In what is now a famous horror story of monetary policy gone wrong, the Fed not only failed to respond to the rising inflationary pressures in the ’70s; it actively made them worse. The reason was in part political: Arthur Burns yielded to pressure from the Nixon White House to disregard concerns about rising inflation and keep interest rates low to hold down unemployment. (Sound familiar?) The resulting stagflation crisis ended only when a new Fed chair, Paul Volcker, raised rates to almost 20 percent in 1980, leading to a deep and painful recession.

 

The Economy Is Starting to Pay for Trump’s Chaos

By Jared Bernstein and Ryan Cummings

Mr. Bernstein was the chair of President Joe Biden’s Council of Economic Advisers from 2023 to 2025. Mr. Cummings served the council as an economist from 2021 to 2023.