Abstract
The U.S. did not experience large decreases in production or employment during the disinflation of 2022-2024. To put this unusually costless disinflation in context, this article characterizes the behavior of economic variables from more than 100 disinflation episodes in OECD countries. We decompose these episodes into those that successfully reduced inflation over several years, those in which inflation substantially rebounded, and the most recent episodes of 2022-2024. Successful episodes show several differences in comparison to failed episodes, including lower real interest rates and higher stock prices. The recent disinflations of 2022-2024 sometimes resemble successful episodes, but with essentially no average output loss. By characterizing the behavior of recent episodes, as well as historical disinflations with differing outcomes, we create a set of stylized facts to guide analysis of disinflation policies.
Introduction
Global inflation, that is, persistent rises in the general price level, rose strongly in 2021 and continued to rise well into 2022. In the U.S., the Federal Open Market Committee (FOMC) targets a 2 percent average rate of increase for the personal consumption expenditures (PCE) price index (FOMC, 2025). This inflation rate began rising in February 2021, peaking at a year-over-year level of 7.1 percent in June 2022, which was a 40-year high and well above the FOMC’s 2 percent target for that inflation metric.
The economic consequences of the COVID-19 pandemic, particularly disruptions in global supply chains and labor markets, had raised expected global inflation, but the magnitude and persistence of price increases were greater than expected. Analysts generally attributed these unpleasant inflationary surprises to the strength of the fiscal and monetary stimulus (see Blanchard and Bernanke (2023)) that ameliorated the economic effects of pandemic-related job losses and business shutdowns.
To return inflation to its 2 percent target, i.e., to disinflate, the FOMC began raising the federal funds rate target range in March 2022. As inflation was a global phenomenon, many central banks also were raising short-term interest rates around this time to control or reduce inflation. All 25 Organisation for Economic Co-operation and Development (OECD) economies in our sample raised their short-term interest rates in 2022. Similar coincident increases in policy rates have been common over the past 60 years, particularly in the 1970s and 1980s. The policy goal of these interest rate increases—disinflation—has often been historically associated with significant recessions.
