What can past tightening cycles tell us about Fed policy?

Markets focused this week on supposedly dovish comments in Fed Chair Janet Yellen’s semi-annual testimony to Congress, but in truth she did little more than repeat the existing Fed line. As long as core inflation starts to rebound, we still expect a falling unemployment rate to convince Fed officials to continue hiking rates. Furthermore, recent history provides further reason to think that the Fed won’t wait for a more marked rebound in inflation before pressing ahead with further tightening.