To Reach the Fed’s Inflation Target, Interest Rates May Have to Remain Restrictive for Some Time

Johannes Matschke and Sai Sattiraju

Economic Bulletin, 2023, 4

Abstract: The Federal Reserve has raised the federal funds rate by 500 basis points since March 2022. But how tight is the current policy stance? We account for the federal funds rate, inflation expectations, and the natural rate of interest and find that monetary policy has only been restrictive since 2023:Q1. We find that to bring inflation down to 2 percent, the Federal Reserve may have to keep the federal funds rate in restrictive territory for some time.

Keywords: federal funds; inflation; interest rates (search for similar items in EconPapers)
JEL-codes: B22 E31 E4 (search for similar items in EconPapers)
Date: 2023
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