You are currently viewing What the 1980s Can Teach Us About Interest Rates and Inflation

When inflation was soaring 40 years ago and the economy slowed, short-term investing was perilous. But people with patience and long horizons came out fine.

The cost of living is sky-high, and the chair of the Federal Reserve says that battling it is his highest priority. Financial markets don’t know quite how to react.

That, in a nutshell, is the situation now, with Jerome H. Powell, the Fed chair, raising interest rates to damp down inflation that hasn’t been this high in 40 years.

Something similar happened the last time inflation was out of control. Paul A. Volcker was the Fed chair then. He wrung inflation out of the economy, but at a great cost — hurling the nation into not just one recession, but two, in rapid succession. Unemployment soared, stocks fell repeatedly, interest rates oscillated and, for a while, bonds looked shaky, too.

While comparisons between the periods can be overdrawn, there

Keep reading this article on The New York Times Business.

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