Vol. 01 – The Volcker shock
6
World - Interest rates in %
World - Inflation in %
16
20
8 12
16
12
Nominal
0 -4 4
8
Real
4
-8
0
1960
1970
1980
1990
2000
2010
2020
1960
1980
2000
2020
Source: World Bank, Rothschild & Co Asset Management Europe, March 2023
Source: World Bank, Rothschild & Co Asset Management Europe, March 2023
10,8% peak unemployment rate in 1982 (4) 14,8% peak inflation rate in 1980 (4)
borrowing, like manufacturing and construction. Unemployment grew from 7.4% at the start of the recession to nearly 10% a year later (4) . As the recession worsened, Volcker faced repeated calls from Congress to loosen monetary policy, but he maintained that failing to bring down long-run inflation expectations now would result in more serious economic circumstances over a much longer period of time. By the end of 1982, inflation had fallen to 4% and long-run interest rates began to decline. The Fed allowed the federal funds rate to fall back to 9%, and unemployment declined from the peak of nearly 11% at the end to 1982 to 8% one year later. Overall, the 1981-82 recession was the worst economic downturn in the US since the Great Depression, with the nearly 11% unemployment rate reached late in 1982 remains the apex of the post-World War II era barring the Covid crisis (4) . 1970’s: Differences and similarities In recent decades, several forces supporting the global economy were strongly disinflationary, including technological advances, the shift of labour out of agriculture (especially in emerging countries), globalization, and rapid population growth. As these fades, combined with the surge in consumer prices of the past two years in almost every country, some investors worry the global economy could face a period
(4) Source: World Bank, March 2023.
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