1951 | John H. Cochrane | Feb 17, 2026 | The Grumpy Economist

"After World War II ended, the Fed continued its wartime pegging of interest rates. The Treasury-Fed Accord, announced March 4, 1951, freed the Fed from that obligation."

"The Fed pegged long term interest rates at 2.5% during WWII, to hold down interest costs and keep up the prices at which the government sold debt. Inflation surged in 1947 and 1948 when price controls were lifted, but inflation quickly came down again once the price level had caught up. The Fed already wanted to raise rates in the recovery of 1950. The resurgence of inflation during the Korean War in 1951 set the stage for the great battle for independence: Would the Fed continue to peg at 2.5%, printing money to buy bonds as needed? Or should the Fed’s job to contain inflation take precedence? (More technically, the Fed exchanged bonds for bank reserves, accounts banks hold at the Fed, which are freely transferrable to cash and before 2008 did not pay any interest.)"

• 1951: The Grumphy Economist