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Opinion | When Inflation Meets a War

Now, as the Fed chair, Jerome Powell, acknowledged this month, “We’re going to see upward pressure on inflation at least for a while.” That pressure has led economists to begin reducing their growth forecasts, creating the Fed’s dilemma.

If the Fed leans toward taming inflation, we face higher interest rates, slower growth and even recession. Holding back on increasing interest rates risks inflation remaining high or even accelerating.

The Fed has already signaled that it will proceed cautiously at its meeting this week, raising interest rates but likely by only a quarter of a percentage point. Before the invasion, many inflation worriers, including me, were hoping for a half point increase to attack rising prices more forcefully.

How the Fed juggles the competing goals of lower inflation and steady growth will almost surely define Mr. Powell’s legacy.

The Fed is one of our most effective governmental institutions and Mr. Powell has been a dedicated and thoughtful chairman. But with respect to the inflation of the past year or so, the Fed — to put it plainly — blew it, sticking firmly to “team transitory,” which expected smaller price rises that would quickly ebb. Mr. Powell acknowledged as much last week. “Hindsight says we should have moved earlier,” he told Congress.

When it comes to tackling inflation, the Fed is, for all practical purposes, the only game in town. Nonetheless, eager to show engagement, the White House has taken a few small-bore steps, like releasing oil from our strategic petroleum reserve and jawboning companies not to raise prices. But these are charades, designed to shore up President Biden’s flagging approval ratings. None holds the prospect of a measurable impact on inflation in the near term.

That will be up to the Fed. My vote would be for the Fed to move robustly to tame inflation.

I’ve seen extreme inflation. As a young New York Times reporter, I was among those who were summoned at short notice on a beautiful fall Saturday in Washington to the vast (but elegant) board room in the Fed’s Eccles building.

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