The Federal Reserve is responsible for half of the decrease in US inflation over the past year. The decline, which brought inflation down to 3% in June, has been well-received by the markets. It supports the idea that the US economy is on track to achieve a soft landing, avoiding a recession and bringing inflation back to normal levels. The Fed’s contribution to lowering inflation can be attributed to two main factors: firstly, by reducing aggregate demand growth by 2 percentage points, and secondly, by effectively anchoring inflation expectations, resulting in a reduction of 3 percentage points. Overall, the Federal Reserve has successfully brought inflation down by 5 percentage points during the last 12 months.
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