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 institutional framework of reserves management, including reserve requirements, sources of bank reserves, the inter-bank Federal funds market, the management of aggregate reserves by Federal Reserve officials, and the limits to reserves management that resulted from wartime and postwar controls on interest rates.

Reviews the further development of defensive repo operations and the Committee’s continuing struggle with supporting Treasury offerings priced at market. After one particularly troubled offering, in May 1957, the Secretary of the Treasury threatened to undertake what would have been, for all intents and purposes, Treasury operations aimed at managing bank reserves. The threat passed but the memory lingered as a reminder that the Treasury was not without resources.