Is the Fed repeating the mistake of 1937?
In a recent article, Economist Bradford DeLong, shares a conversation he had with U.S. Secretary of the Treasury Janet Yellen, where she said that with the lack of models, the U.S. Federal Reserve (Fed) is prone to react to the groupthink of media pundits. If true, the Fed, concerned about repeating the mistakes of the 1970s, may be repeating the mistakes of the 1930s. While many suggest Fed chairman Jerome Powell is concerned about being labeled another Arthur Burns (the Fed chair who relented prematurely in the 1970s), he looks like he is repeating the massive policy mistake of Marriner S. Eccles, Fed Chair from 1934-48. By wrongly assuming the economy had entered a new inflationary era, in 1937 the Fed tightened too aggressively, causing a sharp recession. The result was a return to secular stagnation and deflation.
Download full article here:
