Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

That is operating here very much. It is the same mechanism, but it works differently in the two cases, because in the case where the recession actually shows up, whether you take the gradualist approach or you take the risk-management approach, they see the recession, and the easing in monetary policy doesn’t surprise them very much, although we can take our risk-management approach and respond a bit more than usual. But then, things behave as they expect, and so not too much happens to inflation expectations. In the other case, in which recession doesn’t emerge, they say, “Oh, this was an easing that wasn’t expected,” and then it becomes critical how long you hold it. If you hold it and you get rid of it only gradually, then inflation expectations start to shift up. They think the Fed’s inflation goal has changed. In the case where you take it away quickly, they say, “Okay, you took it away quickly,” and so not much happens to long-run inflation expectations.

Keyboard shortcuts

j previous speech k next speech