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What If? Monetary Policy in Hindsight

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Abstract

If the Federal Reserve had expected the upcoming inflation surge back in March 2021, would it have acted differently? A new method to tackle such “what if” questions suggests that it may have been preferable to only moderately raise the federal funds rate during 2021, even with perfect foresight. In that case, inflation would have been about 1 percentage point lower as of June 2022, while unemployment would be about 2 percentage points higher. This result reflects the importance of the Fed’s dual mandate of price stability and maximum employment.

Suggested Citation

  • Régis Barnichon, 2022. "What If? Monetary Policy in Hindsight," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(28), pages 1-6, October.
    • Handle: RePEc:fip:fedfel:94904
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