When the Federal Reserve embarked on an aggressive campaign to quash inflation last year, it did so with the goal of avoiding a painful repeat of the 1970s, when inflation spun out of control and economic malaise set in.
Inflation has been sliding, indicating that after 10 consecutive interest rate hikes, the central bank is experiencing some success.
But Gary Richardson, a Federal Reserve historian, is worried policymakers — now contemplating taking a breather — still risk repeating mistakes from that era.
"The more times you pause [rate hikes], the longer the problem is going to go on," he told me. "That's a worry here."
What's happening: When the Fed met last week, it raised its key interest rate by another quarter of a percentage point, noting that inflation remains "well above" its longer-term goal of 2%.
Yet amid signs of stress in the banking sector that could pile pressure on the economy, it opened the door to keeping rates unchanged when it meets again in June.
"There's a sense that we're much closer to the end of this than to the beginning," Chair Jerome Powell said.
Investors are cheering the notion that borrowing costs may have peaked. Richardson, however, is concerned inflation could surge again should that be the case.
A premature retreat could cause the Fed to lose its handle on the situation, presenting even grimmer options down the road. That's what happened in the 1970s, he said.
Quick rewind: The chair of the Federal Reserve at the time, Arthur Burns, hiked interest rates dramatically between 1972 and 1974. Then, as the economy contracted, he changed course and started cutting rates.
Inflation later roared back, forcing the hand of Paul Volcker, who took over at the Fed in 1979, Richardson said. Volcker brought double-digit inflation to heel — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
"If they don't stop inflation now, the historical analogy [indicates] it's not going to stop, and it's going to get worse," said Richardson, an economics professor at University of California, Irvine.
Academics still debate whether it's an oversimplification to cast Burns as foolish and Volcker as a hero. And the US economy looks a lot different now than it did 50 years ago.
But the comparisons reveal the high stakes for the Federal Reserve at a moment of acute uncertainty.
On the radar: The central bank's aim of taming inflation without causing undue strain is made harder by the fact that the economy continues to produce mixed signals.
Data released Friday showed that US employers added 253,000 jobs in April — a surprise increase at a time when many indicators had been pointing to a slowdown in hiring. That bolsters the case for the Fed to keep hiking, despite hopes to the contrary on Wall Street.
"The strength of the April jobs data on Friday raised risks that future Fed policy will disappoint investors," Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note to clients.
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