When unemployment rate hit 3.4% this year, the headline was saying it's the lowest since 1969, so I looked at what happened in 1969 and after. Turns out we had a mild recession (Dec 1969 – Nov 1970) that lasted 11 months and contracted GDP by 0.6%, and raised unemployment rate to 6.1% from 3.4%. SP500 fell about 37% peak to trough.
Fed started hiking rate in Oct 1967 at 3.9% rate, paused in May 1968 at 6.1%, and started cutting by 0.5%, and resumed hiking in Nov 1968, paused in Aug 1969 at 9.1%. Didn't start cutting hard until Feb 1970, 3 months after recession started.
Unemployment was almost 4% in late 1967, dropped to 3.4% by late 1968, and stayed there until Sept 1969, rose to 3.7% for 2 months, then dropped to 3.5% in Nov 1969 for 2 months, then rose to 3.9%, 4.2%, 4.4%, 4.6%, 4.8%, 4.9%, 5% by Jul 1970, and 6.1% by Dec 1970. It seems like once it goes sharply up, the momentum kept going.
Inflation started rising in early 1965 when it jumped to 5.3%, higher than the average rate of 2% in previous years. Cause was high military spending from Vietnam War and personal consumption after the 1960 crisis. Both government and the Fed had expansionary policy at the time. Demand accelerated much faster than supply, approximately double of US GDP potential and supply side was unable to maintain economy at equilibrium, leading to higher prices. Money supply growth went from 2% in 1964 to 7.3% in 1968.
Gov tried to control inflation by reducing spending and raising taxes in Jun 1968. Many economists feared that the measures were too drastic and might lead to a recession. The Fed hiked rates like mentioned above.
In 1H 1969, growth in spending moderated only slightly from a year earlier. Growth in production, slowed in early 1969. Even with cutback in total output, employment continued to rise and unemployment remained low. Productivity growth slowed. Q3 1969 showed more slowing in econ activity.
Consumer prices rose at 5.1% annual from Jul to Oct 1969, down from 5.9% in 1H 1969. Personal income grew at 4.5% from Aug to Oct 1969, down from 8.8% in the previous 8 months.
In Dec 1969, during the start of the recession, there was belief that inflation would still be sticky throughout 1970 and for some time after. Economist believed more slowing would be ahead, but unsure of how much.
TLDR : this time period feels like the summer 1969. Fed is close to pausing rate hikes, unemployment has stayed at historical low for about 9 months. There's some slowing in econ activity, and more anticipated slowing ahead, but most people think the inflation fight is far from over. 1969 recession was caused by the Fed hiking rates to fight inflation due to wartime excessive spending and supply unable to keep up with extremely high demand. 1969 was a mild recession, similar to many economist forecasts and even the Fed's staff. People already feared the actions taken to fight inflation might be too much in 1968, more than a year before the recession started.
I welcome any discussion and perspective on both sides, but please refrain from dismissing something completely just because of a different viewpoint than yours.
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