The recent behavior of key fiscal policy variables draws some parallels with the U.S. experience in the Civil War and the two world wars. A specific concern is the possibility of high inflation to finance the accumulated debt.

Despite U.S. fiscal problems, the Fed appears to still retain excellent inflation credibility with financial markets… Although confidence in the Fed might explain the quiescence of inflation expectations, the structure of U.S. government debt may be more important… [I]nflating away the U.S....

One way to examine the composition of assets on the Fed's balance sheet is to group them according to the objectives of the programs used to acquire them.

We merely want to see whether, historically, fast growth of the monetary base has been associated with faster growth of real output.

Given the size of the underlying markets, cutting the cost of capital to firms and households by reducing the yields required on long-term corporate bonds and mortgages is a key policy objective.

In order to maintain its credibility, however, the FOMC will have to take actions consistent with achieving its stated inflation objective.

The only outcome consistent with the Fisher equation holding and the FOMC’s zero interest rate policy is that the “long run” is considerably longer than 4.5 years.

Large-scale asset purchases may have limited power to raise TIPS-implied inflation expectations—something that might appeal to policymakers fighting deflation.

With the funds rate driven to levels far below its target, the FOMC had no recourse but to adjust the target accordingly.

The FOMC’s “mandate-consistent inflation rate” is generally judged to be “about 2 percent or a bit below.”