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IPFS News Link • Federal Reserve

The Fed's "7% Solution" Won't Work This Time

• By Lance Roberts

As we have discussed previously, the fear is repeating the policy errors of the late 1970s that led to entrenched inflation.

While the "7% solution" is supported by the likes of Larry Summers and others, there are vast differences between the economy today versus then. Trying to increase the Fed funds rate to 7%, 2.5% higher than they are currently, risks triggering a catastrophically deep recession.

The reason is the 2020 inflation was the result of one-time artificial influences versus the 1970s. As we noted previously in"That 70s Show:"

"The buildup of inflation was in the works long before the Arab Oil Embargo. Economic growth, wages, and savings rates catalyzed 'demand push' inflation. In other words, as economic growth increased, economic demand led to higher prices and wages."