DUMA GQUBULE: Central banks might have gone too far
Reserve Bank is burning down the house to roast the pig
Four decades ago, then US Federal Reserve chair Paul Volcker responded to double-digit inflation by hiking the federal funds rate from an average of 11.2% in 1979 to a peak of 20% in June 1981. The “Volcker shock” triggered a double-dip recession in 1980-1981 and the unemployment rate soared to more than 10%.
In a New York Times article, economist John Kenneth Galbraith wrote: “Our economy has been buffeted by cost increases posed from outside, the most important being Opec. Food is also outside. To try effectively to wipe out hard‐core inflation by squeezing the economy is possible but disproportionately costly. It is burning down the house to roast the pig.”..
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