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Even Keel and the Great Inflation

During the early part of the Great Inflation (1965-1975), the Federal Reserve undertook even-keel operations to assist the US Treasury’s coupon security sales. Accordingly, the central bank delayed any tightening of monetary policy and permanently injected reserves into the banking system. Using real-time Taylor-type and McCallum-like reaction functions, we show that the Fed routinely undertook these operations only when it was otherwise tightening monetary policy. Using a quantity-equation framework, we show that the Federal Reserve’s even-keel actions added approximately one percentage point to the overall 5.1 percent average annual inflation rate over these years.

Keywords: Even Keel, Great Inflation, Federal Reserve, US Treasury.
JEL Codes: E5, N1, F3.

Suggested citation: Consolvo, Victoria N., Owen F. Humpage, and Sanchita Mukherjee. 2020. “Even Keel and the Great Inflation.” Federal Reserve Bank of Cleveland Working Paper, No. 20-33.

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