Commentary The Federal Reserve (Fed) will soon face a very delicate policy balancing act. At last Fed Chairman Jerome Powell has given up on the “inflation-is-transitory” claim. Policymakers accordingly have acted. They plan in the coming months to taper down the size of direct bond purchases, what the Fed calls “quantitative easing.” They also contemplate three small interest rate hikes. That should be sufficient if the whole cause of inflation is supply chain problems. If, however, the inflation has more fundamental roots, more aggressive steps sooner will be necessary. The Fed, clearly, sits on the horns of a dilemma. The recent policy change was easy. With the economy clearly recovering, the special monetary support instituted in 2020 is no longer necessary. Policy has made just such adjustments in the past. For instance, the approach to recovery from the great recession of 2008-09 prompted the Fed to “normalize” policy, to use …
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