Arthur Burns Federal chair from 1970‒1978.
Burns made a rather dramatic (at least looking at it now) mea culpa speech in September 1979.
“Economic life is subject to all sorts of surprises and disturbances—business recessions, labor unrest, foreign troubles, monopolistic shocks, elections, and governmental upsets. One or another such development, especially a business recession, could readily overwhelm and topple a gradualist timetable for curbing inflation. That has happened in the past and it may happen again.”
Here’s a chart of the federal funds rate in Volcker’s first term.
Note those near-vertical lines. These 50‒75 basis point moves people now consider “aggressive” are mild in comparison. The Volcker Fed had multiple hikes of 100 bps or more.
Volcker rewarded Jimmy Carter’s appointment by giving him an immediate recession going into 1980. Then they took fed funds 1,000 points higher in the second half of 1980, helping cost Carter the election and welcoming Ronald Reagan with an even deeper recession.
John Mauldin 17 June 2022
Powell, who became chairman in February 2018, kept on climbing, reaching 2.5% just before Christmas of that year.
At the same time, the Fed’s balance sheet began shrinking. In February 2019, it fell below $4 trillion for the first time since December 2013.
Will the Powell Fed be more like the Burns Fed or the Volcker Fed? We won’t know for sure until it confronts something much uglier than the current equity bear market.
All we do know is that Powell has blinked before now — and in response to a 19% stock market correction in late 2018 and a president with a Twitter habit. Trump’s successor is not much of tweeter. But the market is already down further.
In April 1969, November 1971, April 1974 and February 1980, the rate hikes stopped not because the Fed had won its fight against inflation, but because GDP and employment were going down.
Niall Ferguson Bloomberg 19 juni 2022
Volcker was less austere and more pragmatic than his reputation
Greg Ip WSJ 9 December 2019
Volcker: “If I had known what was going to happen, I never would have done it.”
Kommentarer