Monetary Policy in the Cold War Era

When the inflation rate hit the double digits in the late 1970s, the Federal Reserve was given a mandate to push it back down, and quickly. Inflation had become so intolerable that few questioned the government's decision to wage a "hot war" against it. Now, with the economy booming and inflationary pressures scant, there is less public support for such a hard-line approach. Is it indeed time for the Fed to relax its stance and make peace with our current low and stable inflation rate? This article explains why the battle against inflation-a cold war instead of a conventional war this time-is continuing, and why peace requires a broad public understanding that monetary policy best contributes to national prosperity by eliminating both inflation and the expectation that it will reemerge.