Aug 14, 2023

Lessons from the 1960s

Weekly Market Commentary

Fed Chief Jay Powell, along with other Fed officials, have been open about discussing the lessons they learned and the errors made during the 1970s.

The Consumer Price Index (CPI) jumped to an annual rate of over 12% in 1974 before falling back to 5% by 1976, per data from the St. Louis Federal Reserve.

However, the Fed became complacent, and it was forced to chase a rising rate of inflation, with the CPI hitting nearly 15% by 1980.

But what about the lessons of the 1960s? And how might they relate to our current situation?

Let’s start with last week’s report. The CPI and the core CPI, which excludes food and energy, both rose 0.2% in July, according to the U.S. Bureau of Labor Statistics.

It is encouraging to note that before rounding up, the monthly core rate increased by just 0.16% in June and July.

On an annual basis, the CPI increased 3.2% in July, up from 3.0% in June, while the core rate slowed from 4.8% to 4.7%. Both are still too high but are moving in the right direction.

Back to our original question—what about the lessons of the 1960s? The rate of inflation doubled between early and late 1966. However, the CPI slowed significantly in 1967, which we’re seeing today—see Figure 1.

Why did the rate briefly slow in the 1960s? The Fed engineered the perfect soft landing—a slowdown in economic growth, a stable jobless rate, and the avoidance of a recession.

Among other things, it was a triumph for monetary policy and the Fed.

However, the victory over inflation proved to be temporary, as prices resumed their upward march in the late 1960s.

While there are some similarities between the 1960s and the present day, it’s also important to recognize that there are differences, too. Besides, we don’t want to downplay recent progress on inflation.

But a repeat of the 1960s is best avoided.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

The Fed Delivers a Long-Awaited Rate Cut

To virtually no one’s surprise, the Federal Reserve slashed the target on its key interest rate—the fed funds rate—at the conclusion of its meeting on Wednesday. The only question regarding the decision was whether the Fed would cut by a quarter point (25 basis points [bp]; 1 bp = 0.01%) or 50 bp. They opted for 25 bp and a new range of 4.00-4.25%.

Last CPI Tees Up Fed Rate Cut

The only thing that might have been standing in the way between the Federal Reserve and a rate cut this week was last Thursday’s release of the Consumer Price Index (CPI). While the inflation figures weren’t particularly soft, August’s data didn’t reflect a sharp rise in prices either, all but guaranteeing that the Fed will move at Wednesday’s meeting.

No Hire, No Fire Economy

For starters, the title is a simplified five-word summary of the labor market. Recall that last week, we explored the low level of layoffs. This week, we shift the focus to hiring trends. But first, let’s take a closer look at the numbers from the latest jobs report.

Initial Claims and Economic Signals: What Investors Watch

Initial claims for unemployment insurance measure the number of people filing for unemployment benefits for the first time. The data is released weekly, making it one of the most up-to-date indicators of labor market conditions. It is a key economic indicator because it offers a real-time snapshot of the health of the labor market.

Heavy Data Week Offers Mixed Picture

Last week was packed with economic developments, as reports poured in from all directions. We saw the release of second-quarter Gross Domestic Product (GDP) figures, the broadest measure of goods and services produced, alongside the July jobs report.