Monetary Accord Of 1951

The Fed, a.k.a. the Federal Reserve, wasn’t always the independent monetary policy woman that she is today (yes, it’s a “she”). The Monetary Accord of 1951 happened after the Fed said, “Okay...we’ll keep interest rates low for you…” to the U.S. Treasury and President Truman for a bit too long.

When the Fed was created, it was supposed to set monetary policy via setting monetary supply and interest rate tinkering. But the U.S. Treasury asked the Fed to keep interest rates low for World War II, in the interest of stability, so they did. Later, President Truman wanted the interest rates to stay low to keep the value of U.S. war bonds up, even though inflation was over 17% (lately it’s 2 - 3% per year…so…yeah…that’s really high). Eventually, inflation hit 21% around the time of the Korean War.

The Fed finally said, “eh...I think we need to re-establish our independence, because we really need to stop ignoring this inflation…” The Fed, the Treasury, and the Prez met up and struck a deal, re-establishing the independence of the Fed in setting monetary policy via the Monetary Accord of 1951.