We explore a hypothesis about the take-off in inflation that occurred in the early 1970s. According to the expectations trap hypothesis, the Fed was pushed into producing the high inflation out of a fear of violating the public's inflation expectations. We compare this hypothesis with the...

1985 Annual Report essay

Our case study of the 1995 economic slowdown reveals that part of the widespread deterioration in economic indicators was predictable in light of 1994 monetary policy actions. But it was also partly unanticipated due to a modest adverse supply shock in the first quarter of 1995.

This article reviews some of the issues economists confront in attempting to compile facts about how monetary policy actions affect the economy.

The primary goal of Federal Reserve monetary policy is to foster maximum sustainable growth in the U.S. economy by achieving price stability over time. Although considerable progress toward price stability has been made since the early 1980s, inflation remains above the level most analysts would...

The erratic behavior of credit aggregates in recent years has led to questions about whether any credit measure is useful in conducting monetary policy. Empirical evidence suggests that the private component of total credit may provide useful information to monetary policymakers.

Most central banks conduct monetary policy by setting targets for overnight interest rates. During the 1990s, central banks have tended to move these interest rates in small steps without reversing direction quickly, a practice called interest rate smoothing. For example, the majority of Federal...

Poverty is arguably the most pressing economic problem of our time. And because rising inequality, for a given level of income, implies greater poverty, the distribution of income is also a central concern. At the same time, monetary policy is one of the modern age's most potent tools for...