The Federal Reserve raised interest rates sharply during the 1929 crash era, worsening pressure on U.S. financial markets.
The Federal Reserve increased its discount rate in August 1929, raising borrowing costs as it tried to restrain speculation and credit growth. Higher rates contributed to tighter financial conditions before the October stock-market collapse.
Historians do not treat this policy as the sole cause of the crash. Speculative buying on margin, unequal income distribution, weak industries, agricultural problems, and fragile banks also shaped the disaster. The Federal Reserve’s later failure to prevent widespread bank failures is another major part of the debate.
A common mix-up is assigning these decisions to the U.S. Treasury. The Federal Reserve, created in 1913, was the central banking institution responsible for discount-rate policy, although Treasury officials also influenced financial policy.