America’s economy is too strong for its own good

Two days after the latest interest-rate rise, the seven governors of the Federal Reserve met with some businessfolk. Any misgivings about the effects of tighter monetary policy would have been quickly dispelled. Cara Walton of Harbour Results, a consultancy, spoke of a plastics processor who hired 14 new employees, only for a mere three to show up on their first day (and one of those to quit before lunch). Cheetie Kumar, a restaurateur, said her peers were struggling to make rent as food and labour bills mounted. Tom Henning of Cash-Wa, a distribution company, explained his firm was passing costs onto customers. Demand was holding up, he said, thanks to the amount of money “floating out there in the economy”.Misgivings may, however, have crept back in as the governors watched the markets over the past fortnight. The central bank’s goal is to tame inflation, which is running at more than 8% year on year, just shy of a four-decade high. The realisation that it is still far from that goal, and that monetary tightening will thus continue, is causing havoc. American stocks have fallen for three consecutive quarters, and sharply recently. Bond prices are tumbling, reflecting tremors in the credit markets. The ratcheting up of rates in America is driving the dollar’s appreciation, adding to inflationary pressure elsewhere and impelling other central banks to follow the Fed’s lead, no matter the state of their economies. On September 30th Lael Brainard, the Fed’s vice chair, called for her fellow governors to proceed “deliberately”, a word denoting caution in the central bank’s argot. She also said the Fed would take its international impact into account.