Repeat?

A U.K. economist gives us a bit of a history lesson (via TMTGM):

Here Sir Martin Wolf reminds us of what happened in the late sixties:

The big US inflation of the 1970s was set in motion in 1968. In June 1968, headline CPI crossed over 4 per cent. In September 1968, perhaps under political pressure, the Fed lowered the Fed funds rate by 25 basis points to 5.75 per cent. It reversed this by December and then started raising rates sharply, peaking the next year over 9 per cent. In hindsight, that was viewed as an irresponsibly accommodative Fed. In comparison, the 50bps cut by the Bernanke Fed is “cowboy Keynesianism”.

I wonder what the "political pressure" was that he refers to *cough*Vietnam*cough*. We had a war that was bleeding the nation dry of resources and a government spending money like a drunken sailor. Money was printed as fast as the presses could be loaded with ink.

Sound familiar?

I think the recent Fed decision to lower interest rates was a mistake, an over reaction. I think there's a good chance that in the next six months the Fed will have to reverse course due to inflation. Make no mistake, although the government numbers don't show it (thanks to a sleight of hand), we are in an growing inflationary environment that is going to get nothing but worse.