A cautious effort to tame inflation

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With inflation racing, the Federal Reserve moved to contain it — but probably too gingerly to make a difference, said Allison Schrager in Bloomberg. The central bank raised its borrowing rate by 25 basis points — a quarter of 1 percent — last week for the first time since 2018, with more increases expected over the course of the year. Normally, the biggest worry with rate hikes is that "the Fed will overshoot and cause a recession." But this modest move only "feels like a big deal" because the Fed has kept rates so low for so long. Despite an inflation rate of 7.9 percent, the Fed isn't really slowing the economy, just trying to put the engine into neutral and "hoping that inflation will go away." Unfortunately, many economists doubt it will. The central bank has taken much more aggressive action in the past "to slow the economy down, revise expectations, and lower inflation," and may well need to do so again.

The war in Ukraine is complicating matters, said Jeff Sommer in The New York Times. "It would be hard to argue that the Fed should do nothing about the current inflation readings." But it is treading more carefully because of the unknown damage that "war-related issues," such as shortfalls in commodities like oil and wheat, might cause for the U.S. economy. Fed chairman Jerome Powell thinks the U.S. economy is strong enough to withstand any geopolitical shocks, said Neil Irwin in Axios. "He was downright dismissive of talk that there's an elevated risk of recession" last week and projected confidence that the economy could handle "even a sustained campaign of interest-rate increases." That should bring inflation down eventually, but the Fed is "not going to overreact."

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In other words, get used to higher prices, said Jordan Weissmann in Slate. Some economists were hoping for a "shock and awe" campaign of aggressive rate hikes to nip inflation in the bud. "This was not what anybody would call shock and awe." The Fed barely budged from its wait-and-see mode of 2021. Past experience tells us this won't be enough, said The Wall Street Journal in an editorial. Even with the 11 quarter-percent hikes that the Fed is expected to make over the next two years, the federal-funds rate will settle at 2.8 percent — still lower than the likely inflation rate at the end of 2023. That's not going to cut it. "The long experience of monetary policy is that inflation doesn't fall until interest rates exceed the inflation rate."

"Inflation nagged at Carter throughout his single term in office," said David Mark at NBCNews, and it seems likely to do the same for Biden. His attempt to use Russian President Vladimir Putin as an inflationary bogeyman for shocking oil markets is falling flat. Voters have historically "shown themselves at least somewhat more understanding of the rise-and-fall nature of gas prices," but widespread inflation "is a different matter." A recent poll found that "55 percent of voters said inflation would be extremely important to their congressional vote this year." That puts Democrats "in dangerous political territory."

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