Will Janet Yellen launch a rerun of the bad old 1970s, when US inflation hit double digits? I doubt it, writes Kenneth Rogoff. Photograph: Joshua Roberts/Reuters In a recent debate with Hillary Clinton, Donald Trump pressed his claim that the chair of the US Federal Reserve , Janet Yellen, was politically motivated. The Fed, Trump claimed, was applying overdoses of monetary stimulus to hypnotise voters into believingeconomic recovery was under way. It’s not a completely crazy idea, but I just don’t see it. If Yellen is so determined to keep interest rates in a deep freeze, why has she been trying in recent months to talk up longer-term rates by insisting that the Fed is likely to hike rates faster than the market currently believes? Central bankers have, of course, been known to help incumbents before elections, by allowing inflation to drift up and keep employment booming. During President Nixon’s 1972 re-election campaign, he lectured Fed chair Arthur Burns on the need for pump-priming the economy to help him defeat his Democratic challenger, George McGovern. Nixon won resoundingly, but Burns’ policies helped trigger the worldwide inflation of the 1970s and brought forward the breakup of the post-war system of fixed exchange rates. The long-term effects were catastrophic. Will Yellen launch a rerun of the bad old 1970s, when US inflation hit double digits? I doubt it. Although it is not hard to imagine that she privately holds Trump in the same low regard he holds her, most observers see no signs that inflation is imminent. Some people still insist that if the Fed does not urgently raise interest rates and rein in the money supply, the US economy will go the way of Zimbabwe , where inflation far exceeded 25,000% in late 2008. But the argument that Fed balance-sheet […]
