Anatomy of the Post-Pandemic Monetary Tightening Cycle

Foerster, Andrew; Martinez, Zinnia

Journal Article

Anatomy of the Post-Pandemic Monetary Tightening Cycle

Abstract: The Federal Reserve tightened monetary policy rapidly between 2021 and 2023. In addition, a weekly proxy federal funds rate shows that markets perceived the policy stance as tightening significantly even in weeks without explicit policy changes. The proxy rate uses financial market data to infer the broad stance of monetary policy as determined by funds rate changes, forward guidance about projected future rates, and balance sheet changes. Results show that the weekly proxy rate can capture changes that reflect both policy tools and market reactions to changing economic news.

Keywords: monetary policy; Economic news; forward guidance;