Powell told Congress in late November he would drop transitory from the Fed’s lexicon. By then, inflation had already reached 6.2% and some economists were scoffing at his continued use of the term.
While Kaufman sees many reasons to draw lessons from the Fed’s experience in the 1970s, much is different now. For starters, the economy is booming, the unemployment rate is under 4% and stock indexes are close to records.
Less Drastic
In early 1980, even after Volcker’s policy move, prices were still rising so fast that Kaufman, at a bankers’ meeting in Los Angeles, called for the declaration of a national inflation emergency as well as temporary wage freezes and price controls. Today’s situation doesn’t warrant the same degree of alarm, he says.
“That’s when prices reach levels where the average American realizes income is inadequate to cover inflation and that puts pressure on household spending and consumption,” he said. “It’s too early in the game.”
This article was provided by Bloomberg News.