The US Federal Reserve has fully pivoted to fighting inflation and reducing demand in the economy. The central bank’s open market committee is expected to further tighten interest rates and end purchases of financial assets at meetings starting tomorrow.
That sounds right after prices have increased 8.5% in the last year for the average US consumer, far above the Fed’s target of 2%. Few economists think the Fed shouldn’t tighten monetary policy.
But the Fed is still playing a dangerous game: Its officials want to take enough demand out of the economy to maintain price stability, but if it goes too far, it could send the economy into a recession.
Some analysts think that result is inevitable—in the history of central banking, many attempts to slow the inflation end in a crash. A recent paper by Harvard economist and current Fed critic Larry Summers suggests that probability could be 100%. Other analysts, at the ratings agency…