Fed's actions spoke louder than words to markets in fight against inflation, research finds

Published On Aug 25, 2024, 3:05 PM

New research presented at the Kansas City Fed's conference indicates that the Federal Reserve's credibility has been key to combating inflation, bolstered by actual rate increases rather than just verbal commitments. The study suggests that financial markets respond more favorably when they believe that the Fed is genuinely committed to stabilizing prices, resulting in faster adjustments in financial conditions and a lesser impact on economic growth. As inflation has slowed to 2.9%, the Fed is anticipated to implement its first interest rate cut in September since the COVID pandemic began, signaling a shift in monetary policy.