Opinion | America has not won the battle against inflation

Now, the path is murkier. As anyone alive in the 1970s knows, the biggest danger is to give up too soon. Fed Chair Jerome H. Powell has made this case repeatedly. “Is there a risk that we would go too far? Certainly, there is a risk, but I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make would be to fail to restore price stability,” he said last July. That’s still true today.

The Fed needs to project that it’s still in inflation-fighting mode. Congress gave the central bank two goals: maximum employment and price stability. With the unemployment rate at a half-century low, jobs still easy to obtain and labor force participation of Americans ages 25 to 54 at the highest level since 2002, the Fed deserves an A grade on employment but a C on price stability. Yes, there has been significant improvement, but inflation is still well above the 2 percent target.

Even more troubling, the inflation gauge that strips out volatile food and energy prices is sitting at 4.8 percent. Inflation, like unabated mold, has a tendency to return, and spores of it are still lurking in the services side of the economy: restaurants, travel, entertainment, car insurance.

Of course, Mr. Powell and his fellow board members cannot be blind to what is going on in the rest of the economy. There’s rightly concern about the Fed triggering an unnecessary recession by raising rates too high. But so far, the economy and labor market have been far more resilient than expected. In fact, recession fears are fading. More and more economists and business leaders are starting to believe inflation can subside without substantial pain in which millions of workers have to lose their jobs and incomes. This resilience gives the Fed leeway to hike more if needed.

If the economy starts to deteriorate rapidly, Mr. Powell will likely reconsider. He has a proven knack for pivoting. He shows both humility and a recognition that economic forecasts have a poor track record. He reversed course in 2019, bringing rates down somewhat during the Trump trade wars, and took fast action in March 2020 when the pandemic began.

Some have suggested reconsidering the 2 percent inflation target. It is an arbitrary number that New Zealand policymakers came up with around 1990. But this is not the moment to change it. The Fed’s credibility has been a major factor in helping inflation cool. The public now believes the Fed will win this fight. Abandoning the target now risks undermining that hard-won confidence.

Wall Street expects this to be the last rate hike in this series. But what matters most is that the Fed do what’s needed to ensure inflation returns to target.