7/18/2019

Mysteries of Monetary Policy

"Judging by the US inflation rate over past decades, the Fed’s monetary policy has worked brilliantly. Annual inflation has averaged only 1.5% per year since 2010, slightly below the Fed’s oft-expressed target of 2%, and has been strikingly stable. And yet, the question is how this was achieved. Did inflation remain subdued because everyone believed that anything significantly above the 1.5-2% range would trigger a sharp hike in the federal funds rate?"