In the current economic landscape, the similarities between today’s market conditions and those of 1982 are striking, according to some experts, who note that the U.S. economy faces inflationary pressures, uncertainties around fiscal policy, and a mixture of strong growth potential coupled with monetary caution—parallels that echo the early 1980s. In a recent episode of the podcast The Markets Anshul Sehgal, head of U.S. Interest Rate Products at Goldman Sachs, spoke with host Chris Hussey of Goldman Sachs research. The duo discussed the dynamics that are reminiscent of that era, highlighting the policy mix and its impact on markets. Here’s a look at why 1982 is like today, based on the insights shared in the podcast (available on Apple Podcasts, Spotify and other podcasting networks).
1. Inflation: A Hotter-than-Expected Print
One of the key similarities between today and 1982 is the challenge of dealing with inflation. In the U.S. today, inflation is coming in higher than expected, with the January Consumer Price Index (CPI) showing a 3.3% increase yearly. “Rents didn’t go up, which is a big part of the CPI basket,” Sehgal said in the episode. “And then a bunch of other categories that people care about did not. Insurance costs for vehicles went up a lot. And we think there’s still more catch-up on that.”
While not as extreme as the 1980s, when inflation reached double digits, the price pressure is still noticeable. The early 1980s were defined by soaring inflation, and much like today, it prompted significant responses from the Federal Reserve. Additionally, Anshul Sehgal points out that inflation in today’s economy is not broad-based, with only a few specific sectors showing price increases, such as vehicle insurance.
- Monetary Policy: Tightening Under Powell and Volcker
In the early 1980s, the U.S. faced severe inflation, which prompted Federal Reserve Chairman Paul Volcker to implement aggressive interest rate hikes, reaching levels as high as 15%. Though painful in the short term, this restrictive monetary policy was necessary to control inflation. Fast forward to today, and while Jerome Powell’s Federal Reserve has been more cautious, the economic backdrop shows similarities in the need for tightening.
As Anshul Sehgal notes, Chairman of the Federal Reserve Jerome Powell is concerned about inflation. “He can’t handicap where things will go because he doesn’t know what policies will come down the pike,” Sehgal said. “So, I think markets are in the same place.”
However, the environment today differs from that of the early 1980s. The policy mix is more uncertain today due to unknowns like the potential effects of tariffs, immigration reforms, and fiscal policy decisions. Still, Powell and Volcker are cautious regarding monetary policy, ensuring inflation is kept in check without overreacting and stalling growth.
3. Fiscal Policy: Loose Fiscal, Tight Monetary
Under President Ronald Reagan, the fiscal policy landscape in the early 1980s was marked by tax cuts, deregulation, and a generally pro-business stance. This was coupled with Volcker’s tight monetary policies to curb inflation. Today’s policy mix under the Biden administration shows similar parallels, with deregulation and pro-business policies pushing the economy forward but accompanied by fiscal uncertainties with inflationary potential.
Anshul Sehgal explicitly mentions the potential inflationary effects of immigration reform and tariffs. These policies could have inflationary side effects, putting upward pressure on wages and prices—just as Reagan’s policies in the 1980s led to higher costs for goods and services. Combining firm fiscal policy with tight monetary policy remains a key theme linking 1982 to today’s market dynamics.
“It puts upward pressure on wages, which as we’ve seen since 2021, essentially puts upward pressure on prices” Sehgal said of immigration policies in particular. “It’s also negative for aggregate growth. So, that is a concern. That’s stagflationary by itself for markets.”
4. The Dollar: Strong and Resilient
A notable similarity between 1982 and today is the strength of the U.S. dollar. In the early 1980s, the strong dollar was driven by Reagan’s pro-business policies, which included tax cuts and deregulation. Today, the dollar remains strong, supported by similar pro-business policies and a focus on U.S. competitiveness. The dollar’s relative strength is expected to continue as the U.S. remains an attractive destination for investment, boosted by a combination of deregulation and fiscal policies that favor growth.
Sehgal emphasizes that a strong dollar benefits the U.S. economy, as it attracts foreign investment and helps stabilize the global financial system. This trend mirrors the 1980s when the dollar’s strength was a key factor in the international economic environment.
“You’re getting a pro-business policy. But the Fed, and again going back to Volcker, is being very, very restrictive. So, tight monetary. Loose fiscal. Stronger dollar. Invest in America,” Sehgal said.
5. Corporate Credit: A Strong Investment Opportunity
In both 1982 and today, corporate credit remains an attractive investment. During the 1980s, the deregulated environment and tax cuts encouraged corporate investment and growth. Similarly, today, the pro-business policies combined with inflationary pressures make corporate credit an appealing option for investors.
“Inflation deflates debt burdens. So, owning corporate credit is a good thing,” Sehgal explained.
Sehgal highlights that inflation can help reduce the real debt burden, making corporate bonds particularly attractive in an inflationary environment. This, along with strong fiscal policies and deregulation, offers a favorable environment for corporate credit in both the 1980s and the present.
So, Just How Similar Is 1982 to Today?
Despite the differences between today’s world and the 1980s, there are clear parallels that investors should recognize. Both periods feature a combination of tight monetary and loose fiscal policies, a focus on deregulation, and concerns about inflationary pressures. The strength of the U.S. dollar and the appeal of corporate credit are also common themes.
As Anshul Sehgal points out, while the challenges today are not as extreme as in the 1980s, the fundamental dynamics of the economy and markets remain similar. Investors who understand these parallels may find opportunities in corporate bonds, U.S. assets, and sectors benefiting from deregulation and pro-business policies. In this sense, the 1982 playbook is alive and well in today’s market.
This article was produced and syndicated by MediaFeed.org.
