A cautionary history of US monetary tightening

THE US Federal Reserve has embarked on an effort to tighten monetary policy four times in the past four decades. On every one of these occasions, the effort triggered processes that reduced employment and output far more than the Fed's staff had anticipated. As the Fed prepares to tighten monetary policy once again, an examination of this history - and of the current state of the economy - suggests that the US is about to enter dangerous territory.

Between 1979 and 1982, then-Fed chair Paul Volcker changed the authorities' approach to monetary…