Fed, Easing Too Soon Risks Repeat of Stop-and-Go 1970s
Federal Reserve Chairman Jerome Powell is raising interest rates at the fastest pace since the 1980s. That has been easy so far because rates are low and the economy has been strong.
The hardest part lies ahead.
Just as it proved difficult for the Fed last year to tell when to start raising rates, it is tough to know when to stop. What happens, for example, if the economy begins slowing sharply but inflation stays too high?
The day after Lehman Brothers collapsed in 2008, with the financial crisis spiraling out of control, Fed officials declined to cut rates out of concern about inflation, which oil prices had pushed up.
Mr. Kohn urged the Fed to consider a “second Volcker moment” that doesn’t rate as much attention as Mr. Volcker’s famous declaration of war on inflation. That was when Mr. Volcker decided in the summer of 1982 to abandon his policy-setting framework, which called for continued rate increases that fall.
By then, rate increases were touching off a fierce debt crisis in Latin America that threatened several large U.S. banks.
Nick Timiraos WSJ 10 July 2022
Volcker: “If I had known what was going to happen, I never would have done it.”
Mellan 1976 och 1982 halverades värdet på USA-börsen.
– Om jag hade vetat vad som skulle hända, skulle jag aldrig ha gjort det, ska Volcker ha sagt till Waller innan han dog, rapporterar CNBC.
https://englundmacro.blogspot.com/2022/05/volcker-if-i-had-known-what-was-going.html
Volcker was less austere and more pragmatic than his reputation
https://englundmacro.blogspot.com/2022/01/volcker-was-less-austere-and-more.html
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