Inflation could repeat the 1960s, when the Fed lost control, Niall Ferguson says

ECONOMY

PUBLISHED FRI, SEP 3 20216:07 AM EDT | UPDATED FRI, SEP 3 20218:20 AM EDT

 

Elliot Smith

@ELLIOTSMITHCNBC

 

 


KEY POINTS

  • The Federal Reserve and many economists maintain that the recent spike in inflation will be “transitory,” but Ferguson called this into question.
  • Data releases on U.S. home prices and consumer inflation expectations may have added to the Fed’s concerns.

 

 

Inflation could be repeating the trajectory of the late 1960s, which laid the foundation for sustained high prices the following decade, according to economic historian Niall Ferguson.

Ferguson told CNBC on Friday that policymakers are facing a new challenge in the form of rising inflation as a result of responding to the Covid-19 pandemic in a fashion similar to their response to the Great Recession of 2008.

“What is interesting about disasters is that one can lead to another. You can go from a public health disaster to a fiscal, monetary and potentially inflationary disaster,” Ferguson said at the Ambrosetti Forum in Italy.

“It is not such a big disaster, it doesn’t kill people, but an inflation liftoff would be a problem.”

U.S. consumer prices rose 5.4% in July from a year earlier, marching the largest jump since August 2008.

The Federal Reserve and many economists maintain that the recent spike in inflation will be “transitory,” but Ferguson called this into question.

“How long is transitory? At what point do expectations fundamentally shift, especially if the Federal Reserve is telling people, ‘We have changed our inflation targeting regime and we don’t mind if inflation goes above target for a while’”? said Ferguson, the Milbank family senior fellow at the Hoover Institution, Stanford University.

“My sense is that we are not heading for the 1970s but we could be rerunning the late 1960s, when famously the Fed chair then, McChesney Martin, lost control of inflation expectations.”