I was a mere child in the 1970's, but as a student of history I have learned about the difficulties for the public and the economy during that decade. Long gas lines, extremely high inflation, high unemployment were just the most visible problems. During the Ford Administration, buttons were passed out that said WIN - whip inflation now.
That was in 1974, trying to spur the public to cut demand. That did not work, and the Fed under Paul Volcker took drastic steps when he took over the reins. He went on a campaign to raise interest rates as far as he could to stifle inflation, and that turned out to be the right move but rates were hiked up to 20%, double digits for an extended period of time. Stunning move, but since then (1980-1982) inflation has been rather tame - until now.
It's hard to believe that over the past decade the Fed has tried to create inflation. That started with Ben Bernanke and then Janet Yellen following the Great Financial Crisis (GFC), where deflation was the enemy of the economy. Their beliefs at the time were to create some inflation, get away from ZIRP (zero interest rate policy) and gently raise interest rates to neutral. That did not work, but then the pandemic came along and created an entirely new problem - flood the market with liquidity to make sure we don't have a second great depression.
Today, Chair Powell has a huge price stability problem. However, the plans and ideas are in place to fix the problem. But the market seems to believe many different scenarios exist (small vs large hikes, few vs many hikes), but the Fed does not know what it would take. Did Chairman Volcker know the funds rate would hit 20%? I doubt it, but he did whatever it took to whip inflation. Even to the tune of twin recessions that followed.
Chair Powell and the committee are talking the right moves and I believe they will make good on their promises - even if the stock market is fractured for a time.
