Darryl Francis and the Making of Monetary Policy, 1966-1975

Darryl Francis was president of the Federal Reserve Bank of St. Louis from 1966 to 1975. Throughout those years he was a leading critic of U.S. monetary policy. Francis argued in policy meetings and public venues that monetary policy should focus on maintaining a stable price level. In contrast, most policy- makers at the time believed it possible to exploit a trade-off between unemployment and inflation. While Francis attributed inflation directly to excessive growth of the money stock, other policymakers blamed labor and product market failures, fiscal policy, and commodity price shocks. Francis argued that infla- tion could not be controlled except by limiting the growth of monetary aggregates; other policymakers promoted price controls or other schemes. Francis favored maintaining a stable money stock growth rate at a time when monetary policy was widely interpreted as involving the manipulation of interest rates. Reviewing the debates between Francis and his Federal Reserve colleagues improves our understanding of the reasons behind the Fed?s monetary policy actions at the time and illuminates how policy views evolved within the System toward accepting price level stability as the paramount, long-run objective for monetary policy.