Mysteries of Monetary Policy
Since the federal funds rate peaked at 22% in the early 1980s, inflation in the United States has remained low and stable, leading many to believe that the mere threat of renewed interest-rate hikes has kept it in check. But no one really knows why inflation has been subdued for so long.
CAMBRIDGE – One of the remarkable features of post-war economic history has been the taming of inflation in the United States and many other countries since the mid-1980s. Before then, the US inflation rate (based on the deflator for personal consumption expenditures) averaged 6.6% per year during the 1970s, and exceeded 10% in 1979-1980.