The Great Moderation was a period of macroeconomic stability in the United States coinciding with the rise of central bank independence, beginning with the Volcker shock in 1980 and continuing through the 21st century. It is characterized by generally milder business cycle fluctuations in developed nations, compared with decades before. Throughout this period, major economic variables such as real GDP growth, industrial production, unemployment, and price levels have become less volatile, while average inflation has fallen and recessions have become less common.

The Great Moderation is typically attributed to the adoption of standards for macroeconomic targeting such as the Taylor rule and inflation targeting. However, some economists argue technological shifts also played a role.

The term was coined in 2002 by James H. Stock and Mark Watson to describe the observed reduction in business cycle volatility. There is some debate as to whether the Great Moderation ended with the 2008 financial crisis and the Great Recession, or if it continued beyond this date, with the crisis being an anomaly.

The term "Great Moderation" was coined by James Stock and Mark Watson in their 2002 paper "Has the Business Cycle Changed and Why?" It was brought to the attention of the wider public by Ben Bernanke (then member and later chairman of the Board of Governors of the Federal Reserve) in a speech at the 2004 meetings of the Eastern Economic Association.

Since the Treasury–Fed Accord of 1951, the US Federal Reserve was freed from government and gave way to the development of modern monetary policy. According to John B. Taylor, this allowed the Federal Reserve to abandon discretionary macroeconomic policy by the US Federal government to set new goals that would better benefit the economy.

The Taylor rule results in less policy instability, which should reduce macroeconomic volatility. The rule prescribes setting the bank rate based on three main indicators: the federal funds rate, the price level and the changes in real income. The Taylor rule also prescribes economic activity regulation by choosing the federal funds rate based on the inflation gap between desired (targeted) inflation rate and actual inflation rate; and the output gap between the actual and natural level.

In an American Economic Review paper, Troy Davig and Eric Leeper stated that the Taylor principle is countercyclical in nature and a "very simple rule [that] does a good job of describing Federal Reserve interest-rate decisions". They argued that it is designed for "keeping the economy on an even keel", and that following the Taylor principle can produce business cycle stabilization and crisis stabilization.

However, since the 2000s the actual interest rate in advanced economies, especially in the US, was below that suggested by the Taylor rule.