The
1951 Accord, also known simply as the
Accord, was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed.
During
World War IIWorld War II, or the Second World War , was a global military conflict which involved a majority of the world's nations, including all great powers, organized into two opposing military alliances: the Allies and the Axis...
, the Fed pledged to keep the
interest rateAn interest rate is the price a borrower pays for the use of money they do not own, for instance a small company might borrow from a bank to kick start their business, and the return a lender receives for deferring the use of funds, by lending it to the borrower...
on Treasury bills fixed at 0.375 percent. It continued to support government borrowing after the war ended, despite the fact that the
Consumer Price IndexA consumer price index is a measure estimating the average price of consumer goods and services purchased by households. A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same area...
rose 14% in 1947 and 8% in 1948, and the economy was in
recessionIn economics, a recession is a general slowdown in economic activity over a long period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way...
.
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The
1951 Accord, also known simply as the
Accord, was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed.
During
World War IIWorld War II, or the Second World War , was a global military conflict which involved a majority of the world's nations, including all great powers, organized into two opposing military alliances: the Allies and the Axis...
, the Fed pledged to keep the
interest rateAn interest rate is the price a borrower pays for the use of money they do not own, for instance a small company might borrow from a bank to kick start their business, and the return a lender receives for deferring the use of funds, by lending it to the borrower...
on Treasury bills fixed at 0.375 percent. It continued to support government borrowing after the war ended, despite the fact that the
Consumer Price IndexA consumer price index is a measure estimating the average price of consumer goods and services purchased by households. A consumer price index measures a price change for a constant market basket of goods and services from one period to the next within the same area...
rose 14% in 1947 and 8% in 1948, and the economy was in
recessionIn economics, a recession is a general slowdown in economic activity over a long period of time, or a business cycle contraction. During recessions, many macroeconomic indicators vary in a similar way...
. President
Harry S. TrumanHarry S. Truman was the 33rd President of the United States . As President Franklin D. Roosevelt's third vice-president and the 34th Vice President of the United States, he succeeded to the presidency on April 12, 1945, when President Roosevelt died less than three months after beginning his...
in 1948 replaced then
Chairman of the Federal ReserveThe Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chair" or "Fed Chief"...
Marriner Eccles with
Thomas B. McCabeThomas Bayard McCabe , a graduate of Swarthmore, served as the chairman of the Federal Reserve from 1948-1951. He was president and CEO of Scott Paper Company 1927–1967.-Biography:...
for opposing this policy, although Eccles's term on the board would continue for three more years. The reluctance of the Fed to continue
monetizingMonetization is the process of converting or establishing something into legal tender. It usually refers to the printing of banknotes by central banks, but things such as gold, diamonds and emeralds, and art can also be monetized. Even intrinsically worthless items can be made into money, as long...
the deficit became so great that in 1951, President Truman invited the entire
Federal Open Market CommitteeThe Federal Open Market Committee , a component of the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations. It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply....
to the
White HouseThe White House is the official residence and principal workplace of the President of the United States. Located at 1600 Pennsylvania Avenue NW in Washington, D.C., it was built between 1792 and 1800 of white-painted Aquia sandstone in the late Georgian style and has been the residence of every...
to resolve their differences. William McChesney Martin, then Assistant Secretary of the Treasury, was the principal mediator. Three weeks later, he was named Chairman of the Fed, replacing McCabe.