Unfortunately, something that hasn't happened since the '70s is poised to happen again in the coming year: inflation during an economic slowdown. Obviously, inflation is generally bad if it occurs in a significant way. For example, during 2000 and 2001, Turkey experienced (at times) nearly 100% inflation on the Turkish Lira. Within a year, money that was worth $2 sank to being worth $1. That was great for us foreign visitors; it was lousy for the Turks, who over the course of a year, found their paychecks effectively cut in half.
While the inflation that is facing the US right now isn't expected to be nearly that bad, inflation still has the same effect on the wages of workers here in the US. Generally, the Federal Reserve acts to keep inflation under control by raising interest rates, as it did in the 1970s and 1980s. However, news reports today seem to suggest that the Fed won't be raising rates and instead lowering them in the hopes of staving off a recession. My question is why is the Fed so concerned about avoiding a recession. I guess that I'm not well-enough schooled in Economics to understand. It seems to me that recessions are an inevitable part of the economic cycle, while inflation can be avoided (or at least controlled) more easily. Shouldn't the Fed be more worried about controlling inflation than preventing a recession? If one of you out there understands this whole issue well, I welcome your comments.
1 comment:
Brian agrees with what you're saying. Inflation should be the fed's greatest concern, not the recession. The recession is going to happen no matter what, because the economy needs to correct itself.
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