This look at interest rates and inflation in the U.S. over the past 50 years helps to clarify ideas about the Fed’s monetary policy and its own credibility. The authors examine three periods corresponding to three different policies: when the Fed operated without credibility, when it was earning credibility and when it was operating with credibility.
In contrast with many people’s expectations, the Fed’s injection of $3.5 trillion into the economy caused no significant inflation or increases in the price level. There are many possible explanations in the mainstream; an alternative is a liquidity trap.
In the U.S., the unemployment rate for those under 25 hovers around 14 percent, even though the Great Recession has been over for five years. In some European countries, the rate is three times higher.
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