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The Federal Reserve: A New History

Online ISBN:
9780226821665
Print ISBN:
9780226821658
Publisher:
University of Chicago Press
Book

The Federal Reserve: A New History

Robert L. Hetzel
Robert L. Hetzel
Federal Reserve Bank of Chicago
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Published online:
21 September 2023
Published in print:
11 January 2023
Online ISBN:
9780226821665
Print ISBN:
9780226821658
Publisher:
University of Chicago Press

Abstract

The Federal Reserve System: A New History provides a complete history of the Federal Reserve from its founding through 2020. The historical narrative highlights the evolution of the monetary standard expressed as an ongoing succession of semi-controlled experiments that address the issue of identification. What is the origin of the disturbances that cause inflation or deflation and recessions? Do they originate in the private sector and overwhelm the stabilizing powers of the price system? Alternatively, do they originate in the destabilizing behavior of the Federal Reserve due to lack of control over money creation and the resulting instability in the behavior of prices? The evolution of the monetary standard reflects the changing understanding of Federal Reserve policy makers about the role of policy. Early real bills views reflected the belief that to prevent recession and inflation policy had to prevent speculative excess. The result was the Great Recession. William McChesney Martin, FOMC chair from 1951 until early 1970, invented lean against the wind to stabilize economic growth, but too often the Federal Reserve was slow to raise the funds rate and prevent the emergence of inflation, especially under Arthur Burns. The result was stop-go monetary policy and high inflation. FOMC chairs Paul Volcker and Alan Greenspan restored price stability. However, the Great Moderation was replaced by the Great Recession when Chair Ben Bernanke was slow to lower interest rates in fall 2008. Finally, in response to the pandemic, the Jerome Powell FOMC initiated an expansionary and ultimately inflationary monetary policy.

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