And expansionary fiscal policy will wreck the Fed’s anti-inflationary efforts – the 1980s prove
Willem Thorbecke, 9/19/22, (Senior Fellow; Research Institute of Economy, Trade & Industry in Tokyo, Japan) Financial Times, “Letter: Fiscal discipline is what the US economy needs,” https://www.ft.com/content/6aac3a0c-ecdd-4492-ac17-eab93472f2b5, mm
Frederic Mishkin is correct that the Federal Reserve must not imitate Paul Volcker’s mistake of easing monetary policy before inflation is defeated ( Opinion, September 15). President Joe Biden must also avoid Ronald Reagan’s mistake of running stimulative fiscal policy while the Fed is fighting inflation. In the 1980s, US deficits reached 5 per cent of gross domestic product. To offset this stimulus, the Fed was forced to raise rates to what Helmut Schmidt observed were their highest levels since the time of Christ. The combination multiplied government debt. Contractionary monetary policy and expansionary fiscal policy contributed to US current account deficits approaching 3 per cent of GDP. As the Fed seeks to reduce aggregate demand, as US Treasury rates have increased by hundreds of basis points since the start of 2022, and as the US current account reached 4.8 per cent of GDP in the first quarter of 2022, fiscal discipline is again essential.