Contrary to our collective memory, inflation was not stable during the 1970s.
From 1962, inflation rose from a fairly stable 2% to a peak of 6% in 1969. That rise triggered the Fed tightening cycle that caused the 1970 recession. Inflation fell as it usually does during recessions but came back with a vengeance in 1974. Inflation rose quickly in from 3% in late 1972 to 12% in 1974. In total, there were 3 massive waves of inflation during the 1970s, 3 Fed tightening cycles, 3 recessions and 3 major bear markets.
Is it possible the Fed will replay this script over the next few years? Yes, because the enabling behaviors are the same:
1. Reluctance to hurt economic growth by raising rates to high.
2. Assuming supply chain and not monetary policy created current problems.
3. Relative stability of long-term Treasury yields encourages only moderate tightening of policy early in the inflation cycle.
I hope I'm wrong because this conclusion means several hard years ahead for our country.
On a more mundane level, have you thought about what this means for your portfolio strategy? We have. Call us to discuss your situation and our view.
Chief Investment Officer
Lloyds Intrepid Wealth Management
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