A Cautionary History of US Monetary Tightening
The US Federal Reserve has tightened monetary policy four times in the past 40 years, and all four time the impact on the economy was more harmful than expected. As the Fed prepares to tighten monetary policy once again, an examination of this history suggests that the US is about to enter dangerous territory.
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BERKELEY – The US Federal Reserve has embarked on an effort to tighten monetary policy four times in the past four decades. On every one of these occasions, the effort triggered processes that reduced employment and output far more than the Fed’s staff had anticipated. As the Fed prepares to tighten monetary policy once again, an examination of this history – and of the current state of the economy – suggests that the United States is about to enter dangerous territory.