What accord aimed to eliminate interest rate pegging to stabilize interest rates?

The Federal Reserve-Treasury Accord of 1951 is recognized for its pivotal role in reshaping the relationship between the Federal Reserve and the U.S. Treasury, particularly concerning interest rate policy. Prior to this accord, during World War II, the Federal Reserve maintained a policy of keeping interest rates low to facilitate government borrowing, which led to an environment of interest rate pegging. This created distortions in the economy and limited the Federal Reserve's ability to conduct independent monetary policy.

The 1951 accord marked a significant shift by allowing the Federal Reserve to pursue monetary policies aimed at controlling inflation and stabilizing the economy without being constrained by the need to maintain low-interest rates for government debt. This agreement effectively ended the practice of pegging interest rates and enabled the Federal Reserve to focus on its broader economic objectives, including achieving stable price levels.

The significance of this accord is reflected in its long-term impact on the conduct of U.S. monetary policy, as it laid the groundwork for more flexible interest rate policies that respond to changing economic conditions. By transitioning away from interest rate pegging, the Federal Reserve gained the autonomy needed to enact policies that could better address inflationary pressures and promote stable economic growth.