Regional President Speech

Before the Member Bank Directors & Officers Assembly - FEB Minneapolis April 26-27. 1954 FORTY YEARS OF THE FEDERAL RESERVE SYSTEM by Karl R. Bopp INTRODUCTION 1. Happy to be here 2. Regret circumstances 3. Pete (J.M.Peterson) a representative of finest in System We could ill afford to lose U» Consideration of life and death leads one to take a longer view 5. Many times someone has thought he has had the FINAL answer 6. As Mr. Justice Holmes once said: To rely (rest ?) on a formula is a slumber, that prolonged means death. Forty years in forty minutes! I commend to you the 1953 Annual Report of the Federal Reserve Bank of Minneapolis - feature article on 40 years of the System Federal Reserve System arose out of the Panic of 1907 when you simply could not get money and the call money rate went to 125% Reserve Banks established so they could create new money and reserves in such cases Also for seasonal currency needs In general to adjust the quantity of money and credit to the needs of the economy Essential Nature of Central Banks (a) With unused authority to issue currency and reserves for member banks to expand (b) With a portfolio of earning assets that it can dispose of to contract (c) Institution operating in the Public Interest In forty years we have gained increasing comprehension of this basic nature Persistent problems Objectives Instruments Guides Effectiveness Organisation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis I. Objectives of Policy A. General: promote stable economic progress B. Possible specific objectives and their implications 1. Convertibility: expand with more gold - contract when less On gold standard: did not prevent panic of 1907 - or great depression of 1932 2. Productive credit:- seductively appealing but how can you tell when productive? 194-6 e.g. borrow to buy motors for refrigerators (The monqy value not physical quantity of output) 3« A fixed rate of interest: experience 194-6 to the accord 4-. Stable price level: can we be sure? late 1920* s? 5« Full employment: inflationary bias if at any wage rate C. Possible conflicts and need for choice or combination e.g. last fifteen months 1. Ve lost lj billion gold 2. Prices - wholesale and retail levels stable but agriculture down 3. Unemployment doubled to 3,745,000 II. Instruments A. Discounting and Discount Rate eligibility theory - didn't work out Limits? How expand when No one will borrow? How contract when no one is borrowing? B. Open market How contract when you have no portfolio - or it is less than excess reserves? 1930's C. Changes in Reserve Requirements of member banks D. Selective instruments III. Guides to current actions A. Application of principles to current developments B. Time lags 1. In collection, tabulation, and analysis of information 2. Between an act of policy and its effects C. Infora&tion of past or Digitized for FRASER Projections of the future http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - TV. Effectiveness of operations A. Appropriate action a necessary but not a B. Sufficient condition to assure stable progress C. Effectiveness the business cycle V. Organization A. Relation to Government Not to executive but to legislature Objection: can't move fast enough Answer: can -when necessary B. Internal 1. A Federal system 2. Group judgment C. Outside criticism and support VI. Experience and the future A. A central banker must work against the current wave of optimism and pessimism Unpopular But not dogmatic - must have an open - not drafty - mind B. In the 20's we thought monetary policy all powerful In the 30* s we concluded it is impotent - fiscal policy everything In the 4D's we found that to ignore money is dangerous Now, in the 50's we remember the 30's and know it is not omnipotent we remember the 20's and 40 's and know we cannot even hope to achieve stable growth without appropriate monetary policy C. But most important, I believe, is a recognition of the complexity of the problems that confront us, how difficult it is to have sound judgment, the consequences of mistakes - hence humility Yet must act on judgments courage Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Karl R. Bopp (1954, April 25). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19540426_karl_r_bopp

@misc{wtfs_regional_speeche_19540426_karl_r_bopp,
  author = {Karl R. Bopp},
  title = {Regional President Speech},
  year = {1954},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19540426_karl_r_bopp},
  note = {Retrieved via When the Fed Speaks corpus}
}