Opinion | US inflation fight can’t afford Federal Reserve to lose its nerve now
- If the Fed cuts interest rates after making progress on bringing down consumer prices, it will lose its hard-earned inflation-fighting credentials
- Giving in to outside political or economic pressure to ease up would put at risk significant gains that have already been achieved

Jim Grant, among the most astute observers of interest rates in the United States, has no doubt that the price of money is the most important price in a market economy. The publisher of Grant’s Interest Rate Observer, he warns that the era of zero short-term rates makes the rapid rise to 5.5 per cent dangerous.
The Federal Reserve artificially held rates at zero to stimulate the economy after the 2008 global financial crisis and consumers were shielded from market interest rates for 14 years. Now everybody must adjust quickly and the process will be painful.
Low rates encouraged corporations, individuals and governments to borrow excessively. With the price of money now higher, loans often must be paid back at higher rates.
This is not to say the Fed was wrong to bring rates to zero, but rates were kept low for too long. From 2009 to 2016, growth rebounded smartly. Likewise, low rates from 2020 to 2022 were a useful response to the Covid-19 pandemic.
The problem is that zero interest rates combined with massive increases in government spending meant there was too much money in the economy. As the economist Milton Friedman observed, “inflation is always and everywhere a monetary phenomenon.” There was an inflationary surge that the Fed’s higher interest rate policy is now successfully addressing.
