Let’s say you come home and there’s a gorilla sitting on the couch in your nicely appointed living room. You are partly to blame for leaving the door unlocked, but world events have also conspired to let him in the door.
You are carrying a baseball bat. But you know that getting into a fight with an unruly 300-pound beast is going to wreck the house. You try nudging him out the door without creating a lot of collateral damage, but that doesn’t work. So now it’s clear that some furniture is going to get broken.
This is the situation Federal Reserve Chair Jerome Powell finds himself in today. The gorilla, of course, is the US inflation rate, which hit a punishing 9.1% in June, pumped up by higher energy costs and food. Even though the economy is slowing, the gorilla just isn’t getting off the couch, and now it might be time to start smashing a few lamps to get across the idea that your threat is real.
When they started raising rates in March, Powell and his colleagues held out the hope that they could engineer a soft landing for the economy. Workers would come back in droves to the labor market, reducing wage pressure. Almost magically, knotted supply chains would unravel, and microchips, bicycles, and everything else would flood back into the US as the coronavirus subsided abroad. Inflation was supposed to cool, with no cost to jobs.
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