New research from economists finds that the Federal Reserve's actions in raising interest rates in response to surging inflation did more than rhetoric to move markets' expectations.
The credibility of the Federal Reserve helped financial markets in the central bank's multiyear battle against inflation, but it had to back up its verbal promises to restore price stability with rate cuts, according to new research presented at the Kansas City Fed's annual research conference in Jackson Hole, Wyoming.
Federal Reserve officials often noted during the recent inflationary cycle that public belief in policymakers' commitment to the 2% inflation target would help on its own to slow the pace of price increases, reduce the time it took for tighter monetary policy to have an impact, and lower inflation with less damage to the job market and other aspects of the "real" economy.
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