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Home / Publications / Research / Special Reports / Treasury Fed Accord Economic Data Illustrations Economic Data Illustrations The Accord reached in 1951 between the Federal Reserve System and the U.S. Treasury was associated with signi cant shifts in the behavior of several important economic indicators. The most dramatic were in the indicators most directly controlled by the Federal Reserve System today, such as interest rates and in ation. This section provides a set of graphs showing the behavior of several economic series during the years before and after the Accord. Several features of these illustrations are worth noting. During the year preceding the Accord, real GDP expanded rapidly, unemployment fell sharply, and in ation steadily rose. After the establishment of the Accord, the in ation rate immediately stabilized while the fall in unemployment leveled o . In nancial markets, interest rates were signi cantly a ected by the Accord. During World War II and the years immediately following, short-term interest rates were pegged at a constant rate to hold down Treasury borrowing costs. By the middle of 1947, the Federal Reserve had become concerned about rising in ation, and the Treasury agreed to allow the peg to drift slightly higher. These worries eased brie y when there was an unexpected tightening of the money supply and a mild recession in 1949. However, the outset of the Korean War in mid-1950 re-accelerated in ation and GDP growth to a level at which they once again prompted the Fed's concern. Arrangements made between the Treasury and the Fed both before and after the Accord also a ected long-term interest rates. On long-term Treasury securities, the Fed supported an interest rate ceiling of 2.5 percent prior to the Accord. With the advent of the Accord, long-term rates were able to drift upwards prior to the 1953 recession. With the Accord, the Fed had the latitude to let short-term and long-term interest rates uctuate. Short-term rates rose until about mid-1953, when there was a sudden drop-o as real growth slowed, leading to a recession. After this recession ended, short-term interest rates quickly recovered. Additional related data can be found at the websites of the Bureau of Economic Analysis, the Bureau of Labor Statistics, and the Federal Reserve Board of Governors, among other agencies. PDF version PDF version PDF version PDF version PDF version PDF version PDF version Contact Us Jim Strader (804) 697-8956 (804) 332-0207 (mobile) © 1997-2021 Federal Reserve Bank of Richmond GDP Implicit Price Deflator Inflation 25 The Accord : March 4th, 1951 20 20 15 15 10 10 5 5 0 0 -5 -5 -10 -10 1947 1948 1949 Source: Bureau of Economic Analysis 1950 1951 1952 1953 1954 1955 3-Month Annualized CPI Inflation 25 The Accord : March 4th, 1951 25 20 15 20 15 10 10 5 5 0 0 -5 -5 -10 -10 1947 1948 Source: Bureau of Labor Statistics 1949 1950 1951 1952 1953 1954 1955 Unemployment Rate 9 The Accord: March 4th, 1951 9 8 7 6 8 7 6 5 5 4 4 3 3 2 2 1 1 0 0 1948 1949 Source: Bureau of Labor Statistics 1950 1951 1952 1953 1954 1955 Short Term Interest Rate (Three Month Treasury Bill Yield) 2.5 The Accord : March 4th, 1951 2.50 2.00 1.50 2 1.5 1.00 1 0.50 0.5 0.00 0 1947 1948 Federal Reserve Board: H15 Release 1949 1950 1951 1952 1953 1954 1955 Yield on Long Term U.S. Government Securities 3.5 3.5 3 3 2.5 2.5 2 The Accord : March 4th, 1951 2 1.5 1 0.5 1.5 1 0.5 0 0 1947 1948 1949 1950 1951 1952 1953 1954 1955 Note: Treasury long-term bond yields are the unweighted average of yields on all issues of bonds outstanding which are neither due nor callable in less than 10 years. Source: Federal Reserve Board of Governors M1 3-Month Annualized Growth Rate 10 The Accord : March 4th, 1951 10 8 6 8 6 4 4 2 2 0 0 -2 -2 -4 -4 1947 1948 1949 Source: Friedman & Schwartz (1970) 1950 1951 1952 1953 1954 1955 GDP Bar Annualized Growth Rate of Real GDP The Accord : March 4th, 1951 20 15 10 5 0 -5 -10 1947 1948 1949 1950 1951 Source: Bureau of Economic Analysis Page 1 1952 1953 1954 1955
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