More than 90 Central Banks have now lifted rates, more than half by at least 75 basis points in one go this year. Last night the UK lifted by 0.5% and we look at their outlook, as more channel Paul Volcker who is widely acknowledged as the premier inflation fighter in Federal Reserve history.
When President Carter nominated him to be Fed Chair in July 1979, Volcker knew he faced a daunting task. Inflation was 11 percent, inflicting pain on financial markets and economic performance, and the second oil shock was unfolding. The Fed’s lack of inflation-fighting credibility had generated severe currency devaluation and a U.S. dollar crisis in late 1978.
At his confirmation hearings before the Senate Banking Committee, Volcker made his views clear. The Fed would have to clamp down on monetary policy to reverse the damaging upward price-wage cycle and wring out inflationary expectations. To his credit, Carter supported Volcker, even though he knew it may cause a recession, as did President Reagan.
Volcker took heat when the Fed sent rates soaring and the economy incurred back-to-back recessions.
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