The Fed may find its resolve tested if inflation begins to subside. It may be tempted to quit tightening when inflation drops to 3%, rather than inflict the additional pain needed to get back to the 2% target. If inflation is relatively predictable and stable, a 3% average might not impose much higher costs than a 2% one. But the Fed would not be making this choice in a vacuum. It would, in that case, be abandoning its initial target under duress, which is bound to make its future commitments less credible.
Recent statements by Powell have acknowledged the cost of restoring price stability but noted that, without it, “the economy does not work for anyone.” The alternative to taking the requisite action now, he has explained, is risking higher inflation and then a more severe recession. The critics are mistaken: He should keep tightening monetary policy, and with a clear conscience.
Ramesh Ponnuru is a Bloomberg Opinion columnist. He is the editor of National Review and a fellow at the American Enterprise Institute.