I won’t get into too many details of what that term “monetary stimulus” means, although I’m more than happy to take questions about it later. For now, I’ll just make three high-level points. First, when the FOMC changes the level of stimulus, our actions tend to push inflation – that is, the rate of growth of prices – and employment in the same direction.
Raising the level of stimulus puts upward pressure on both inflation and employment. Lowering the level of stimulus puts downward pressure on both inflation and employment. Second, the FOMC’s actions only affect inflation and employment with a lag, usually thought to be about one-and-a-half to two years.