Inflation, the Fed’s Response, and the Challenges Ahead

After reaching a four-decade high in June 2022, U.S. inflation has been on a steady downward trend. Part of the reason for this is the aggressive response of the Federal Reserve in raising interest rates. While this is good news, there are concerns that the Fed’s actions could push the economy into a recession, much like in the late 1970s and early 1980s, in the wake of the so-called ‘Volcker disinflation.’

 

What are the similarities and differences between high inflation in the 1970s and today? How have previous periods of high inflation, as well as the ‘great moderation’ — the multi-decade long period of very low inflation — informed the Fed’s thinking in tackling the current crisis? And what might Fed policy look like moving forward, given the easing of inflation over the past half year? Dan Sichel joins EconoFact Chats to discuss these questions.

 

Dan is the Stanford Calderwood Professor of Economics at Wellesley College. Prior to joining Wellesley, he worked at the Federal Reserve Board for over 20 years.