In November of 1910, under the guise of a duck hunt and using first names only on their journey, six influential men secretly traveled to New Jersey at different times, boarded a private railcar, and convened on Jekyll Island off the coast of Georgia to lay the foundation for what we now know as the Federal Reserve. The meeting lasted one week and included deliberations and debates which paused only for meals and sleep. Frank Vanderlip, one of the six, is quoted as having said, “We put in the most intense period of work that I have ever had.” It took several years and some political compromise for the plans to become legislation, but in December of 1913, President Woodrow Wilson officially signed the Federal Reserve Act into law. * Through the years, as America has met new types of economic crises, the Fed has been modified to help prevent such issues from reoccurring. As a result, the Federal Reserve looks quite different today than it did in 1913.
The Federal Reserve, or the central bank, was created largely in response to a series of “bank panics” or “runs.” One particularly well-known instance is the Panic of 1907, in which a group of extremely wealthy individuals led by JP Morgan provided the cash necessary to keep the banking system out of a major financial meltdown. The need for a singular, and centralized, “lender of last resort” necessitated the birth of The Fed. As new crises emerged, new modifications were made. ^
The Federal Open Market Committee was established through The Federal Reserve Reform Act of 1935 in response to the Great Depression. This gave The Fed the structure and powers to adjust monetary policy more effectively. The Fed’s “dual mandate” of managing price stability (inflation) and ensuring full employment came from legislation in response to the raging inflation of the 1970s. ** Lastly, the Fed was made more transparent and given some additional supervisory roles over banks in response to the 07’-08’ financial crisis through the Frank-Dodd Act.
The Fed has clearly evolved over the years and perhaps rightfully so. America has certainly endured its share of painful economic episodes over the past century. The hope is that these changes to The Fed have better equipped it to mitigate the fallout from the most recent and any future economic crises more efficiently and effectively than before.
Eric Puckett
* federalreservehistory.org/essays/jekyll-island-conference
^ stlouisfed.org/education/the-panic-of-1907-jp-morgan-and-the-money-trust
** federalreserve.gov/aboutthefed/the-fed-explained.htm