rates and, potentially, a severe recession to control inflation. nobody wants that ” ( macklem, 2022 ). - 3resulted in a painful recession. but the reduction in inflation was large. thus, measured in terms of percentage points of inflation reduction, as is conventionally done, it was not particularly costly. 3 a plausible, if partial, explanation for this finding is that the volcker disinflation was carried out before the inflation associated with the second opec oil price shock had become entrenched in inflation expectations and more generally at a time when inflation expectations were fluid. 4 this is relevant as my colleagues on the fomc and i strive to bring down actual inflation promptly in order to preserve the “ well anchored ” longer - term inflation expectations we see in the data. it is also consistent with the authors ’ argument that swift and relatively painless disinflations of the past were due to early and sharp policy interest rate increases. the authors ’ third takeaway from history is that easing monetary policy before the disinflation is complete, or easing by too much, is costly. 5 my reading of this claim is that while central bankers might entertain hopes that they will directly see a dividend from early, forceful policy actions, historical experience suggests that they should not count on such a favorable outcome. and, finally, they argue that policy needs to look ahead and act preemptively. while the authors do not present evidence to support this claim, it is an argument with which policymakers nearly always agree, in principle, but find difficult to execute, in practice. as i ’ ll discuss in a minute, choosing the appropriate stance of monetary policy, converting the unemployment sacrifice ratio in ball ( 1994 ) into output space using an okun coefficient of two renders an output sacrifice ratio of just 1. 8, a small number by historical standards. for a summary of sacrifice ratios in history, see tetlow ( 2022 ) and cecchetti and others ( 2023 ). this may be related to the authors ’ second conjecture on why initially high levels of inflation are associated with lower sacrifice ratios — namely, that high inflation is associated with large global supply shocks ( cecchetti and others, 2023, p. 18 ). it is analytically distinct, however, in that they do not emphasize the timely monetary policy response to those shocks. this point is elaborated upon in chair powell ’ s 2022 jackson hole speech ;

alan greenspan : government - sponsored enterprises testimony of mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the committee on banking, housing, and urban affairs, u. s. senate, 24 february 2004. * * * mr. chairman, senator sarbanes, and members of the committee : thank you for inviting me to discuss the role of housing - related government - sponsored enterprises ( gses ) in our economy. these gses - the federal national mortgage association ( fannie mae ), the federal home loan mortgage corporation ( freddie mac ), and the federal home loan banks ( fhlbs ) - collectively dominate the financing of residential housing in the united states. indeed, these entities have grown to be among the largest financial institutions in the united states, and they now stand behind more than $ 4 trillion of mortgages - or more than three - quarters of the single - family mortgages in the united states - either by holding the mortgage - related assets directly or assuming their credit risk. 1 given their ties to the government and the consequent private market subsidized debt that they issue, it is little wonder that these gses have come under increased scrutiny as their competitive presence in the marketplace has increased. in my remarks, i will not focus on the federal home loan banks, although much of this analysis applies to them as well. in fact, because the home loan banks can design their advances to encompass almost any type of risk, they are more complex to analyze than other gses and, hence, raise additional issues. * * * during the 1980s and early 1990s, fannie mae and freddie mac ( hereafter fannie and freddie ) contributed importantly to the development of the secondary mortgage markets for home loans and to the diversification of funding sources for depository institutions and other mortgage originators. although the risk that a home mortgage borrower may default is small for any individual mortgage, risks can be substantial for a financial institution holding a large volume of mortgages for homes concentrated in one area or a few areas of the country. the possible consequences of such concentration of risk were vividly illustrated by the events of the 1980s, when oil prices fell and the subsequent economic distress led to numerous mortgage defaults in texas and surrounding states. the secondary markets pioneered by fannie and freddie permit mortgage lenders to diversify these risks geographically and thus to extend more safely a greater amount of residential mortgage credit than might otherwise be prudent