Does Monetary Policy Tightening Reduce Inflation?

Najjar, Rami; Shapiro, Adam Hale

Journal Article

Does Monetary Policy Tightening Reduce Inflation?

Abstract: Recent research has identified periods when the Federal Reserve intentionally acted to slow inflation when it exceeded desired levels. The success of these disinflation attempts reveals the extent of policymakers’ commitment to lowering inflation. An extension of this analysis indicates that successful disinflations are associated with a decline in the demand-driven component of inflation. This was especially evident during recent monetary policy tightening, with contributions to core inflation from demand declining 2 percentage points since the summer of 2022—the largest decline for any deliberate disinflation attempt since 1969.

Keywords: monetary policy; Monetary policy and inflation; inflation;