Ever since the US federal funds rate reached 5.5 per cent in response to generationally high inflation, we’ve expressed concern about the risk of a policy error should the US central bank blink by prematurely easing policy before the inflation threat is fully vanquished.
This is what occurred during the 1970s when the Arthur Burns-led US Federal Reserve – either through miscalculation or losing its nerve – lowered rates before the job was done, thus unleashing a second and even more fierce, inflationary wave.
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