…The risks far exceed the marginal benefits from continued accommodation.” Jim Kudlinski, Ph.D., director, reserve bank operations, Federal Reserve Board 1971-1981.

LETTERS

We Must Kill Inflation in the Cradle

Attempting to squeeze out the last morsels of economic growth from the Fed’s abnormally low interest-rate monetary policy is risky.

Aug. 29, 2014 5:13 p.m. ET

Attempting to squeeze out the last morsels of economic growth from the Fed’s abnormally low interest-rate monetary policy is risky (“Fed’s Debate on Early Rate Hikes Intensifies,” U.S. News Aug. 21). We are bumping up against the Fed’s 2% trigger to begin raising rates. Have we forgotten our battle with inflation that surfaced in the 1970s and ultimately resulted in punitive monetary policy in the ’80s? The rate of inflation peaked at 13.5% in 1981, with interest rates in the stratosphere: double digits for one-year CDs and mortgages as well as for the Treasury’s cost of borrowing. If you wait until the numbers show inflation, it is already too late. Monetary policy isn’t a science. After the spigot is turned on (e.g., rates are increased one-quarter percentage point), it takes as long as 2½ years for the effect to be felt in the economy. Then you increase rates again shortly thereafter, not knowing the effect of the initial action, etc. It’s a series of judgments, actions and reactions. That is one of the many reasons why inflation is so difficult to eradicate once it gets a foothold. Funding our $17 trillion national deficit at the current rate of about 2% is a challenge. Having to fund it at double digits would result in our turning out the lights. The risks far exceed the marginal benefits from continued accommodation.

Jim Kudlinski, Ph.D.

Overland Park, Kan.

Mr. Kudlinski was director, reserve bank operations, Federal Reserve Board 1971-1981.