long-standing interest of the Federal Reserve in promoting the formation of a voluntary dealer association through which it could encourage the adoption of desirable market practices and discourage undesirable practices. The formation of such a group finally came to pass in the wake of adverse publicity about dealer behavior.
Following a 1963 loss of Treasury securities held by a Federal Reserve Bank acting as custodian for a member bank, staff of the Board of Governors and the twelve district Reserve Banks undertook to replace paper securities held at a Reserve Bank with book-entry records. The program was largely complete by the end of 1970 and provided the foundation for the subsequent expansion of the book-entry system to include Treasury securities held by member banks.
Describes the increasing scale and scope of open market operations as the Open Market Desk at the New York Reserve Bank sought to moderate fluctuations in the Federal funds rate attributable to bank reserves management practices. Innovations in System repo operations included relaxation of the maturity limit on repo collateral, introduction of back-to-back repos (where the Desk financed repo collateral that primary dealers sourced from their customers), introduction of repos on federal agency debt, and the development of matched sale-purchase agreements to drain transient increases in reserves.
Describes the continuing efforts to offset transient fluctuations in autonomous factors. Examines in particular the decision of the Treasury to keep virtually all of its cash balances at Federal Reserve Banks (in order to benefit indirectly from historically high short-term interest rates) and the consequences of that decision for open market operations.
Describes the transition from an interval of non-inflationary growth at the beginning of the decade to the first appearance of what would later become a virulent inflation. Start/stop efforts to rein in inflation led to more volatile interest rates and growing Federal Reserve impatience with its commitment to maintaining an “even keel” during Treasury offerings.
Examines the two worlds of Treasury finance: regular and predictable auction offerings of bills versus fixed-price offerings of coupon-bearing debt at times and maturities that were not always anticipated by market participants. Reviews the successful introduction of advance refundings and a failed experiment in bond auctions.