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Is the Last Mile More Arduous?

Author

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  • David E. Rapach

Abstract

US inflation surged starting in spring 2021, with Consumer Price Index (CPI) inflation reaching a 40-year high of 9 percent in mid-2022. Together with improving supply-chain conditions, policy tightening by the Fed decreased inflation to within 1 to 2 percentage points of its 2 percent target by late 2023 without a significant increase in unemployment. However, concerns have been raised that the last mile of disinflation to reduce inflation consistently to its 2 percent target will be more arduous than the previous miles. Close examination of such concerns indicates that they do not receive compelling support. Because the last mile is likely not significantly more arduous than the rest, it is unlikely that the Fed needs to exert extraordinary effort in terms of additional policy tightening as inflation nears its target. Such tightening unnecessarily increases the risk of a "hard landing."

Suggested Citation

  • David E. Rapach, 2024. "Is the Last Mile More Arduous?," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2024(1), January.
    • Handle: RePEc:fip:a00068:97642
    DOI: 10.29338/ph2024-1
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    More about this item

    Keywords

    monetary policy; disinflation; Phillips curve; price stickiness; inflation expectations; soft landing;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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