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Because the economy was slow to recover from the recession of 1990 and 1991, the Fed continued this expansionary policy designed to lower interest rates and stimulate aggregate demand through 1993. By that time, the unemployment rate had fallen and economic growth was strong. The Fed, worried about the threat of future inflation, began to lean against the wind by raising interest rates. The Fed’s behavior in 1994 is an example of leaning against the wind quite far in advance, long before any observed sign of increasing inflation. Some people felt that the Fed was acting too hastily and should have waited for direct signs of inflationary pressures before tightening.
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