Not since the 1970s and early 1980s have rising prices eaten into Americans’ earnings the way they are now, with the inflation rate as measured by the consumer price index climbing to 7%.
The price shock is spurring the Federal Reserve to raise interest rates and curb the easy-money policies put in place after the pandemic-induced economic pullback in March 2020.
Low interest rates and asset bubbles have been worrisome to Thomas Hoenig for decades. And in this episode of History As It Happens, the former president of the Federal Reserve Bank of Kansas City, known for his lone dissenting votes against Ben Bernanke’s easy money policies in response to the recession of 2007-09, says our current inflation problems should have been expected because the Fed turned into a money-printing machine of epic proportions.
“The profession of economics has over many years focused on general price inflation,” said Mr. Hoenig, now a distinguished senior fellow at the free-market Mercatus Center at George Mason University.
“But my arguments were and are that inflation is broader than that. You have asset inflation, which can have very adverse effects when it gets out of control. Not just bubbles, but general increases in the price of assets,” such as real estate, housing, and stocks.
All bubbles burst, as evidenced by the big drop in major stock averages on Wall Street to start the year, provoked by the Fed’s stated intention to start increasing interest rates from near zero to curb inflation.
Americans “knew something was out of whack when assets were doubling in value and their real incomes were stagnant,” Mr. Hoenig said.
To listen to the full interview with Mr. Hoenig about the historic causes of inflation, download this episode of History As It Happens.
