Jeanna Smialek, a reporter for The New York Times specializing in the Federal Reserve, dives deep into the inflation crisis that shaped the 1970s. She highlights how the Fed's decision to raise interest rates aims to control current inflation, recalling lessons from the past. Smialek discusses the cultural responses to rising prices, the impact of Paul Volcker's leadership, and the challenges of managing inflation during tumultuous times. Her insights reveal the delicate balance policymakers must strike between economic growth and inflation control.
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Interest Rates and Inflation
The Federal Reserve raises interest rates to combat inflation by slowing down spending.
This weakens the economy temporarily to achieve long-term price stability.
question_answer ANECDOTE
1970s Inflation Crisis
In the 1960s, government spending on programs like the Great Society and the Vietnam War fueled inflation.
This worsened in the 1970s due to oil embargoes and a "psychology of inflation."
question_answer ANECDOTE
Volcker's Appointment
Paul Volcker, known for his frugality, became Federal Reserve Chair in 1979.
He pledged to fight inflation aggressively, even if it meant hurting the economy.
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With prices on the rise in the U.S. economy, the Federal Reserve is expected to announce on Wednesday an increase in interest rates, essentially pouring a cold glass of water on the economy.
Why would the central bank do that? The answer lies in the inflation crisis of the 1970s, when a failure to react quickly enough still looms large in the memory.
Guest: Jeanna Smialek, a reporter covering the Federal Reserve and the economy for The New York Times.
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Background reading:
The Federal Reserve is facing the fastest inflation most Americans have ever seen. The response may require some aggressive — and painful — measures.
The Daily 