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Does Monetary Policy Tightening Reduce Inflation?

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Abstract

Recent research has identified periods when the Federal Reserve intentionally acted to slow inflation when it exceeded desired levels. The success of these disinflation attempts reveals the extent of policymakers’ commitment to lowering inflation. An extension of this analysis indicates that successful disinflations are associated with a decline in the demand-driven component of inflation. This was especially evident during recent monetary policy tightening, with contributions to core inflation from demand declining 2 percentage points since the summer of 2022—the largest decline for any deliberate disinflation attempt since 1969.

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  • Rami Najjar & Adam Hale Shapiro, 2025. "Does Monetary Policy Tightening Reduce Inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2025(3), pages 1-6, February.
    • Handle: RePEc:fip:fedfel:99494
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    References listed on IDEAS

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    1. Marek Jarociński & Peter Karadi, 2020. "Deconstructing Monetary Policy Surprises—The Role of Information Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 1-43, April.
    2. Romer, Christina D. & Romer, David H., 2024. "Lessons from history for successful disinflation," Journal of Monetary Economics, Elsevier, vol. 148(S).
    3. Adam Hale Shapiro, 2022. "How Much Do Supply and Demand Drive Inflation?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(15), pages 1-06, June.
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    Cited by:

    1. Kevin J. Lansing & Adam Hale Shapiro, 2026. "Measuring Inflation Shock Momentum," Working Paper Series 2026-10, Federal Reserve Bank of San Francisco.

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