In the Fed’s Mind

Ali Kakhbod, Amir Kermani and Bernardo L.R. Maciel

No 35016, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Does the Federal Reserve react to all inflation equally? We systematically analyze FOMC meeting records from 1937 to 2025 to construct meeting-level measures of the Fed’s real-time attribution of inflation to demand and supply pressures. We document substantial variation in these narratives over time and show that, since Volcker, the Fed has responded more aggressively to perceived demand-driven inflation. Consistent with this asymmetry, supply pressures have more persistent effects on realized inflation, while demand pressures' impact dissipates quickly. Financial markets also reflect this distinction: demand imbalances primarily move risk-neutral yields, whereas supply imbalances raise term premia and equity risk premia.

JEL-codes: E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-ifn and nep-mac
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