Logo: 100 Years, Federal Reserve System
 
The seven members of the first Federal Reserve Board
Painting of President Woodrow Wilson signing the Federal Reserve Act of 1913
Map of the 48 states that comprised the U.S. in 1914 entitled “New U.S. Bank System Announced.” Map shows  the 12 districts and cities of the Federal Reserve System as announced in 1914.
World War I poster for the Second Liberty Loan of 1917.   Text reads “lend your money to your government; buy a United States Government Bond. U.S. Treasury will pay you interest every six months.”
Federal Reserve governors stand with bankers on the steps of a building.
Headshot of Congressman Louis Thomas McFadden
A long bread line stretches down a New York City street during the Great Depression
People crowd outside the New York Stock Exchange on October 29, 1929.
Depositors gather outside the state-ordered closed doors of American Union Bank of New York City in 1931.
A crowd gathers outside the East New York Savings Bank during a run on that bank.
President Herbert Hoover and reconstruction leaders meet in Washington on February 6, 1932, to discuss the president's contemplated campaign against national hoarding.
Crowds gather on Wall Street as banks reopened on March 13, 1933, after the Bank Holiday.
President Franklin Roosevelt signing the Emergency Banking Act
Chart 1: Price level, 1925 to 1940. Data plotted as a curve. Units are price level series scaled so that the average value for 1926 equals 100. The series peaks in September 1929 before falling to a low in March 1933. The series then rises toward its 1926 level but does not reach its level until 1944. There are three vertical lines: The first indicates the Emergency Banking Act passed on March 8, 1933; the second indicates the Gold Reserve Act of January 4, 1934; the third indicates the beginning of the 1937 recession. Minor tick marks indicate January of each year. 
Source: Federal Reserve Public Data; http://research.stlouisfed.org/fred2/

The price level series is defined by the NBER as a weighted average of different prices:
“Components of this index and their respective weights are: industrial prices, non-agricultural, wholesale (10); farm prices at the farm (10); retail food prices in fifty-one cities (10); rents in thirty-two cities (5); clothing, fuel, furnishings, etc., retail (10); freight and transportation costs (5); realty value, urban and farm (10); securities, bonds, and stocks (10); equipment and machinery (10); hardware prices (3); automobile prices (2);”
Refer to :  NBER macro history, Series M0451. http://www.nber.org/databases/macrohistory/contents/chapter04.html
President Roosevelt signs the Glass-Steagall Act alongside the bill's co-sponsors, Senator Carter Glass and Representative Henry Steagall, and others.
President Roosevelt signs the Gold Reserve Act.
President Roosevelt chats with various politicians and administration officials as he signs the Banking Act of 1935.
Men wearing sandwich boards reading "I voted for ham and eggs" and "I believed the banks" walk down a Los Angeles street.
A man and a woman make a transaction  at a bank teller window.
U.S. Army Chief of Staff George C. Marshall and British Admiral Sir Dudley Pound talk at luncheon held for British and American naval chiefs at the Federal Reserve building in Washington, D.C.
Delegates from 44 countries listen to Senator Charles Tobey speak at the plenary session of the United Nations Monetary Conference in Bretton Woods, New Hampshire.
President Harry Truman signs the Employment Act of 1946, which Congress passed as a compromise for his so-called "full employment" legislation.
President Harry Truman meets with George Marshall, Economic Cooperation Administration chief Paul Hoffman, and ECA roving ambassador W. Averell Harriman to discuss the Marshall Plan.
Federal Reserve Board Chairman William McChesney Martin, pictured beside President Lyndon Johnson, discusses the Board’s action on raising the discount rate at a December 1965 news conference.
William McChesney Martin is sworn in as Chairman of the Federal Reserve Board of Governors by Chief Justice Fred Vinson, as his predecessor, Thomas B. McCabe looks on.
President Eisenhower speaks to the press in Washington, D.C.
U.S. Secretary of the Treasury Henry Morgenthau speaks at the conference that established the International Monetary Fund.
Chart 1: Inflation as measured by the consumer price index. Data plotted as a curve. Units are percentage change from a year ago. The grey bar indicates a period of Great Inflation, which began in January 1965 and ended in December 1982. In January 1965, the percentage change from a year ago in the consumer price index began to rise until it peaked in March 1980 at close to 15 percent. In 1983, the percentage change from a year ago settled back to pre-Great Inflation levels of between 0 to 5 percent where it has remained, for the most part, ever since. 
Source: Federal Reserve Public Data; http://research.stlouisfed.org/fred2/
President Nixon prepares to announce new economic policies on a television broadcast.
West German Finance Minister Karl Schiller and French Finance Minister Valery Giscard d’Estaing chat during the IMF General Assembly in 1971.
Sign reading “Gas shortage! Sales limited to 10 gallons of gas per customer” posted at a filling station during the energy crisis
Arthur Burns, Jimmy Carter, and G. William Miller following the announcement of Miller to replace Burns as Chairman of the Federal Reserve Board.
Senator Muriel Humphrey gives President Carter her hands to shake after Carter signed the Humphrey-Hawkins Bill into law.  Representative Augustus Hawkins, co-sponsor of the bill, is pictured to the right.
Cars line up outside a filling station on the first day of gas rationing following the revolution in Iran that caused a shortage of crude oil.
Chairman of the Federal Reserve Board Paul Volcker speaks with Senator Paul Sarbanes prior to Volcker’s appearance before the Senate Banking Committee panel.
Depositors line up to withdraw money from a Baltimore bank following the court order that limited depositors' cash withdrawals until a purchaser was found for the troubled savings and loan.
Paul Volcker, Chairman of the Federal Reserve Board, speaks at a meeting of Congressional leaders who were proposing budget cuts.
Unemployed citizens line up to apply for insurance at the Bureau of Unemployment in Chicago, 1981.
Chart 1: Economic growth as measured by change in gross domestic product, 1960 to 2013. Units are annualized percentage change from the previous quarter. Tick marks separate the fourth and first quarters. The grey bar represents the period of the Great Moderation, 1984-2007 Q2, in which gross domestic product grew much more steadily relative to the previous period.
Source: Federal Reserve Public Data; http://research.stlouisfed.org/fred2/
Demonstrators in Mexico City march in protest of the International Monetary Fund and the Mexican government.
President Ronald Reagan signs the Garn-St. Germain Act in the White House Rose Garden surrounded by administration officials and members of Congress.
The Continental Illinois Bank Building in Chicago, Illinois
American newspaper headlines describing the stock market plunge of October 19, 1987
The Federal Deposit Insurance Corporation Building in Washington, D.C.
President Clinton signs the Interstate Banking and Branching Efficiency Act of 1994 as Senate Banking Committee Chairman Don Riegle and Treasury Secretary Lloyd Bentson look on.
A businessman walks past an electronic reader board near the Tokyo Stock Exchange displaying dismal stock quotes.
Long Term Capital Management’s headquarters in Greenwich, Connecticut
President Clinton signs the Gramm-Leach-Bliley Act surrounded by various officials including Chairman of the Federal Reserve Board Chairman Alan Greenspan.
Women carrying signs rally at the California State Capitol in the aftermath of the housing market collapse to encourage lawmakers to stop foreclosures and help modify loans.
A foreclosed home for sale in Spring, Texas in 2006
Two men carry the Lehman Brother’s corporate sign to an auction house in London.
Chairman of the Federal Reserve Board Ben Bernanke speaks in Washington, D.C. on March 14, 2008, in the midst of the financial crisis.
Store closing signs are posted in the windows of a furniture store in San Jose, California during the Great Recession.
President Barack Obama signs the Dodd-Frank Act in the Ronald Reagan Building in Washington, D.C., alongside members of Congress including the bill's co-sponsors, Senator Chris Dodd and Representative Barney Frank.
Cars line up outside a filling station on the first day of gas rationing following the revolution in Iran that caused a shortage of crude oil.




Cars line up outside a filling station on the first day of gas rationing following the revolution in Iran that caused a shortage of crude oil.
A picture of exiled Muslim leader Ayatollah Khomeini overshadows a huge anti-shah demonstration in Tehran held at a monument commemorating the monarch’s 25 years of power.

Oil Shock of 1978–79

1978 - 1979
by Laurel Graefe, Federal Reserve Bank of Atlanta

     Like its 1973–74 predecessor, the second oil shock of the 1970s was associated with events in the Middle East, but it was also driven by strong global oil demand. The Iranian Revolution began in early 1978 and ended a year later, when the royal reign of Shah Mohammad Reza Pahlavi collapsed and Sheikh Khomeini took control as grand ayatollah of the Islamic republic. In conjunction with the revolution, Iranian oil output declined by 4.8 million barrels per day (7 percent of world production at the time) by January 1979. However, this supply disruption may not have been the most important factor pushing oil prices higher. Rather, the Iranian disruption may have prompted a fear of further disruptions and spurred widespread speculative hoarding.

     Oil prices began to rise rapidly in mid-1979, more than doubling between April 1979 and April 1980. According to one estimate, surging oil demand—coming both from a booming global economy and a sharp increase in precautionary demand—was responsible for much of the increase in the cost of oil during the crisis.

     Through early 1978, the Federal Reserve had maintained a highly accommodative stance of monetary policy, hoping to combat rising unemployment. Ultimately, though, the policies showed little success in stifling the deterioration in the unemployment rate and likely fostered an environment that allowed the rising energy prices to be transmitted into more general inflation. Consumer inflation, which had already begun to accelerate in the United States, continued to rise—from below 5 percent in early 1976 to nearly 7 percent by March 1979. By that time, unease among members of the Federal Open Market Committee (FOMC) that inflation could continue to rise was growing. Records from the meeting of the FOMC on February 28, 1978, indicate that “considerable concern was expressed that the rate of inflation might accelerate significantly as the year progressed [and could] pose difficult questions concerning the appropriate role of monetary policy.” Nevertheless, the committee voted unanimously to keep the policy rate unchanged.

     Despite increasing concern among the public and members of the FOMC about the declining value of the dollar and rising pace of inflation, the committee remained hesitant to raise interest rates too aggressively, fearful of stifling fragile economic growth. The Fed raised the federal funds rate from 6.9 percent in April 1978 to 10 percent by the end of the year. The increase was a clear move to try to curb rising inflation. However, modern economic historians now see the increases as timid and insufficient to stem a surge in inflationary pressure, which had already become entrenched in the American psyche and economy. Twelve-month consumer price index inflation rose to 9 percent by the end of 1979.

     The Carter administration’s decision to appoint Paul Volcker as Fed chairman in August 1979 was a strong endorsement of using more aggressive monetary policy to try to break inflation’s stranglehold on the US economy. As the president of the Federal Reserve Bank of New York, Volcker had been an outspoken proponent of using monetary policy to combat rising inflation. According to Volcker, “If all the difficulties growing out of inflation were going to be dealt with at all, it would have to be through monetary policy…. [No] other approach could be successful without a successful demonstration that monetary restraint would be maintained.” Volcker and the policy-setting FOMC made taming inflation their top priority, even if it came at the detriment of short-term employment. The policies ultimately proved successful in breaking the cycle of stagflation in the United States. Volcker guided the Fed in raising the federal funds rate from 11 percent at the time he took office to a peak of 19 percent in 1981, and the policy moves successfully lowered the rate of twelve-month inflation from a peak of nearly 15 percent to 4 percent by the end of 1982. Though the Fed’s resolve under Volcker was effective in reducing inflation, the monetary contraction—combined with the impact from the oil price shock—pushed the economy into the most severe recession since the Great Depression and spurred strong popular opposition.

     Eventually, slowing economic activity in industrial countries and investments in additional energy production and energy conservation technologies helped to saturate the market with oil and brought an end to the oil crisis. Beginning in mid-1980, real oil prices began to subside, igniting a secular decline that would last for much of the next twenty years.


Bibliography
Chakarova, Vessela. Oil supply crises: Cooperation and discord in the West. Lanham, Md.: Lexington Books, 2013.

Board of Governors of the Federal Reserve System. “Meeting of Federal Open Market Committee June 20, 1978: Minutes of Actions.” June 20, 1978.

Board of Governors of the Federal Reserve System. Sixty-Fifth Annual Report of the Board of Governors. Washington DC: Board of Governors of the Federal Reserve System, 1979.

Hamilton, James D.,“Historical oil shocks,” In Routledge Handbook of Major Events in Economic History, edited by Randall E. Parker and Robert M. Whaples, 239-65. New York: Routledge, 2013.

Kilian, Lutz. “Not All Oil Price Shocks are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market.” American Economic Review 99, no. 3 (2009): 1053-69.

Meltzer, Allan. A History of the Federal Reserve, Volume 2, Book 2, 1970–1986. Chicago: University of Chicago Press, 2009.

Romer, Christina D., and David H. Romer. “The Most Dangerous Idea in Federal Reserve History: Monetary Policy Doesn’t Matter.” American Economic Review 103, no. 3 (2013): 55-60.

Volcker, Paul A., and Toyoo Gyohten. Changing Fortunes: The World’s Money and the Threat to American Leadership. New York: Times Books, 1992.


Written as of November 22, 2013. See disclaimer.