Slides Jeffrey Gundlach’s DoubleLine Total Return Funds webcast.
In the 1950s the FOMC Feared Inflation
“Inflation is a thief in the night and if we don’t act promptly and decisively we will always be behind” - Chairman Martin said in one of his rare prepared statements to the FOMC: (Minutes, 2 August 1955, p. 13).
“[Inflation] could lead to interest-rate levels so high as to be harmful to the economy and so high as to place the System in political jeopardy” - Vice Chairman Alfred Hayes (Minutes, 9 September 1958, p. 12).
[drizzle]“I happen to believe…that the 1957–58 recession was a direct result of letting inflation get substantially ahead of us” - Martin Congressional testimony in 1959.(Martin, 1959b p. 1285).
Jeffrey Gundlach: Fed Funds and Inflation Expectations in the 1950s
January 1, 1952 through December 31, 1959
Two features of this framework are noteworthy. The first is that the level of inflation at which Martin and others felt negative consequences were likely was very low. No one was contemplating inflation of more than 5% when making the dire predictions of long-run consequences. Second, the negative effects of inflation were thought to occur quite quickly.
See full slides below.