Consumer prices rose by 8.5% in March compared with a year earlier, a four-decade high. Belatedly, the Fed has swung into action
IT WAS A simple, stunning admission. “We have had price stability for a very long time and maybe come to take it for granted,” Jerome Powell, chairman of the Federal Reserve, said last month. Many factors explain the latest burst in inflation, with snarled supply chains, tight job markets, generous fiscal policy, loose monetary policy and, more recently, the war in Ukraine all part of the fabric. But one thread runs through them all.
Not all economists were so optimistic. Most notably Larry Summers, a former treasury secretary. In February 2021—when prices were still quiescent—he warned that President Joe Biden’s $1.9trn covid-relief bill might “set off inflationary pressures of a kind we have not seen in a generation”. Others, including Olivier Blanchard, a former chief economist of the IMF, and Jason Furman, an economic adviser to Barack Obama, added their concerns.
Even for those more inclined to be forgiving, there is concern about how long it took the Fed to alter its course. “Committees have inertia,” says Adam Posen of the Peterson Institute for International Economics, a think-tank. “Ideally, central banks should be completely shameless about saying, oops, we made a mistake. We’ve got to fix it. But they’re not.
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