Remember the 80s? Depending on the decade you were born, the answer to that question will be varied. It was a time of great innovation and forward-thinking change. We witnessed the first Space Shuttle launch, the first Post-It note, and the swearing-in of the first female SCOTUS justice. MTV and CNN made their debuts, and we finally found out who shot JR. Inflation in the US was also eerily similar to its current state.
Let’s compare the US economy of 1980/1981 with today’s economy, you will find more than a few similarities:
Why does this matter? History often repeats. Also, the long view may make you feel better about the generalized panic evoked when considering rising food and energy costs.
History tells us to be prepared for anything. Are you prepared?
The economy went from bust to boom in the early 1980s and could serve as a positive model for expectations about how the American economy could progress in the next few years. Four decades ago, the Fed pulled off a pivot, resulting in a rebounded economy. That pivot could teach us some tricks and history could be repeated in a good way.
To bring this into focus, let’s remember that none of us has a crystal ball. A simple Google search will show you an equal number of articles, with charts and surveys, that tell you that this food and energy inflation is transitory, but also here to stay for an extended visit.
Several months ago, President Joe Biden reported that inflation peaked at 6.8%. His Commerce Secretary repeated those ideas when the inflation rate hit 9.1%. She added that the outlook could change due to global events “out of our control.” The suggestion is that the cocktail of supply chain issues, the invasion of Ukraine, and oil refinery issues are to blame as inflation rises.
Morgan Stanley economist Ellen Zentner recently stated, “While it is likely the Fed Chair will acknowledge the recent decline in gasoline prices as a signal that headline inflation will slow going forward, the strength in core inflation leaves little room for complacency.” (CNBC.com) Core inflation is trending on the rise - a sign of inflationary pressures throughout the economy.
According to Wall Street Journal author Greg Ip many investors share a belief that in the next several years, inflation will slide back to 2% - the Fed’s target - allowing rates to return to the ultra-low levels that prevailed pre-pandemic. He adds, “What if inflation remains stubborn and rates have to rise a lot more? This equals trouble for an economy where asset values, private and public debt have risen on the assumption that rates will remain historically low.”
The truth is that nobody knows what will happen. As consumers move from goods to services, the inflation rate could peak, but the bigger question is what the core (CPI) inflation rate will do. The Federal Reserve will most likely continue to enforce a series of interest rate hikes until we see more stable prices or lower inflation. Just like they did in the late ’70s and early ’80s. But those actions could also send us right into a recession, just like they did then.
The Consumer Price Index measures how much we pay for goods and services over time, and the following data report is still weeks away. The last report showed us the most significant increase in 40 years. The next report could give us a better idea of where we are headed.
CNBC.com reports that “more than 40% of US adults said that money concerns have a negative impact on their mental health. Of those who said money worries took a toll, most cited feeling stressed, anxious, and overwhelmed.”
Here are a few things to do to avoid overwhelm about inflation in the US:
Tradeoffs are likely. Inflation has a way of making choices starker. A good strategy takes into consideration your values and priorities. Amid volatile markets, those strategies can be aligned with your objectives and alleviate your restless nights. Get a plan in place to protect your goals.
Vineyard Global Advisors is a great place to start building that plan.
We can learn from the ‘80s. Just take a peek at the Top 100 songs of 1981, which remind us to Hold On Tight (ELO) and Don’t Stop Believing (Journey). Optimism rules.
The 80s were “totally awesome” a double-dip recession and a policy shift led by the Federal Reserve led to a strong recovery and long, stable period of growth that wasn’t fully realized until the ‘90s. It was a long steady journey, but we found the pathway to growth, which should give us confidence that we will do it again.
