ABSTRACT
The federal funds rate has risen from about 3 percent in February 1994 to 6 percent today. Statements of Federal Reserve officials suggest that these actions can be interpreted as a “preemptive strike” against inflation—that is, policy was tightened in response to current indications that suggest higher inflation in the future. Developments since the mid-1960s provide convenient benchmarks to gauge the recent tightening of monetary policy. Taylor’s rule, then, also confirms the shift in policy that occurred during the late 1970s, and demonstrates that since the end of 1979 the funds rate has been more responsive to changes in output and inflation than it was earlier.
