Working Paper

What the Transcripts Reveal About the FOMC’s Pre-Emptive Easing in July 1995

Abstract: At their September 2024 meeting, the FOMC began reducing the federal funds target rate and indicating the likelihood of additional reductions by the end of the year and into 2025. The FOMC took this action because of favorable inflation trends and some developing weakness in labor markets. A similar dynamic was at work from 1994 to early 1996. During this period, the FOMC undertook, first, a pre-emptive tightening in policy to combat emerging price pressures and then, second, a pre-emptive easing of monetary policy to counter the expectations of slower real GDP growth or outright recession. One key difference between the two episodes was the marked acceleration in inflation rate in 2021-2022 compared to 1994-95. Nevertheless, the end result of the 1994-96 episode was that the US economy avoided a recession and inflation by the end of 1997 was effectively at a level that is now deemed price stability. The purpose of this article is to outline the key arguments that Chairman Greenspan and the other FOMC participants deployed during the 1995-96 pre-emptive easing episode.

Keywords: Federal Open Market Committee (FOMC); monetary policy; macroeconomy; inflation; recession;

JEL Classification: E3; E4; E5; N1;

https://doi.org/10.20955/wp.2024.029

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2024-09-26

Number: 2024-029