Inflation, Recession and the Federal Reserve Board’s Decisions

“Economists in general still downplay the possibility of the nation falling into recession, noting that one of the usual precursors--rapid inflation--has not emerged” (“January Job Layoffs Highest in 2 Years,” Feb. 7). Where in heck did they get that link between rapid inflation and recession?

It’s more accurate to say that Federal Reserve tightening--either to abolish or to prevent rapid inflation--is a precursor of recession. And that’s what happened in 1994. It should also be stressed that as in 1990-91, the Fed’s 1995 efforts to attain a “soft landing” for the economy (low inflation, low unemployment) can flop, as business can respond to slowed sales growth by cutting fixed investment.

This may not result in an officially noted recession, but it definitely raises unemployment rates, which counts as a recession for most people. Considering more of a nightmare scenario, the 1920s saw absolutely no inflation in the United States but something like a recession happened soon thereafter.

JAMES DEVINE

Professor of Economics

Loyola Marymount University

Westchester