Contested Control and the Power of Finance, Selected Essays of Gerald Epstein
Chapter 5: THE FEDERAL RESERVE-TREASURY ACCORD AND THE CONSTRUCTION OF THE POSTWAR MONETARY REGIME IN THE UNITED STATES
In 1913, The Federal Reserve Act established the Federal Reserve System as an independent central bank. The Federal Reserve's autonomy was overridden during the Second World War when the Federal Reserve agreed to maintain fixed interest rates on long-term government bonds and limit fluctuations in short-term interest rates. This agreement effectively meant that the Federal Reserve came to be dominated by the Treasury Department and, as a result, fiscal policy dominated monetary policy. More important, the World War II agreement meant that elected government officials, rather than the unelected members of the Federal Reserve System, controlled monetary policy for the first time in the history of the Federal Reserve. An unprecedented experiment in democratic, rather than banker, control of monetary policy was about to begin.
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