Escalating Oil Prices and Fed Funds Rates Preceded Every Recession Since 1957

Alan ReynoldsIn 1997, Former Federal Reserve ChairmanBen Bernanke, while still an academic, wrote a famous historical study for the Brookings Institution: “Systematic Monetary Policy and the Effects of Oil Price Shocks” with Mark Gertler and Mark Watson.It began by documenting that “essentially all the U.S. recessions of the past thirty years have been preceded by both oil price increases and a tightening of monetary policy. ” So here we are again tightening monetary policy at a time of unaffordable oil price increases.In fact, Fed Chairman Jerome Powell argues the Fed must be more aggressive about raising the federal funds rate higher and faster preciselybecauseRussia ’s war on Ukraine has inflated global prices of oil, natural gas, grains and more.At a March talk to the National Association of Business EconomistsChairman Powell lamented, “The added near‐​term upward pressure from the invasion of Ukraine on inflation from energy, food, and other commodities comes at a time of already too high inflation. In normal times … monetary policy would look through a brief burst of inflation associated with commodity price shocks. However, the risk is rising that an extended period of high inflation could push longer ‐​term expectations uncomfortably higher.”That is a relatively hazy anxiety, since expectations change when the facts change. The University of Michigan survey of inflation expected over the next 12 month moves up...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs