The Daily Inflation Lessons From the 1970s
Mar 16, 2022
Jeanna Smialek, a reporter for The New York Times specializing in the Federal Reserve, dives deep into the inflation crisis that shaped the 1970s. She highlights how the Fed's decision to raise interest rates aims to control current inflation, recalling lessons from the past. Smialek discusses the cultural responses to rising prices, the impact of Paul Volcker's leadership, and the challenges of managing inflation during tumultuous times. Her insights reveal the delicate balance policymakers must strike between economic growth and inflation control.
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Interest Rates and Inflation
- The Federal Reserve raises interest rates to combat inflation by slowing down spending.
- This weakens the economy temporarily to achieve long-term price stability.
1970s Inflation Crisis
- In the 1960s, government spending on programs like the Great Society and the Vietnam War fueled inflation.
- This worsened in the 1970s due to oil embargoes and a "psychology of inflation."
Volcker's Appointment
- Paul Volcker, known for his frugality, became Federal Reserve Chair in 1979.
- He pledged to fight inflation aggressively, even if it meant hurting the economy.