The Economic sins of the 70s will not Recur, Says Christopher Waller.
On Tuesday, Governor Christopher Waller of the Federal Reserve said that the rate-setting body would not repeat the mistakes that led to a spike in inflation in the 1970s.
During a panel discussion with Minneapolis Fed President Neel Kashkari, Waller said the central bank used to talk tough on inflation but has recently folded as a result of the counter effects of tighter monetary policy, namely increased unemployment.
This time, Waller and his colleagues said they would stick to their plans to hike interest rates until inflation falls below the Fed’s goal level. The central bank has hiked up rates twice this year with the most recent occurrence hosting a change of a half percentage point.
The official response came as inflation reached its highest level in more than 40 years. Earlier in the day, President Joe Biden shared his thoughts on how inflation is the economy’s most significant concern right now, claiming that battling price markups “begins with the Federal Reserve”.
“The Fed should do its job, and it will do its job,” Biden said, despite the central bank’s political independence. That is something I am sure of.”
While Waller compares the Fed to when Chairman Paul Volcker took office in the early 1980s, with how the Fed reduced inflation with a series of significant interest rate hikes, he believes contemporary policymakers do not need to be as tough.
“Volcker basically said, ‘I’ve got to perform this shock and awe,’ because they had no credibility,” Waller explained, “We don’t have that problem right now. This isn’t a Volcker-style shock and awe event.”
Volcker’s actions had upped the Federal Reserve’s benchmark interest rate close to 20 percent, plunging the country into recession.
“If I had known what was going to happen, I never would have done it,” Waller said, referring to his conversation with the former chair before his death.
He believes the economy can tolerate a more gradual rate hike path this time than during the Volcker period, noting the labor market and the success of the overall economy when justifying the need to act now.
Earlier in the day, Richmond Fed President Thomas Barkin backed the goal of bringing inflation under control, saying that the likely path will bring the fed funds rate to a range of 2% to 3%, after which “[The Fed] can determine whether inflation remains at a level that requires us to put the brakes on the economy or not.”
“We know [what] happened for the Fed [to] not [take it] job seriously on inflation in the 1970s, and we ain’t gonna let that happen,” Waller said.
Work Cited
https://www.federalreserve.gov/newsevents/speech/waller20220506a.htm
https://www.reuters.com/world/us/feds-waller-says-now-is-time-hit-it-raising-rates-2022-05-10/
https://www.nytimes.com/2022/05/06/business/economy/fed-inflation-waller.html
