Capital Account: In a reversal from recent decades, the Federal Reserve would rather risk recession than higher inflation
Federal Reserve Chairman Jerome Powell said the central bank’s goal is to reduce inflation to 2%. The Fed approved a 0.75-percentage-point rate rise Wednesday, the largest interest rate increase since 1994. Photo: Elizabeth Frantz/ReutersThe Fed has often moved interest rates by 0.75 percentage point or more in recent decades. But, it had always done so in a downward direction.
This was rooted in a doctrine that former Chairman Alan Greenspan dubbed “risk management.” The Fed must decide where the greatest risks lie and then err on the side of doing too much to minimize those risks—cut off the tails of the distribution, in statistics-speak.