The author is Paul A Volcker, a senior researcher in international economics at the Council on Foreign Relations

Of all the great institutions in the United States, few have prospered in adversity like the Fed.The crumbling U.S. electoral system Violent police, This Polarized media, This Overly powerful technology company -All these are justified accusations. But the Fed has survived the financial crisis, Trump’s attacks, and the pandemic. Its emergence is stable with tolerable inflation, its independence is not affected at all, and the US dollar has firmly become the world’s reserve currency.

This is the context for evaluating the Fed’s next challenge: Resurgence of inflation. After 25 years of core inflation (excluding volatile food and energy) tends to fall below the Fed’s 2% target, prices may now rise faster than expected.If the Fed allows unstoppable -And this rate has risen to between 3% and 4%-this impact may cause damage on a global scale.

The central bank will have to increase borrowing costs when catching up. The financial market will plummet. The leveraged company will go bankrupt. A strong U.S. dollar will hit emerging economies, whose debt is denominated in U.S. dollars, while earnings are denominated in other ways.

The chat on inflation started six months ago and has been steadily expanding.Donald Trump’s 900 billion dollars December stimulus Magnified by Biden’s $ 1.9tn The plan in March talks about two bold spending bills that are coming. At the same time, in the private sector, the high personal savings rate (which is a red flag because it may herald soaring future spending) has continued to climb.Before the pandemic Circling Just over 7%. It was 13.5% in December last year. In the first quarter of this year, this proportion averaged 20.5%. Millions of newly vaccinated Americans are sitting on a pile of dry powder, which could ignite the economy.

More importantly, changes in other places undermined the occurrence of the fire. The pandemic has put some companies into trouble and undermined the economy’s ability to meet growing demand. Trade tensions have weakened the ability of globalization to suppress prices.President Joe Biden’s “Buy America Prohibition”, his encourage Union and his drive Improving the conditions of performance workers may lead to higher costs. At the same time, the pandemic has changed consumer habits. Before the adjustment of the enterprise, it may lead to an inflation bottleneck.

At this point, the pigeons will oppose the continued rise in unemployment, so employers can easily expand production to meet additional demand. However, the available workers are not necessarily in the right place or department.Philadelphia Federal Reserve report 45% of vacant positions in manufacturing companies have been filled for three months or more.According to iCIMS, a recruitment agency, job vacancies are up It was 22% in the first quarter, but the number of applications dropped by 23%.

All in all, inflation breakout is not inevitable-the unemployment rate has risen slightly report Friday supported the dovish argument about a weak labor market. But the risk is great. If prices do rise, there are many unresolved questions about whether the Fed is ready to take firm action. This brings us to the second part of the inflation discussion. Critics of the Fed put forward three reasons that it may lack the determination to respond.

First, the Fed has blurred its commitment to inflation targets. In order to balance the lack of inflation in the past, it now hopes to exceed the 2% mark in an unspecified period. Due to the lagging nature of monetary policy, such a wait-and-see attitude may mean that it is too late to raise interest rates so that it is unable to curb price increases and to create momentum.

If the inflation rate exceeds 3%, you might expect the Fed to respond quickly.After all, the low inflation of the past two decades Rarely It involves missing the 2% target by more than a percentage point. But the second concern of critics is that the Fed may consider the inflation surge to be temporary-this phenomenon will be corrected once workers move to a new department and the company adjusts. If this is wrong, inflation will have room to further consolidate itself.

This leads to the third point, the most basic concern. Although the accuracy of its forecasts is misleading, central bankers make decisions under uncertain circumstances and are inevitably political. Their independence is not as isolated as the ivory tower, but in the timetable for attending Congress and meeting with administrative officials, despite the short-term costs, they are still willing to decide to raise interest rates sometimes. An army of professional Fed observers likes to speculate that central bankers lack the ability to make this judgment. Some people even whispered that the Fed chairman, Republican Jay Powell (Jay Powell) might use loose money to guarantee his re-election as the Democratic president.

This is a long-lasting living room game, because neither party can know the answer in advance. The enthusiasm for cryptocurrencies proves that people suspect that the Fed will bust inflation. But the last time the skeptics were proved was in the 1970s, and the warning stories of that decade are deeply etched in the memory of every central bank governor. Perhaps, half a century later, we should accept the possibility that certain American institutions are indeed reliable. The past (at least sometimes) can be used as a guide for the future. A surge in inflation seems very likely. The Fed is not.