Powell’s Peril

In early 1972, with the fed funds rate at 3%, the Fed began raising rates to quash inflation. By 11/73, the fed funds rate exceeded 10% and the economy entered a deep recession. The Fed continued raising rates ultimately pushing fed funds to 13% by 6/74. Then, thinking inflation was licked, they began lowering rates to 5% by 6/75. The economy recovered but inflation remained. This experience haunts Powell.