1951 Accord

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 II, the Fed pledged to keep the interest rate 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 Index rose 14% in 1947 and 8% in 1948, and the economy was in recession. President Harry S. Truman in 1948 replaced then Chairman of the Federal Reserve Marriner Eccles with Thomas B. McCabe for opposing this policy, although Eccles's term on the board would continue for three more years. The reluctance of the Fed to continue monetizing the deficit became so great that in 1951, President Truman invited the entire Federal Open Market Committee to the White House 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 Eccles.

References

* [http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/winter2001/hetzel.pdf History of the 1951 Accord from the Federal Reserve Bank of Richmond]
* [http://www.bus.lsu.edu/economics/faculty/dmcmillin/personal/4560/accord.html Federal Reserve Independence and the Accord of 1951]