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Current Monetary Policy May Be Less Restrictive Than It Seems

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Compared with most historical inflationary episodes since the 1960s, the current U.S. inflation cycle features both higher core inflation and a more resilient real economy. This co-movement of prices and real activity suggests monetary policy has not sufficiently reduced demand. We examine the current policy stance and argue that interest rates may indeed be less restrictive than commonly thought. To lower inflation to 2 percent, the Federal Reserve may have to maintain a restrictive policy stance for some time.

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  • Johannes Matschke & Alice von Ende-Becker, 2024. "Current Monetary Policy May Be Less Restrictive Than It Seems," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, May.
    • Handle: RePEc:fip:fedkeb:98218
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    File URL: https://www.kansascityfed.org/Economic%20Bulletin/documents/10142/EconomicBulletin24MatschkevonEndeBecker0503.pdf
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    1. Christina D. Romer & David H. Romer, 2023. "Does Monetary Policy Matter? The Narrative Approach after 35 Years," NBER Working Papers 31170, National Bureau of Economic Research, Inc.
    2. Christina D. Romer & David H. Romer, 2023. "Presidential Address: Does Monetary Policy Matter? The Narrative Approach after 35 Years," American Economic Review, American Economic Association, vol. 113(6), pages 1395-1423, June.
    3. Jing Cynthia Wu & Fan Dora Xia, 2016. "Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 253-291, March.
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