A Major Rethink is Underway at the Fed

United States monetary policymakers made their bones during the 1970s stagflation crisis. Figure 1 displays the macroeconomic vitals and the policy rate from the mid-1960s to the mid-1990s.

Figure 1. Unemployment, core inflation, output gap and the policy rate from the mid-1960s to the mid-1990s.

The stagflation crisis taught central bankers that inflatio…