Working Paper

Fiscal Dominance and US Monetary: 1940–1975

Abstract: This narrative investigates the frictions that existed between the Federal Reserve?s monetary policies and the US Treasury?s debt-management operations from the onset of the Second World War through the end of the Federal Reserve?s even-keel actions in mid-1975. The analysis suggests that three factors can help explain why the Federal Reserve compromised the attainment of its statutorily mandated monetary-policy objectives for debt-management reasons: 1) the existence of an existential threat, 2) the fear that to do otherwise would create instability in the banking sector, and 3) the vulnerability of Treasury financing operations to monetary-policy actions that existed when the Treasury did not auction its debts.

Keywords: Federal Reserve; US Treasury; monetary policy; debt management; bills only; even-keel; ;

JEL Classification: E02; E5; E6;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2016-12-21

Number: 1632

Pages: 34 pages