Inflation has slowed to below 5% during the last year through April according to the latest core personal consumption expenditure price index which excludes wartime volatility in the energy and food sectors. And core month-to-month changes of late (0.3%) are even lower.
The Federal Reserve Open Market Committee (Fed) is succeeding in reducing inflation despite being armed only with a hammer, ill-suited to today’s multiple sources of inflation. It must carefully calibrate use of the hammer to avoid a global recession, which would disrupt the transcendent national goal of sustaining U.S. and European public opposition to Putin’s invasion of Ukraine. That primacy imposes a novel constraint for an institution playing a weak hand, lacking precision tools. The Fed should resist pressure to decelerate inflation quickly, risking triggering a recession. Economic growth can be sustained with the present gradual glide path toward its 2% inflation goal.
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