The Fed's Year of Living Dangerously

ft.com — When a central bank has an uncomplicated recession to deal with, it can cut interest rates. When it faces a clear-cut case of inflation, it can raise them. The worst nightmare of any central banker — especially one with a tradition of political independence to defend — is stagflation, when raising interest rates to curb inflation will provoke a recession or deepen one that has already begun. It is a problem that the U.S. has not had to confront for 30 years. In 2008, an election year, the conditions are falling into place.

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