Taming Inflation Scares

Abstract

A monetary policy strategy that keeps inflation expectations solidly anchored in line with a clearly communicated definition of price stability supports the achievement of both price stability and economic activity goals. Providing an enduring nominal anchor succeeds in taming inflation scares and allows the Fed to respond more effectively to economic downturns. This was a key policy message in Marvin Goodfriend’s 1993 article “Interest Rate Policy and the Inflation Scare Problem: 1979-1992”. This essay connects Goodfriend’s important and timely paper to the academic and policy debates of the period and traces its influence on subsequent monetary policy research and the evolution of the Federal Reserve’s monetary policy strategy and communication.

Keywords: Inflation Scares, Inflation Expectations, Federal Reserve, Monetary Policy

JEL Classification: E52, E58