The sole original purpose of the Fed, then, was to preserve financial stability. According to Robert Latham Owen, one of the authors of the Federal Reserve Act, the Fed was established to "provide a means by which periodic panics which shake the American Republic and do it enormous injury shall be stopped.
"2 Today, however, we know that placing the primary focus on financial stability turned out to be problematic. When speculative lending ballooned in the late 1920s, the Fed, in pursuit of its mandate, tightened monetary conditions in a situation when inflation rates were already slightly negative.