The Fed Can Control Inflation With Unconventional Tools
The Federal Open Market Committee (FOMC) targeted a federal funds rate near zero from December 2008 through December 2015. Since September 2008, it has expanded the value of its liabilities by around five times. Yet, inflation has remained below the FOMC’s official target of 2% for most of this period and is expected to remain below 2% for several more years. These observations suggest to many that monetary policy has been impotent or ineffective over the past seven years. In this post, I argue that this negative conclusion is inconsistent with available data.
I document that from 2008-10, the FOMC deliberately aimed to keep inflation well below 2% over the medium term. (See here...
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