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1937-38 recession a lesson for the Fed

Washington

HOW fast should the Federal Reserve tighten monetary policy? Should it tighten at all? I recently wrote about these issues, but didn't have the space to explore a fascinating aspect of the debate: The mostly forgotten 1937-38 recession. To many, it's a cautionary tale against adopting tighter policies too soon. The latest to sound the alarm is Ray Dalio, the respected founder of Bridgewater Associates, a huge hedge fund group. His recent memo to clients inspired a page-one story in the Financial Times, headlined: "Dalio warns Fed of 1937-style rate risk".

At the time, it was called the "Roosevelt recession". It "came as a surprise to most Americans", writes historian Alan Brinkley in...

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