Empirical Insights and Case Analysis: The 2021 - 2023 U.S. Inflation Cycle and the Fed's Policy Dilemma
DOI:
https://doi.org/10.54097/9dsc1586Keywords:
Empirical analysis; inflation cycle; policy dilimma.Abstract
This paper presents an empirical analysis and case study of the 2021 - 2023 U.S. inflation cycle. Leveraging monthly data from FRED, it examines the dynamic interplay between the Federal Reserve's monetary policy tools (federal funds rate and balance - sheet policy) and key macroeconomic indicators. The study reveals that delayed policy tightening in 2021, due to factors like the Average Inflation Targeting framework and labor market concerns, led to a rapid rate - hike cycle in 2022 - 2023. While inflation control was achieved, significant costs emerged, including financial fragility and recession risks. The findings emphasize the importance of timely policy diagnosis, policy coordination, and balancing inflation control with financial stability and employment goals in a shock - prone world.
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