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In this case, the Fed is stimulating a (hopefully mild) recession, by raising interest rates, in order to bring inflation down.

• njarboe 4y ago
  Until rates are above inflation (now around 8%) I would say the Fed is still pumping up the economy, but it's hard to see the Fed push up rates to that level like Volker did the last time the US had high inflation. The Fed set the federal funds rate at 20% in June of 1981 when inflation was about 15%. If the US has to finance much of its debt at 15% something will seriously break.
  • VictorPath 4y ago
    In 1974, President Ford had Whip Inflation Now buttons printed up, and 1981 was seven years later. So Volcker's dramatic raise was in that context. Whereas people are more used to a more moribund economy since 2008 with very low interest rates, inflation, and lots of QE, with the subprime bailout followed by the Covid stimulus. Actual non-negligible inflation and an actual interest rate is something people have started seeing more recently.
  • dageshi 4y ago
    From what I recall there was a fairly long period pre Volker where there were very half hearted attempts to get inflation under control without going for the kill so to speak. I think the Fed knowing that history will try to kill it dead first time, because if they don't they know they'll likely have to go even higher with interest rates at the second attempt and the higher they're forced to go the more danger there will be to US financing operations as you say.