The headlines tell one story: the Federal Reserve hiked interest rates three-quarters of a percent to roughly 1.5-1.75 percent. The Fed, the narrative goes, is trying to get a handle on inflation, and prevent it from swallowing the economy.
It’s not a bad storyline. One might like to think that the world’s largest economy could handle what are, still, historically low interest rates.
But the U.S. economy does not operate in a bubble, no matter how much some might wish it were so. Instead, we’re as connected and dependent on the rest of the world as ever. And on that global score, the worst times may still lie ahead.
According to a recent report from the World Bank, that 1970s-vintage economic horror – stagflation – is a real possibility:
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank President David Malpass. “Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality.”
The World Bank noted the parallels with the 1970s:
The current juncture resembles the 1970s in three key aspects: persistent supply-side disturbances fueling inflation, preceded by a protracted period of highly accommodative monetary policy in major advanced economies, prospects for weakening growth, and vulnerabilities that emerging market and developing economies face with respect to the monetary policy tightening that will be needed to rein in inflation.
There’s those higher interest rates bubbling to the surface. They won’t just affect economic activity here, but everywhere. Of similar global importance? The Russian invasion of Ukraine:
The war in Ukraine has led to a surge in prices across a wide range of energy-related commodities. Higher energy prices will lower real incomes, raise production costs, tighten financial conditions, and constrain macroeconomic policy especially in energy-importing countries.
And in what could be taken as a bit of pushback to the hapless Biden administration, there’s a cautionary note about what governments should NOT do:
Policymakers, moreover, should refrain from distortionary policies such as price controls, subsidies, and export bans, which could worsen the recent increase in commodity prices.
In other words, leave the 1970s playbook on the shelf, and find ways to get government out of the productive economy’s way.
That may prove impossible for Mr. Biden, who never met a half-baked economic fallacy he didn’t like.
The opinions expressed in this article are those of the author and do not necessarily reflect the positions of American Liberty News.
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Norman Leahy has written about national and Virginia politics for more than 30 years with outlets ranging from The Washington Post to BearingDrift.com. A consulting writer, editor, recovering think tank executive and campaign operative, Norman lives in Virginia.
Depression 2??
Interest rate climbing one quarter of one percent = Great Depression numero 2. Funny isn’t it; it went down or remained just above zero under DJT. Now, store shelves are becoming empty, gas is 4 times what it was and prices are through the roof and the housing market is in the toilet.
The article reads like world bank and Federal Reserve are a normality and not enemies that have killed free market.
The world bank in on the same corruption level as the FED, BIS, WHO, NATO, UN and the gates foundation.
The only difference between Carter and Lying Corrupt Quid Pro KING Joe, Carter wasn’t out to intentionally destroy America.
If you don’t know history, you are destined to repeat your mistakes. Carter was basically a good man who was in way over his head. He was a wuss & no one feared him on the international or domestic fields. Biden is a criminal who is no nearly brain dead. Biden is much more dangerous as even he does not know or understand what he will do next. Thanks to all you utter fools who voted for him. God help us.