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Continuity and Change in the Federal Reserve’s Perspective on Price Stability

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Abstract

By examining statements made by the Federal Reserve leadership since the early 1950s, we establish that there has been considerable continuity in policymakers’ perceptions of the benefits of price stability. Policymakers have consistently contended that deviations from price stability give rise to greater cyclical instability, and they have also frequently suggested that potential output is significantly lowered by inflation. The recurrent support for price stability that comes through in these statements implies that it is invalid to take periods in the U.S. record of deviations from price stability as indicating a policymaker belief in the desirability of inflation.

Suggested Citation

  • J. David López-Salido & Emily J. Markowitz & Edward Nelson, 2024. "Continuity and Change in the Federal Reserve’s Perspective on Price Stability," Finance and Economics Discussion Series 2024-041, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2024-41
    DOI: 10.17016/FEDS.2024.041
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    Keywords

    Dual mandate; Federal Reserve; Price stability; Costs of inflation; Phillips curve; Superneutrality; Monetary policy objectives;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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