Headline

Fed’s Jefferson: I am not looking at one particular indicator. I need a body of evidence that would weigh in the direction of a rate cut.
Fed’s Jefferson: I will be looking at totality of data in making rate cut call, and want to see evidence that inflation is sustainably headed to target.
Fed’s Jefferson: The Fed wants to move in a way that would not lead to stops and starts in policy and increase policy uncertainty. Fed’s Jefferson: The labor market can change quickly in ways that policymakers can’t anticipate.
Fed’s Jefferson: The recent rise in productivity suggests supply side is healing from the pandemic, perhaps potential GDP growth has risen.
Fed’s Jefferson: The labor market seems to be rebalancing in a way that is allowing lower inflation without unemployment.
Fed’s Jefferson: In considering impact of the real Federal Funds rate, focus is on how policy is influencing balance of supply and demand.
Fed’s Jefferson says he is ‘cautiously optimistic’ about inflation.
Fed’s Jefferson says he expects rate cuts ‘later this year’. Fed’s Jefferson says CPI shows path down for inflation likely to be bumpy.
Fed’s Jefferson: I am cautiously optimistic about inflation progress.
Fed’s Jefferson: It will likely to be appropriate to begin cutting policy rate later this year.
Fed’s Jefferson: It is possible to bring down inflation without substantial increase in unemployment.
Fed’s Jefferson: As the labor market cools, I expects core services inflation will continue to moderate.
Fed’s Jefferson: Three key risks are too resilient consumer spending stalling inflation progress, employment weakening and geopolitical risks remaining elevated.
Fed’s Jefferson: Fed staff estimates show the PCE price index rose 2.4% over the 12 months ended in January.
Fed’s Jefferson: January CPI data disappointing, shows the path down likely to be bumpy.
Fed’s Jefferson I remain cautiously optimistic about progress on inflation, will review totality of data in assessing policy. Fed’s Jefferson: The Fed needs to remain vigilant and nimble, should not be surprised if an unexpected shock occurs.
Fed’s Jefferson: Progress on inflation reflects supply and demand factors, as well as Fed policy tightness.
Fed’s Jefferson: Continuing strength in spending an upside risk to his forecast.
Fed’s Jefferson: The imbalance between labor demand and supply has narrowed. Fed’s Jefferson: I expect slower growth in spending and output in 2024.

Speech Text

Thank you, Adam, and thank you to Peterson for the opportunity to speak to you today.

Before I begin, let me remind you that the views I will express today are my own and are not necessarily those of my colleagues in the Federal Reserve System.

I will take this opportunity to share with you my outlook on the U.S. economy and some upside and downside risks to which I am paying special attention. Also, I will review past monetary policy cycles and discuss what lessons we may learn from them. With that, let me turn to my outlook for the U.S. economy.

Aggregate Economic Activity
Growth in real gross domestic product in 2023 came in much higher than expected by most professional forecasters, buoyed by strength in consumer spending. Toward the end of 2023, however, household balance sheets began to weaken, as indicated by higher delinquency rates and a further decline in savings. These developments lead me to expect slower growth in spending and output in 2024. Even so, without a clear understanding of why consumer spending has been so resilient, I see continuing strength in spending as an important upside risk to my forecast. One possible explanation is that consumers do not want to give up previous levels of consumption, perhaps because of habit formation as described by Robert Pollak (1970) and an optimistic view of future income prospects. Another possibility is the one raised in pioneering work by James Duesenberry (1949) 75 years ago and later developed in the context of modern macroeconomics by Jordi Gali (1994). Socially motivated consumption—or “keeping up with the Joneses”—could cause individuals to consume more than what is predicted by models that only consider household wealth and income.

The Labor Market
The imbalance between labor demand and labor supply has narrowed, as labor demand has cooled while labor supply has improved. There is evidence of cooling labor demand, such as the decline in job openings by 3 million from their peak in March 2022. Nevertheless, the labor market remains tight and job openings remain about 20 percent above their pre-pandemic level, as shown in figure 1. At the same time, layoffs have remained very low, and the pace of payroll employment gains remains strong, with nonfarm payroll monthly job gains in the past three months averaging 289,000. The unemployment rate in January was 3.7 percent, a level that is still near historical lows. The fact that the unemployment rate and layoffs have remained low in the U.S. economy over the past year amid disinflation suggests that there is a path to restoring price stability without the kind of substantial increase in unemployment that has often accompanied significant tightening cycles.

The Inflation Outlook Inflation made clear progress over 2023 toward the Federal Open Market Committee’s (FOMC) 2 percent inflation objective. I believe that this progress reflects both the unwinding of pandemic-related supply and demand distortions in the economy as well as restrictive monetary policy, which has cooled strong demand and given the supply side of the economy time to catch up. As shown in figure 2, over the 12 months ended in January, the Federal Reserve’s staff estimates that total personal consumption expenditures (PCE) prices rose 2.4 percent, down from 5.5 percent over the preceding 12 months. Core PCE prices, which excludes energy and food prices, rose 2.8 percent, down from 4.9 percent. The figures for January are estimates that incorporate the somewhat larger consumer price index (CPI) increase we saw last month. That disappointing CPI reading highlights that the disinflation process is likely to be bumpy. The January data notwithstanding, the slowing in core inflation has been especially pronounced in recent months, as the 3- and 6-month changes in core PCE prices through January, at 2.5 percent and 2.4 percent, respectively, clearly remain below the 12-month change shown in figure 2. The most striking moderation has been in core goods prices, as shown in figure 3, which have declined outright over the past year. Inflation in core services, both in its housing component and nonhousing services, has also slowed, but not as much. I believe that as the labor market continues to cool, core services price increases will continue to moderate. Of course, I remain attentive to other possibilities.

A Longer-Term Perspective on Monetary Policy Cycles Next, I would like to highlight key aspects of past monetary policy cycles and what lessons we may learn from these past experiences. For exposition purposes, my review focuses on easing cycles and their preceding peak-rate episodes that extend back to 1989; however, I also will make some comments on an important episode prior to 1989.1 As of our last meeting in January, my colleagues on the FOMC and I believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. I will therefore start with a description of economic conditions during past peak-rate episodes, given where we are today.

The first column of table 1 lists the dates of the latest six peak-rate episodes preceding easing cycles, defined as a sequence of rate cuts without rate hikes in between. The second and third columns summarize economic conditions as described in official accounts of monetary policy released at the time, such as FOMC statements, minutes of Committee meetings, and the Federal Reserve Board’s semiannual Monetary Policy Report. The table also records inflation at the time of the peak rate as measured by the 12-month percent change in headline and core PCE price indexes.2

My main inference is that most of the time, in five out of the six episodes, the peak rate is reached once inflation is contained, albeit in some cases with risks still present. There is only one exception in this sample, the March 1989 to May 1989 peak-rate episode, when inflation was elevated—noted in the first row of the table. The easing cycle following this particular peak-rate episode began as core and headline PCE inflation were starting to come down from an elevated level, as illustrated in figure 4.3 This figure shows headline and core inflation two years before and after the start date of each of the six easing cycles. The red line, which corresponds to the March 1989 peak-rate episode, stands out, with core PCE inflation at 4 percent at the beginning of the easing cycle, while all the other easing cycles show core PCE inflation at about 2 percent at commencement. Our situation today is closer to the norm during these episodes than to the exception, as PCE inflation is closer to 2 percent than to 4 percent.

Table 2 summarizes the reasons given in Federal Reserve documents at the time to explain the rationale for easing policy. When studying monetary policy cycles, it is important to recognize the often-multistage nature of cycles and, because of this, table 2 distinguishes between the reasons underpinning the start of the easing cycle, listed in column 2, and those underpinning subsequent easings, listed in column 3. One clear example of a cycle with different phases and involving more than one reason for easing is the most recent easing cycle—the one listed in the last row—which took place between August 2019 and March 2020. The initial 75 basis points of easing in this cycle were a result of downside risks to the U.S. economy due to weaker global growth and high trade uncertainties. The subsequent easings in this cycle were due to the disruptions to the economy resulting from the COVID-19 pandemic.

Looking at table 2, two facts stand out. First, most easing cycles start because of concern about slowing economic growth. In table 2, the one exception is the easing cycle that started in July 1995 and is associated with what Alan Blinder (2023) has labeled a “perfect soft landing” example.4 That particular easing cycle started predominantly because of reduced inflation concerns. All the other easing cycles started because either there was a concern about slowing economic growth, or, in one case, because there was a concern about slowing economic growth and there were reduced inflation concerns.

The second fact that stands out is that history is replete with events that complicate monetary policy decisions. The third column in table 2, which notes the reasons for subsequent easings, demonstrates this point. It shows that four out of the six easing cycles had multiple “easing phases,” with later phases triggered by events like the 1991 Gulf War, the 9/11 terrorist attack, the Global Financial Crisis, and the pandemic. These events required policymakers to take a different course of policy easing from the course they may have anticipated earlier in the cycle. Specifically, because these events contributed to the contraction of economic activity, policymakers may have accelerated policy easing. The main messages that I see emerging from this review of the record are that policymakers need to remain vigilant and nimble, in case of adverse shocks hitting the economy, and that policymakers need some good luck.

The lesson that policymakers need to remain vigilant and nimble is further illustrated in figure 5, which shows the unemployment rate around the start of each easing cycle. As can be seen from this chart, in some easing cycles—for example, the easing cycles that began in January 2001, shown in blue, and September 2007, shown in green—the unemployment rate ramps up quickly, shortly after the easing cycle began. In both these cases, the economy weakened rapidly.

In the easing cycle that began in January 2001, moderating growth over the second half of 2000 gave way abruptly to sluggish growth around the end of the year. Economic weakness spread and intensified over the first half of 2001 and—as shown by the blue line—a year after the easing cycle began, the unemployment rate had increased just short of 2 percentage points.

In the easing cycle that began in September 2007, the macroeconomic data were not showing much weakening at the time of the cycle’s first couple of rate cuts, although financial markets were exhibiting heightened and broad-based volatility and short-term funding markets were significantly impaired. It was only in December 2007 that incoming data started to show more significant spillovers of the housing downturn to other parts of the economy, while several financial firms also began to report larger-than-expected losses. As the green line in the chart shows, the unemployment rate was around 4-1/2 percent at the start of the 2007–08 easing cycle—having remained broadly stable around that level in 2006—but then rapidly rose to 6 percent within a year of the first easing. My motivation for discussing these two episodes is to highlight how quickly economic activity can weaken.

Another reason why policymakers need to watch all available information and be nimble in their decision-making is that developments concerning inflation can likewise change rapidly. This was highlighted recently by Russia’s invasion of Ukraine in March 2022. The invasion compounded the effects of post-pandemic supply constraints on inflation. In addition, we always need to keep in mind the danger of easing too much in response to improvements in the inflation picture. Excessive easing can lead to a stalling or reversal in progress in restoring price stability. Former Fed Chair Paul Volcker stressed this danger in a 1981 speech, when he pointed to 1967 as a year when monetary policy eased in response to concerns about slowing economic growth and reduced inflation concerns, yet inflation subsequently turned back up.

Finally, another observation from reviewing past episodes is that careful easing in the July 1995 easing cycle allowed the FOMC to assess incoming data and other information to make sure that inflation was under control. As I noted earlier, the July 1995 easing cycle is associated with the so-called perfect soft landing. In this particular easing cycle, the FOMC started to ease as it observed a lessening in inflation concerns, left rates unchanged for three meetings as it waited for more information, and then continued to ease.

Lessons for Current Monetary Policy With the knowledge of past experiences in hand, let me say a few words about the current monetary policy cycle and the extent to which future policy is likely to resemble, if at all, past experiences. Between March 2022 and July 2023, the FOMC raised the target range for the federal funds rate 5-1/4 percentage points. Our strong actions have moved our policy rate well into restrictive territory, and our restrictive stance of monetary policy is putting downward pressure on economic activity and inflation. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back our policy restraint later this year.

Getting back to the title of my talk today: Will this time be different? My answer is, of course it will. Every time is different. But we can still learn from past episodes. We cannot know if there will be unanticipated exogenous shocks that require a policy response different from what will be envisaged at the beginning of the easing cycle. All we can do is assess the risks as best we can, given the available information and our best forecasts. In the absence of unanticipated exogenous shocks, policymakers can weigh multiple factors, including keeping policy restrictive enough to tamp down a possible resurgence of inflation due to the strength of aggregate demand or easing sooner to avoid an undue increase in unemployment. Unfortunately, the history that I have reviewed today suggests that we should not be surprised if some kind of unanticipated shock occurs. Given that we must accept that uncertainty is present, we consider the risks that can affect our outlook and forecasts.

Looking ahead, I see at least three key risks. First, as I mentioned at the beginning, consumer spending could be even more resilient than I currently expect it to be, which could cause progress on inflation to stall. Second, employment could weaken as the factors supporting economic growth fade. Third, geopolitical risks could remain elevated, and a widening of the conflict in the Middle East could have greater effects on commodity prices, such as oil, and on global financial markets.

I remain cautiously optimistic about our progress on inflation, and I will be reviewing the totality of incoming data in assessing the economic outlook and the risks surrounding the outlook and in judging the appropriate future course of monetary policy.

Q&A Transcript

Posen: Great. Thank you so much Vice Chair Jefferson. It’s great to have you put in the broader historical context, this kind of monetary policy cycle. I’m gonna ask you a few questions based on your remarks. This is all on the record as being streamed live, obviously and then we’ll turn for questions, not statements, questions from in person audience. So, I mean, as you make clear, there’s two, two pieces to your remarks, which is the assessment of the current situation. And the path of past peak rate hikes that follow, and obviously, you tried to pull lessons together for these. Can I ask you a couple of things first about the current outlook sort of more narrowly? So one thing you did not emphasize in your three risks, at least three key risks, at least specifically, was the idea that the real interest rate is going up, or as measured by the Fed funds rate, say as the inflation rate goes down? I’m not saying you necessarily should but what’s your thinking on how big an effect that is or how relevant that is?

Jefferson: Well, thank you for your question. Which relevant in terms of my thinking about your question is whether or not policy is currently putting downward pressure on economic activity, which are pointing out is the possibility that even when the rate the policy rate stays constant, the real rate is becoming more restrictive. And my focus in thinking about that type of issue is, isn’t the case that policy is a position where it’s helping to bring aggregate demand and aggregate supply into ballot balance? And so that’s my focus, as I think about the the current setting of the interest rate in a declining inflationary environment.

Posen: Great. Um, you also mentioned in some detail, various mechanisms through which consumption decisions by households might go to the upside or the downside from here. Again, I don’t think you mentioned this directly. One thing which I and some other observers have focused on is the state of household balance sheets that as opposed to the flow of income, they actually are historically quite strong. Again, do you see that as a factor worth watching or is that something you take for granted or does it not have much leading power? How do you think about that?

Jefferson: Well, certainly coming out of the pandemic, the state of households balance sheets was an important factor for explaining the strength of consumption. It was something that across the income distribution households, because we couldn’t consume during the, the pandemic because of the various lockdowns really built up very strong balance sheets. And as we emerge from the pandemic and the economy started to open up, there was considerable strength coming from the household sector because of the strong balance sheets. Over time, what we’ve seen is that those balance sheets have weakened, particularly so in the lower parts of the income distribution. And so my view is that over time, the balance sheets will normalize and become less of a factor in stimulating consumption. However, it still seems as though in some parts of the income distribution, their strength is there. So that may be one of the reasons why consumption has been social.

Posen: Final thing on the current situation before going back to some of your broader lessons, your colleague on the Federal Reserve Board of Governors Christopher Waller came out with turned out to be a prescient argument for the idea that vacancies could drop without unemployment rising very much as part of the disinflation process. Some of my colleagues at Peterson had taken the opposite view and fortunately for the economy that happened to work out just as a sitting policymaker without commenting on Chris or our colleagues, but the issue how surprised were you by this development what, what lessons or broader implications do you think there are if any to the fact that vacancies went down so rapidly without a rise in unemployment?

Jefferson: Well, my view on that is that the pandemic was a very unusual event, okay, and that whenever you have an unusual event is the possibility that past relationships in the economy will no longer hold that is there can be structural changes or changes in the way certain markets operate. So I can say that you know, the labor market now seems to be normalizing and rebalancing in a way that is supporting disinflation without causing unemployment. As I noted, in my remarks, we still have a high number of vacancies available and it is. It has been very helpful, I think, to the American economy and the American people that we haven’t seen the kinds of layoffs that we have seen in the past and actually appeared and one of the graphs that I showed you, which shows the capacity of the labor market, to support disinflation, without causing as much pain that so may have anticipated when the policy rates started to become more restrictive.

Posen: Thank you. Again, going back to the broader themes in your speech, and it’s very I’m sure it’s going to be very widely cited the table, abstracting the discussion points in the previous episodes you’ve mentioned, you make reference to Alan blinders, interpretation of 1995 as the sort of soft landing paradigm, Paragon banned case. One of the aspects at that time, which we know from the minutes was then chair Greenspan’s perception that productivity growth trend had shot up. And at that time, then Vice Chair Blinder and now Treasury Secretary Yellen who were on on committee, were skeptical. They were on record as saying we’re pushing the Nehru to, we’re pushing too low on the narrow. How do you see the last three quarters productivity growth or the prospect of generative AI feeding into your discussions about the current soft landing about what are the prospects for the next couple of years?

Jefferson: Well, we have benefited from rapid increases in productivity lately. And so what that suggests is that the supply side is healing the supply chains. disruptions that from the pandemic are getting better and the economy is benefiting from that. So one way of thinking about that is that perhaps potential GDP growth has expanded. And so I think it’s too early for me to conclude that is all as a result of AI there because that has to do with how much penetration there has been across the different sectors of the economy. But whatever the source of the productivity increase, it is beneficial to the disinflationary process. I think that the expansion and productivity growth has helped the economy to continue to grow, while policy has been restrictive, and thereby bringing the inflation rate down. So again, it’s this balance between aggregate supply and aggregate demand, where I’m grateful for all of the help from the supplies we can get. Because at the end of the day, we want to continue to have growth, maximum employment and bring inflation down to towards the committee’s 2% target.

Posen: A final question for me and then we’re going to turn to our live audience. There will be two roving mics. When we come to you. Please state your name and your affiliation and state a relatively brief question from the Vice Chair. So the last thing coming from me is sort of relates to that point. So you list these occasions when there was a sharp rise in unemployment or a decline in growth following the Fed already having peaked. Is that something you see as essentially inevitable because of lags built in the economy and uncertainties? Is that something where you see the Fed maybe could avoid a mistake in some sense, and if it was a mistake, what’s the nature of the mistake that you think the Fed made? It’s fine for you to say you don’t think the Fed made a mistake. To the degree some of those in hindsight seem avoidable? What would you have done differently?

Jefferson: Well, I think the tables that I pointed out indicated that other things happen that cause the economy to weaken. And the takeaway that I have is that the labor market is one of the markets where things can change quickly, in ways that we don’t anticipate. And so that’s the value in US proceeding. Carefully as we think about these things stance of monetary policy at each and every meeting. What we’re trying to do is look at the available data. We are trying to assess the risk, and we’re using our best forecasts and we’re trying to do that in real time. And so policy always have to be vigilant and nimble, as I’ve mentioned. So when I look at those past cases that you talk about, I really try to put myself in the place of those policymakers in looking thinking about what they must have been facing. And what we learned is that the labor market can change dramatically. We have to be careful and we have to try to assess the different shocks that can hit the economy and adjust the policy accordingly. Perfect.

Posen: Okay to our audience if someone would like to raise a question the gentleman there.

Speaker 3: Stan, Voigt at American Enterprise Institute, one gets the impression also from the history that you discussed, that the Fed is reluctant to tighten, than ease and tighten them ease again too frequently, over a short period of time, but at least in some models, I think that’s what the optimal policy path looks like. Especially when you’re not relying super heavily on forward guidance. And so my question is, is that impression Correct? Can you talk a bit about the motivation for having these relatively smooth cycles of easing and tightening?

Jefferson: Well, let me make sure I understand the question first, before I try to respond, is your question that historically, from your perspective, is the case that the Fed doesn’t like to ease and tighten, ease and tighten, ease and tighten? I will try to respond to that from my perspective as a policymaker, okay. In that, I think is the case that the Fed is not trying to is trying to be consistent in its policy and its outlook on the economy and being responsive to what we actually see as happening. And that if it’s the case that we have been deliberative and forward-looking in that policy and recognizing that there are lags in the effects of policy, then we want to move in a way that is mindful that what we do today will take time to work its way from the economy. So with that understanding of the lags effects of monetary policy in mind, you would want to proceed in a way that would not cause you to increase one meeting, decrease in a few meetings later then increase because that could actually create policy uncertainty. That would make economic decision-making even more difficult for households and businesses. So we try to our communications to be as transparent as as possible. So that market participants, American households and families can have some reasonable expectation about future steps and paths.

Posen: Thank you, right at the back. The person next to the camera person and then the lady here at this table.

Speaker 4: Hi, Nick Timiraos at the Wall Street Journal, Dr. Jefferson, I guess my question is, do you need to see evidence of economic weakness or growth scare? Before you cut? You cited 1995 as an example, where maybe that wasn’t the case, but there had been a negative payroll report before that cut. There had been a global bond market rout. The Mexico peso crisis was a distant memory at that point. So you could argue that even in 95, there were growth concerns that animated the committee’s thinking. So my question is, do you need to see signs that the economy is actually slowing? Before you would lower interest rates? Thank you.

Jefferson: Well, we have a dual mandate which pertains to employment, maximum employment and price stability. And at each moment, I think we are trying to fulfill that mandate. And you know, we get to some point in the cycle, where there are there’s a balance of risks on both sides. And your question about do we actually need to see evidence of a growth scare, is one in which when I think about policy, I’m looking at the totality of the data in the economy. So I’m going to be looking at labor markets growth, productivity, on the real side, and then inflation and on the price side. So I don’t think it’s necessarily one thing that we would have to see before we think about cutting. I think we want to see evidence that inflation is sustainably at our target level or going towards our target level. And we want the economy to remain strong as possible. So in answering to your question, your question, I want to say that it’s not one thing that would trigger it. I’m speaking for myself and let me also say all of the responses I’m giving today I just missed, I can’t speak for the committee. Okay. I’m speaking for myself. So it’s not I’m not just looking at one indicator to determine whether that high would be whether or not that’s the time to start. I think there would have to be a body of evidence about macroeconomic performance that would then weigh in the direction of okay, now is the time

Unknown Speaker: And our last question, please.

Speaker 5: Carol women Senator Catherine Cortez. Masto. Speaking for myself. Question on the labor market. How are you thinking about the growth in part-time jobs with unstable work schedules when you’re looking at employment factors?

Jefferson: In the conduct of monetary policy, I tend to focus on the aggregate numbers. And while I am very aware that behind those aggregate numbers are very different outcomes for types of jobs, demographic groups, geographical regions, all of which are important things to think about. As I don’t discount that at all. But our mandate from Congress is more of an aggregate with respect to the aggregate performance of the labor market. And so while we get information on all different aspects as a policymaker, I am thinking about what’s happening at the highest aggregation as I’m thinking about the labor market, so with that in mind, as I’m making policy, I tend to focus on the part of our mandate when you talk you mentioned the labor market. It will be things like the aggregate unemployment rate, the number of jobs being created, overall, that would be of central importance to determining what policy that I would advocate for going forward.

Posen: Thank you. And so with that, we’re at the end of our time. Please join me in thanking Dr. Philip Jefferson, Vice Chair of the Board of Governors of the Federal Reserve for sharing with us his retrospective view on recent monetary cycles and his prospective view on policy in today’s economy.

****References****
Blinder, Alan S. (2023). “Landings, Soft and Hard: The Federal Reserve, 1965–2022,” Journal of Economic Perspectives, vol. 37 (Winter), pp. 101–20.

Duesenberry, James S. (1949). Income, Saving, and the Theory of Consumption Behavior. Cambridge, Mass.: Harvard University Press.

Galí, Jordi (1994). “Keeping up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices,” Journal of Money, Credit and Banking, vol. 26 (February), pp. 1–8.

Lindsey, David (2003). “A Modern History of FOMC Communication: 1975–2002 (PDF),” memorandum, Board of Governors of the Federal Reserve System, Division of Monetary Affairs, June 24.

Pollak, Robert, A. (1970). “Habit Formation and Dynamic Demand Functions,” Journal of Political Economy, vol. 78 (4, part 1), pp. 745–63.

Stigum, Marcia, and Anthony Crescenzi (2007). Stigum’s Money Market, 4th ed. McGraw-Hill.

Volcker, Paul (1981). “Dealing with Inflation: Obstacles and Opportunities,” speech delivered at the Alfred M. Landon Lecture Series on Public Issues, Kansas State University, Manhattan, Kansas, April 15.

1. The start date of 1989 is motivated by the fact that this was the earliest cycle in which the FOMC was viewed as considering monetary policy actions in terms of discrete 25 basis point, 50 basis point, etc., rate moves in the federal funds rate target and, as such, is more comparable to today. See Stigum and Crescenzi (2007) for a discussion of the FOMC’s increased focus on federal funds rate targeting in the late 1980s as well as Lindsey (2003), who describes the FOMC’s further shift toward targeting the federal funds rate in 1989 by discontinuing the practice of targeting borrowed reserves. Return to text

2. The PCE inflation numbers in table 1 are revised data, which means the data that policymakers were reviewing at the time—the so-called real-time data—could have been different. In addition, for some of these cycles, policymakers focused on CPI inflation more than PCE inflation. Also, note that while the table frequently references inflation relative to a 2 percent rate, it was only for the last peak-rate episode for which the FOMC had established a 2 percent rate of inflation to be most consistent over the longer run with its price-stability goal, per its first “Statement on Longer-run Goals and Monetary Policy Strategy” adopted in January 2012. Return to text

3. The data shown in figure 4 are revised data. Return to text

4. Blinder (2023) labels the July 1995 episode as the “perfect soft landing” and identifies other “softish” landings (see his Table 1, page 119). Blinder (2023) defines a softish landing as an outcome in which real GDP declines by less than 1 percent or there is no NBER recession for at least a year after an FOMC tightening cycle. Return to text