Thursday, January 9th, is a day of mourning for President Jimmy Carter, our 39th President, who passed away at 100 years old on December 29th, 2024.
I was lucky enough in college to attend the inauguration of President Carter in January 1977. It was a bitterly chilly day but sunny, and one clear memory from that day was of President Carter breaking the mold of riding in the limousine and walking the inaugural parade route instead, shaking hands as he crossed from one side to the other. It was a joyous day, as inaugurals should be.
Much has been written about the Carter presidency in the time since he passed. From an investment manager and “bond guy’s” perspective, the Carter presidency provides a lesson on some politics and economics – especially given that it was a one-term presidency.
Carter got elected by putting together a coalition that combined Southern voters (who were increasingly leaning Republican) with rural voters. The fact that he was from the South and that the country was still weary of Watergate helped. Still, it was a narrow victory over President Ford, 297–240 electoral votes. Carter became the first president from the Deep South since Zachary Taylor of Virginia was elected in 1848.
Much is often made of the inflation and high interest rates of the Carter presidency, and they certainly played a significant role in his defeat four years later. But the Carter presidency had a number of positives in areas of foreign relations, economics, and business.
The graph below shows the trailing 12-month inflation rate, the fed funds rate, and the US Treasury 10-year bond yield from 1972 through 1983. If you are under 55 years of age, the numbers may be eye-opening. Inflation had been rising since the Arab-Israeli war of 1973, which caused the price of oil to surge. The Fed began to raise rates but not enough to halt the rise of inflation. Eventually, after 1974, inflation began to drop; but it was just dropping; it was NOT low. The Federal Reserve’s easy-money policy exacerbated the inflation problem. The jump in inflation you see in 1977 was inherited by Carter – a result of the embedded inflation and a Federal Reserve that was tardy in tackling it. By the time we got to the summer of 1979, both inflation and 10-year bond yields were markedly higher. More importantly, inflation EXPECTATIONS had also risen markedly. When Carter appointed Paul Volcker as head of the Federal Reserve Board (Volcker had been president of the New York Federal Reserve Bank), he knew that Volcker would raise short-term interest rates and try to choke inflation expectations. Volcker raised rates SIGNIFICANTLY. Carter took the blame, clearly recognizing that this course would also SIGNIFICANTLY hurt his chances for reelection. But as we see, inflation began to roll over, and eventually inflation expectations did as well. As you can see by the early 80s, inflation dipped below 4%, but clearly bond markets needed more convincing given the history of recent inflation. The low interest rates and lower inflation we enjoy now, compared to almost 50 years ago, had their seeds sown in the Volcker aggressiveness. There is plenty to argue about regarding the economics of 50 years ago. My point is that it was a courageous move by Carter to do the right thing in economics at what would be a huge political cost. Appointing Volcker was the most important accomplishment of the Carter presidency, and the benefit of a more vigilant Federal Reserve continues to pay dividends to consumers.
Other things that the Carter administration accomplished:
• Deregulated the airline industry in 1978. Before then, routes, fares, and schedules were controlled by the Civil Aeronautics Board. There was little competition. Within a couple of years, new airlines sprang up with lower fares and more route options. Anyone over sixty remembers People Express Airlines offering $19 fares to a number of locations. Consumers continue to benefit to this day.
• Established the Federal Emergency Management Agency. The FEMA that we take for granted today, responding to disasters, was established in early 1979 by Carter. It consolidated various emergency-response and disaster-management programs into a single agency.
• The Camp David Accords, which were agreed to in 1978, marked a breakthrough in relations between Egypt and Israel. Though many unresolved issues remained, these agreements marked a milestone in Middle East diplomacy.
• The Carter administration also recognized the People’s Republic of China, marking major improvements in US–China relations and helping to blunt Soviet influence during what was still the Cold War.
• And, from a municipal bond guy’s perspective, Carter also supported federal loan guarantees, which helped the City of New York reenter the capital markets after failing to meet short-term obligations.
There were things that did not work so well. Advocating voluntary wage and price controls was a nonstarter.
The bureaucracy continued to grow, with additions such as the Department of Education, which got the federal government involved in what had been a state and local government responsibility.
And the quick erosion of the political situation in Iran was also misread and eventually led to the Iran hostage crisis. Clearly, that crisis, where American diplomats were held hostage for over a year in Iran, was another defining moment during Carter’s presidency and hurt his reelection chances. But there was work done behind the scenes, and the hostages were released on the day of Ronald Reagan’s inauguration, January 20th, 1981.
We all know how much President Carter achieved in his post-presidency by dedicating himself to democracy worldwide and to various humanitarian efforts. Much has been written about this extraordinary lifetime after his term in the White House. He set a notable example not just for presidents but for all Americans. His example makes me, at least, want to be a better citizen. RIP, President Carter.
John R. Mousseau, CFA
Chief Executive Officer & Director of Fixed Income
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