Inflation, Recession and the SPX
June 6, 2022
A new paper from the Fed contrasts the inflation from the ‘70s to the current situation, suggesting policymakers from the 70’s didn’t fully understand how monetary policy effected prices until Paul Volker arrived at the Fed in 1979. There was nearly 8 years where inflation was allowed to take hold before the 1973 Arab oil embargo helped drive US inflation to a peak of 13.55%. Monetary policy in the modern era seems better positioned to prevent the recurrence of entrenched high inflation. Comparisons with the 70s might be less common if it weren’t for the recent rise in crude oil prices. The US economy was far more dependent on crude oil in the 1970’s than now, and prices would need to reach an average of ~$300bbl today just to keep the comparison equal in dollar terms.