facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Why Interest Rates Could Remain Elevated [VIDEO] Thumbnail

Why Interest Rates Could Remain Elevated [VIDEO]

The current economic environment is drawing comparisons to the 1970s - an economic era many people aren't in a hurry to revisit.

In the early 70s, oil prices surged following OPEC’s oil embargo, and U.S. budget deficits expanded as government spending increased. Today, oil prices are elevated due to supply concerns, and fiscal deficits are deepening once again.

While the 1970s and today share rising oil prices and budget deficits, the most direct link between the two periods is inflation.  Although the numbers differ, a similar pattern has emerged, as shown in Figure 1:

Chart - Inflation in the 1970s compared to now

In the early 1970s, rising fuel prices contributed to the spike in inflation.  More recently, supply chain disruptions related to the 2020 pandemic drove the inflation rate significantly higher. In both instances, the Fed responded by aggressively raising interest rates and successfully subdued inflation (at least initially).

After reigning in inflation in the early 1970's, the Fed was quick to cut short-term interest rates in an effort to counteract the '73-'75 recession - only to inadvertently reignite inflation. By the end of the decade  inflation had climbed to 13.3%. This rapid rise prompted the Fed to raise the federal funds rate to a staggering 20% in an effort to combat runaway prices. The result was back-to-back recessions in the early 1980's.

A  resurgence in inflation, similar to what occurred in the '70s, is a primary risk today.  The fear of a 1970's style rerun and its aftermath explains why the Fed is hesitant to end the current rate tightening cycle.  The Fed is determined to avoid repeating its past errors and the implication is that the Fed may decide to keep interest rates higher for longer. 

In terms of investment strategy, we are factoring in these developments as we look forward. If you would like additional guidance or insight, please schedule a call. 

Schedule a Call


All content is for informational purposes only.  It is not intended to provide any tax or legal advice or provide the basis for any financial decisions.  Nor is it intended to be a projection of current or future performance or indication of future results. Purchases are subject to suitability.  This requires a review of an investor’s objectives, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.  Opinions expressed herein are solely those of Darrell Capital Management, LLC.  The information has been derived from sources believed to be reliable but is not guaranteed as to the accuracy and completeness and does not purport to be a complete analysis of the materials discussed.  All information and ideas should be discussed in detail with your financial, tax and legal advisors prior to implementation. The information contained herein should be in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any state other than the State of California or where otherwise legally permitted. Advisory services are offered by Darrell Capital Management, LLC, an Investment Advisor in the State of California. Being registered as an investment advisor does not imply a certain level of skill or training. Social post reactions and comments should not be viewed as endorsements or testimonials.