Borrowing from the experiences of the '60s and '80s, it is not difficult to comprehend the rationale for current Fed policy.

From the second quarter of 1989 to the fourth quarter of 1993, real federal funds rates have dropped by an astounding 432 basis points, dwarfing the 182- and 203-basis-point rate declines registered during the 1960s and 1980s expansions, respectively. Justifiably, the Fed is concerned that this sizable reduction in real rates could ignite economic activity, resulting in excessive inflationary pressures.

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