As in 1970s, inflation in United States is partly due to an accommodating monetary policy

The scenario observed today beyond the Atlantic recalls that of fifty years ago, when rising prices were too quickly attributed to the oil shocks.

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“It’s the Economy, Stupid”: “It’s the economy, silly”, had blown a Bill Clinton advisor in 1992 to explain the victory of the Democrat against the Republican George Bush Father, in the wake of ‘A recession. “It’s the inflation, Stupid,” would be tempted to paraphrase, at the approach of the mid-term elections that are very difficult for the Democratic Party. The rise in prices, which reached 7.5% in January, a record since 1982, turns into a poison for the President of the United States, Joe Biden.

Admittedly, inflation is not yet the first concern of Americans, as it was in the early 1980s. But it brides the purchasing power of the employees, while pessimism diffuses into the Country: The morale of consumers measured by the University of Michigan has been at the lowest for ten years, while only 25% of Americans think that the moment is timely to buy housing, discouraged by speculation, the rise in the price of materials construction and rising amount of money.

The Neokeysenesian economist Larry Summers, who alerted the spring 2021 on the inflationary risks, warns of the political ravages incurred, especially on the left. “Inflation contributes significantly to mistrust of institutions and pessimism as to the future. It is a terribly important thing at a time when our democratic institutions are questioned,” explains in The Harvard Gazette the Former Treasury Secretary of Bill Clinton. “If inflation had been better controlled, it is quite possible that the election of Richard Nixon in 1968 and that of Ronald Reagan in 1980 would not have occurred.”

Radical remedy

After having underestimated the inflationary risk, yet increased by its massive recovery plan voted in March 2021, Joe Biden makes it number one, just like the President of the Federal Reserve (Fed), Jerome Powell. In the markets, rumors run, taking the Fed monthly seminars for emergency meetings, from which would come out the decision of an unexpected and brutal rise in rates.

The memory of Paul Volcker, president of the Fed appointed in 1979 by the Democrat Jimmy Carter, is constantly mentioned, he who terraced inflation by flying the number rates of the Fed up to 19.1 % in the first half of 1981. The cure was radical. He made the United States plunge into two recessions in the first half of 1980, then from July 1981 to November 1982. The job cost was painful, with a peak of the unemployment rate at 10.8% in 1982. He provoked a crisis. Debts of emerging countries, particularly in Mexico. But inflation was defeated: from the highest of 14.8% reached in May 1980, it went down 2.5% in July 1983.

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/Media reports.