Wednesday, January 12, 2022

Recession

Inflation was less than 2% for most of the post war years until 1968 when it jump to 3.5% and continued to rise. In the 1970's it was over 7% and in the late 70's it went to 13%. During these years interest rates followed inflation running about 5% and then rising to 20% in 1981. The Fed used its control over interest rates to fight inflation and it created a severe recession lasting almost two years to tame the inflation so that by 1983 it rate had declined to 7% and continued a downward path until this past year. Inflation returned to the 2% level but the recession was very painful. Since 2008 the Fed rate has been close to zero and that will change this year as the Fed is proposing to raise rates four times in 2022 and again in 2023. Will this cause a recession?

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