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Opinion To beat inflation, the Fed might have to trigger a recession

Federal Reserve Chair Jerome H. Powell in D.C. on July 27. (Ting Shen/Bloomberg)

The Federal Reserve’s Open Market Committee will conclude its November meeting on Wednesday, and all signs are that the nation’s monetary policy chiefs will raise interest rates by 0.75 percentage points, the fourth consecutive three-quarter-point hike. In other words, the Fed is set to press the brakes even harder on an economy that experts warn might soon enter a recession.

A recession would be unwelcome. But high inflation is a greater threat, and it is already here. Core inflation — which excludes volatile food and energy prices — clocked in at a 6.6 percent annual rate in September. Real wages are declining because price increases are swamping gains in the size of paychecks. Rising prices for food, housing, cars, clothes and other basic goods hit everyone, but they punish low-income people the hardest. In poll after poll, voters say inflation is one of their top concerns.

The Fed is right to be assertive. Its control over monetary policy makes the central bank the most capable inflation-fighter. Raising rates cools the economy by making investment more expensive, which in turn broadly drives down demand, bringing it in line with the economy’s capacity to meet it. Strong Fed action also signals resolve to fight inflation, persuading people not to assume — and make their spending decisions around — higher prices in the future. If such expectations took hold, the economy would risk entering a 1970s-style inflationary spiral, in which consumers buy more now in anticipation of higher prices later, fueling those very price rises.

But make no mistake, there will be pain. One effect of rate hikes is to raise consumer borrowing costs for car loans, credit cards and mortgages; 30-year fixed mortgage rates hit 7 percent last week and promise to rise higher. Moreover, it is hard for the Fed to know exactly when to stop slamming on the brakes, because it takes time for the effects of interest rate rises to be felt across the economy, so there is a risk the Fed raises rates more than necessary.

Perfectly executed, monetary policy could cool the economy just enough to restrain inflation but not so much that it inflicts unnecessary harm. Such a “soft landing” seems to remain a possibility. The economy grew at a 2.6 percent annualized rate last quarter. At the same time, inflation-stoking wage increases cooled a bit. The Fed might be able to begin scaling down rate hikes when it meets again next month.

But the Fed’s overriding charge should be to beat rising prices. Absent compelling evidence of a turnaround, the Fed should remain tough. Meanwhile, President Biden should continue to honor the Fed’s independence, applying no pressure to its rate-setters. He and Congress should use what anti-inflation tools they have, too, including cutting regulations that drive up prices for little social benefit and removing tariffs that hurt U.S. consumers more than they punish other countries.

Some factors — such as the Ukraine war and kinks in global supply chains — are out of U.S. policymakers’ control. All the more reason for them to use the levers they have, and for Americans to be prepared for the results.

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Editorials represent the views of The Post as an institution, as determined through debate among members of the Editorial Board, based in the Opinions section and separate from the newsroom.

Members of the Editorial Board and areas of focus: Opinion Editor David Shipley; Deputy Opinion Editor Karen Tumulty; Associate Opinion Editor Stephen Stromberg (national politics and policy, legal affairs, energy, the environment, health care); Lee Hockstader (European affairs, based in Paris); David E. Hoffman (global public health); James Hohmann (domestic policy and electoral politics, including the White House, Congress and governors); Charles Lane (foreign affairs, national security, international economics); Heather Long (economics); Associate Editor Ruth Marcus; and Molly Roberts (technology and society).

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