“Twisted” thoughts from Edward Lambert at Angry Bear: “Has the Fed rate done a good job to balance inflation over the years?”
In light of the recent discussions of inflation in the 1970′s (Steve Roth and Steve Randy Waldman), I ask… how well has the Federal Reserve done in setting a Fed rate to balance inflation over the years? Including the 1970′s… Actually very well, except for Volcker in the 1980′s.
First, let me state that there was liquidity from high labor share through the 1970′s. Even though real wages were lower, labor’s share of income did not change much. The baby-boomers grew in economic strength from their labor share liquidity. The Fed rate did not try to control that liquidity in the 70′s. But Volcker put the breaks on the liquidity coming from the Fed rate in the early 80′s. And the babies born from 1960 on graduated from college into a world of tight liquidity due to tight Fed policy. They became disadvantaged. They did not find job openings. As a generation, they fell behind. I was one of those babies that graduated into the heart of the 1982 recession. If the Fed “had gone Volcker in 1975″, as Steve Roth asks in his post, what happened to my generation would have happened to the baby-boomers before me.
Actually it appears he had greater luck than those that graduated a few years earlier! The charts show how lucky Edward was!