Is the Fed Repeating “The Mistake of 1937”?

Is the Fed Repeating “The Mistake of 1937”? by Brian Maher – Daily Reckoning

The esteemed brothers and sisters of the Federal Reserve raised interest rates 0.25% yesterday.

It was the fourth rate hike since December 2015… and the third in six months.

Janet Yellen has officially taken to the warpath.

Phoenix Capital:

… the Fed is embarked on a serious tightening cycle. One rate hike can be a fluke. Two rate hikes could even be just policy error. But three rate hikes means the Fed is determined.

But is the Fed repeating “the mistake of 1937”?

Stricken by the Crash of ’29, the American economy was climbing out of its sickbed by 1936.

Annual GDP growth — real GDP growth — was rising steadily.

Unemployment was falling, from its 25% high to 14%.

But by 1936 the Federal Reserve grew anxious, anxious that it was incubating inflation… that its previous loose monetary policy had healed enough.

It feared any more could start a fever.

They thought the patient could now steam under his own power.

And it was time to return to “normal.”

Christina Romer, former chair of the Council of Economic Advisers, in The Economist:

In 1936 the Federal Reserve began to worry about its “exit strategy.” After several years of relatively loose monetary policy, American banks were holding large quantities of reserves in excess of their legislated requirements. Monetary policymakers feared these excess reserves would make it difficult to tighten if inflation developed or if “speculative excess” began again on Wall Street.

We can’t help but ponder… don’t these conditions suggest something of today’s? Maybe a bit?

The 1936 Fed decided to tighten.

But the patient wasn’t as hale and hearty as the medical men assumed. And it was soon horizontal again, sick.

Real GDP dropped 10% between May 1937 and June 1938. Unemployment rose from 14% to 20%.

The recession-within-a-depression was America’s third-largest downturn of the 20th century.

The Fed reopened its medical bag in 1938… and the recession ultimately ended.

But Romer warns that the 1937 example “provides a cautionary tale.”

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Rory Hall, The Daily Coin. Beginning in 1987 Rory has written over 1,000 articles and produced more than 300 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Silver Doctors, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Shadow of Truth YouTube channels to enjoy original videos and some of the best economic, precious metals, geopolitical and preparedness news from around the world.