Now Here’s An Interesting Analogy for Today’s Fed Policy

I really didn’t think it was possible to come up with a good analogy between what the Bernanke Federal Reserve is doing today and what Paul Volcker did while at the central bank starting in the late 1970s, but the folks at Bloomberg did in Fed Pushes Into ‘Uncharted Territory’ With Record Assets today.

You’re hard pressed to find another example in history where the Fed pulled out all the stops to help a recovery along,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York, and a former Fed economist. “It’s at least as revolutionary as Paul Volcker coming in and saying we’re going to hike rates until inflation” declines.

The Fed has a dual mandate from Congress to achieve stable prices and maximum employment. Volcker, Fed chairman from 1979 to 1987, pushed interest rates to as high as 22 percent to rein in annual price acceleration approaching 15 percent. Now Bernanke is focusing Fed policy on the other mandate, aiming to reduce the ranks of the nation’s 12.2 million unemployed workers.

Of course, with interest rates now at zero, it is Bernanke’s $85 billion per month in QE3/QE4 money printing that is being compared to Volcker’s 20+ percent Fed funds rate more than 30 years ago.

My, how the world has changed.