Inflation in the Late 1990s
J. Bradford DeLong
- The broadest measures of inflation--of which the price of gross domestic purchases is one--showed inflation bouncing between one and two percent a year until mid-1999.
- Consumer price index-based measures of inflation showed higher rates of inflation because they did not include the rapidly falling prices of information technology-based capital goods.
- Late 1999 and early 2000, however, showed some signs of accelerating inflation. The Federal Reserve responded by raising interest rates to choke off any such acceleration before it became embedded in expectations.
- But the Federal Reserve overdid it, setting in motion the recession of 2001.
- As the recession took hold, inflation fell dramatically.
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