How Quickly Do Prices Respond to Monetary Policy?

Arnaut-Hull, Zoë; Bengali, Leila

Journal Article

How Quickly Do Prices Respond to Monetary Policy?

Abstract: With inflation still above the Federal Reserve’s 2% objective, there is renewed interest in understanding how quickly federal funds rate hikes typically affect inflation. Beyond monetary policy’s well-known lagged effect on the economy overall, new analysis highlights that not all prices respond with the same strength or speed. Results suggest that inflation for the most responsive categories of goods and services has come down substantially from recent highs, likely due in part to more restrictive monetary policy. As a result, the contributions of these categories to overall inflation have fallen.

Keywords: monetary policy; Monetary policy and inflation; federal funds rate; prices;