‘The Fed has made two major mistakes in its history,' expert says. Here's how those impact policy today

"The real danger here is that the Fed loosens prematurely, which is exactly what they did in the late 1960s," says Mark Higgins, author of"Investing in U.S. Financial History: Understanding the Past to Forecast the Future."Federal Reserve Bank Chair Jerome Powell speaks during a news conference at the bank's William McChesney Martin building on March 20, 2024 in Washington, DC.

"The first was allowing the banking system to fail in the early 1930s, which caused the Great Depression to deepen significantly," he said."The second was the great inflation of the 1970s when inflationary pressures picked up and the Fed tightened but backed off prematurely, which is the risk the Fed faces now."from happening today,"the real danger here is that the Fed loosens prematurely, which is exactly what they did in the late 1960s," Higgins said.

Today, Higgins said,"the risks of allowing inflation to persist still far outweighs the risk of triggering a recession. Their failure to do this in the late 1960s is one of the major factors that allowed inflation to become entrenched in the 1970s."

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