Journal Article

To Reach the Fed’s Inflation Target, Interest Rates May Have to Remain Restrictive for Some Time

Abstract: The Federal Reserve has raised the federal funds rate by 500 basis points since March 2022. But how tight is the current policy stance? We account for the federal funds rate, inflation expectations, and the natural rate of interest and find that monetary policy has only been restrictive since 2023:Q1. We find that to bring inflation down to 2 percent, the Federal Reserve may have to keep the federal funds rate in restrictive territory for some time.

Keywords: federal funds; inflation; interest rates;

JEL Classification: E31; B22; E4;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Bulletin

Publication Date: 2023-06-29

Pages: 4