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Pulling Up the Inflation Anchor

Rather than worrying about the prospects of higher long-term expected inflation, the US Federal Reserve is exuding confidence that it can maintain price stability should the need ever arise. It should think again, before the inflation genie has escaped from the bottle.

CAMBRIDGE – Five decades ago, the United States’ biggest macroeconomic problem was high inflation, which averaged more than 6% in the 1970s and rose to as high as 10% by the end of the decade. Then came US Federal Reserve Chair Paul Volcker, who was appointed by President Jimmy Carter in 1979 and reappointed in 1983 by President Ronald Reagan.