Chicago Fed, Report: How tight is U.S. Monetary Policy
“In this Chicago Fed Letter, we use a quantitative macroeconomic model to tackle the question of whether the response of the Federal Reserve (the Fed) to recent high inflation is consistent with its historical behavior. This is an important question because systematic deviations from past behavior could lead the private sector to revise its expectations about how the Fed will respond to inflation going forward, which, according to macroeconomic theory, could affect its ability to stabilize inflation in the future.”
Conclusion:
“In this Chicago Fed Letter, we have presented some model-based evidence that the robust monetary tightening carried out by the Fed in 2022 is broadly in line with its historical behavior. We have also shown that in 2022:Q4, the market path peaks 75 basis points lower than the historical rule. The market path stays flat until 2023:Q4 and then declines at a gradual pace similar to the historical rule, but at a lower level. According to the model, this gradual pace does not decrease the central bank’s ability to pursue price stability.”