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An Ebbing Tide Lowers All Boats: Monetary Policy, Inflation, and Social Justice

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During periods of slow growth and rising unemployment, the dynamics of the economic policy debate inevitably reveal an almost irresistible sentiment for stimulative monetary policies. To cite a current example, the steady march of the unemployment rate from 5.3 percent in mid-1990 to 7.3 percent as of April 1,1992 has been matched on the monetary policy front by persistent calls for the Federal Reserve to take action that would ensure an economic recovery regardless of any longer-term price-level consequences. The dual circumstances of lower-than-expected inflation and slow growth of the M2 monetary aggregate have reinforced this pressure. At the same time, the reluctance of private-market participants to fully incorporate recent inflation outcomes in their inflation expectations, coupled with the persistent steepness of the yield curve, suggests that inflation fears are very real to the decision-makers whose behavior ultimately determines the course of the economy.


Suggested citation: Altig, David. “An Ebbing Tide Lowers All Boats: Monetary Policy, Inflation, and Social Justice,” Federal Reserve Bank of Cleveland, Economic Review, vol. 28, no. 2, pp. 14-22, 06.01.1992.

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