The Week in Review: August 14, 2023
Lessons from the 1960s
Fed Chief Jay Powell and other Fed officials have been open about discussing the lessons they learned and the errors made during the 1970s.
The Consumer Price Index (CPI) jumped to an annual rate of over 12% in 1974 before falling back to 5% by 1976, per St. Louis Federal Reserve data.
However, the Fed became complacent and was forced to chase a rising inflation rate, with the CPI hitting nearly 15% by 1980.
But what about the lessons of the 1960s? And how might they relate to our current situation?
Let’s start with last week’s report. The CPI and the core CPI, excluding food and energy, rose 0.2% in July, according to the U.S. Bureau of Labor Statistics.
It is encouraging to note that before rounding up, the monthly core rate increased by just 0.16% in June and July.
On an annual basis, the CPI increased 3.2% in July, up from 3.0% in June, while the core rate slowed from 4.8% to 4.7%. Both are still too high but are moving in the right direction.
Back to our original question—what about the lessons of the 1960s? The rate of inflation doubled between early and late 1966. However, the CPI slowed significantly in 1967, which we’re seeing today—see Figure 1.
Why did the rate briefly slow in the 1960s? The Fed engineered the perfect soft landing—a slowdown in economic growth, a stable jobless rate, and the avoidance of a recession.
Among other things, it was a triumph for monetary policy and the Fed.
However, the victory over inflation proved to be temporary, as prices resumed their upward march in the late 1960s.
While there are some similarities between the 1960s and the present day, it's also important to recognize the differences. Besides, we don’t want to downplay recent progress on inflation.
But a repeat of the 1960s is best avoided.
Market Summary
TWO FOR THE ROAD
There are now more NBA players with $30 million annual salaries than CEOs of S&P 500 companies who are guaranteed that much. - Wall Street Journal, July 14, 2023
Virgin Galactic has taken a former Olympian, a University of Aberdeen student, and her mother to the edge of space on its first flight for tourists. Ana Mayers, 18, and her mother Keisha Schahaff, 46, both from Antigua, won their tickets in a competition. They became the first mother-daughter duo to fly to space together. Jon Goodwin, from Newcastle-under-Lyme, became the second person with Parkinson's disease to go to space, a trip he called "completely surreal". Mr. Goodwin bought his ticket for $250,000 (then £191,000) in 2005. The carrier mothership VMS Eve took off from Spaceport America, in the state of New Mexico, at 08:30 local time (15:30 BST). They successfully landed back at Spaceport America just over an hour after taking off. "I'm hoping that I instill in other people around the world, as well as people with Parkinson's, that it doesn't stop you doing things that's out of the normal if you've got some illness," he said. – BBC News 8/10/2023
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