A Comparison of Fed "Tightening" Episodes since the 1980s

Kevin Kliesen

No 2020-003, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This article examines how the real economy and inflation and inflation expectations evolved in response to the six tightening episodes enacted by the FOMC since 1983. The findings indicate that the sixth episode (2015-2018) differed in several key dimensions compared with the previous five episodes. In the first five episodes, the data show the FOMC was generally tightening into a strengthening economy with building price pressures. In contrast, in the final episode the FOMC began its tightening regime during a deceleration in economic activity and with headline and core inflation remaining well below the FOMC’s 2 percent inflation target. Moreover, both short- and long-term inflation expectations were drifting lower. These developments helped explain why there was a one-year gap between the first and second increases in the federal funds target rate in the final episode. Another key difference is that in three of the first five episodes, the FOMC continued to tighten after the yield curve inverted; a recession then followed shortly thereafter. However, in the final episode, the FOMC ended its tightening policy about eight months before the yield curve inverted.

Keywords: Federal Open Market Committee; monetary policy; macroeconomy; inflation; yield curves; recession (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 N1 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-01-30, Revised 2022-01-31
New Economics Papers: this item is included in nep-his, nep-mac and nep-mon
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Journal Article: A Comparison of Fed "Tightening" Episodes since the 1980s (2023)
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DOI: 10.20955/wp.2020.003

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