With credibility at stake, Fed fires new volley at inflation
Having spent the past year single-mindedly fighting inflation, America’s central bank now faces a dilemma. Its inflation fight may be triggering an equally big problem: a recession in the United States.
If Federal Reserve Chair Jerome Powell can bring down inflation and avoid a deep recession, he will have successfully negotiated a rough passage for the economy. But if his inflation battle proves ineffective, he will further damage the Fed’s credibility, which is already tarnished with costly mistakes last year.
“Credibility is important for everybody, but central banks especially, because their prime function over the centuries has been to preserve the value of money,” says Michael Bordo, an economic historian at Rutgers in New Brunswick, New Jersey. “And when that gets eroded, that is terrible.”
On Wednesday, the Fed acknowledged the leadership challenge
