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Journal Article
Does Monetary Policy Tightening Reduce Inflation?
Recent research has identified periods when the Federal Reserve intentionally acted to slow inflation when it exceeded desired levels. The success of these disinflation attempts reveals the extent of policymakers’ commitment to lowering inflation. An extension of this analysis indicates that successful disinflations are associated with a decline in the demand-driven component of inflation. This was especially evident during recent monetary policy tightening, with contributions to core inflation from demand declining 2 percentage points since the summer of 2022—the largest decline for any ...
Working Paper
Not All Inflation Is the Same: State-Dependent Transmission of Monetary Policy
We show that the underlying source of inflation impacts financial market perceptions of the persistence of monetary policy tightening. Investors expect policy tightening to be more persistent inflation is driven by demand factors. During supply-driven episodes, however, investors perceive tightening as less persistent and less effective at producing a disinflation. These results point to a state-dependent financial market response to monetary policy: credibility, and therefore financial-market transmission, depends on what kind of inflation the central bank is perceived to be fighting.
Journal Article
The Changing Sensitivity of Interest Rates to Oil Supply News
A decrease in oil supply drives up oil prices, which can raise unemployment and inflation. To counter adverse effects on inflation, a central bank may choose to increase its policy rate, potentially reducing economic activity further. Changing interest rates can thus shape how unexpected oil price changes affect the economy. In recent years, interest rates have become more sensitive to unexpected oil supply news. However, market-based long-term U.S. inflation expectations did not shift significantly in response to oil supply news, suggesting that the public’s inflation expectations remain ...