Last week, the Federal Reserve did the right thing by leaving well enough alone, keeping the benchmark interest rate at about 5.4%. With the acute pressure that the board and Chair Jay Powell in particular have faced in the past several months, we’re glad they’ve had the wisdom to know when to step back.
There have been those that, wedded to formulaic understandings about the economy, have insisted it’s all but mechanically impossible for inflation to come down into acceptable ranges without seriously harming the economy. We’ve even heard that we need a recession, that a recession is the inevitable endpoint of a sadly necessary effort to wrangle inflation under control, and that the Fed should not have relented on its campaign to sharply raise rates.
These critics pointed to the 1970s and the reign of Paul Volcker. When things looked grim, the story goes, Volcker stepped up and did what had to be done, pushing the economy into a recession with prolonged unemployment but in the process saving it from a worse spiral of soaring prices that threatened to derail the country’s prosperous postwar climb. The horrifying prospect that this approach may not really have been necessary is something the conventional economic view all but put out of mind.