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As inflation persists at multi-decade highs, the pressure is on the Federal Reserve, above all other economic policymaking institutions, to halt rising prices: The central bank announced another interest rate increase Wednesday in its ongoing efforts to combat inflation.
Since the climax of the last major inflation crisis in the 1970s, independent central bank chiefs willing to administer proverbial harsh medicine — raising interest rates so high they potentially cause a recession — have reigned like near-deities over our economic lives.
In this, Fed Chair Jerome Powell stands in the shadow of his most legendary predecessor, the late Paul Volcker. Inflation hawks want Powell to go “full Volcker”: follow the elder banker’s example from 1979 and raise interest rates high enough to choke off demand, even at the cost of a devastating recession.
The Volcker shock looms large in the mythology of central banking: the moment when neoliberal Zeus slew the old economic Titans standing in the way of progress. Volcker’s rate hikes sent the US economy into the worst recession since the Great Depression during the early 1980s, but it eventually recovered into what’s called the “Great Moderation”: a more than three-decade stretch when inflation seemed banished even as economic growth returned.
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