Federal Reserve Independence and the Accord of 1951

Abstract

Since the establishment of the Federal Reserve System in 1913, the Fed's relationship with both Congress and the President has gone through many phases, and proposals to change this relationship, or the way the Fed conducts monetary policy, have appeared frequently in Congress. For example, Congress amended the Federal Reserve Act in 1977 to require the Fed to establish money supply targets and to report those targets to Congress every six months. In the early 1980s, legislation was introduced, but not passed, that would have requrred the Fed to establish targets for real interest rates. Other proposals have focused less on the actual implementations and more on the ultimate objectives of monetary policy. For instance, four years ago, Representative Neal (D) held hearings on a bill that would have established zero inflation as the official, and sole, pol icy objective for the conduct of monetary policy.