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

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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.

Suggested Citation

  • Kevin L. Kliesen, 2024. "What the Transcripts Reveal About the FOMC’s Pre-Emptive Easing in July 1995," Working Papers 2024-029, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:98865
    DOI: 10.20955/wp.2024.029
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    Keywords

    Federal Open Market Committee (FOMC); monetary policy; macroeconomy; inflation; recession;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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