The combination of volatile inflation and diminished credibility means that the rich world’s policymakers must be agile. They will need to adjust interest rates more quickly and to a greater extent when inflation fluctuates—and tolerate the resulting economic volatility. In so doing they will come to look a bit like their colleagues in emerging markets. Without as long a record of low inflation behind them, central banks in Brazil, Chile and Poland all raised interest rates sharply in 2021; all have since cut them as inflation has fallen. Move fast and forcefully: this is the rule book that the likes of Mr Powell and Mr Bailey will have to follow.

Geopolitical tensions, trade wars, climate change and governments’ fondness for fiscal stimulus will all make inflation more volatile than it was in the sleepy decades after the 1980s.

Rates that high would tame rising prices—but by engineering a recession. In the past 60 years the Fed has on only three occasions managed significantly to slow America’s economy without causing a downturn. It has never done so having let inflation rise as high as it is today.

In September 2020 the Fed codified its new views by promising not to raise interest rates at all until employment had already reached its maximum sustainable level.

The result was a mess which the Fed is only now trying to clear up. In December it projected a measly 0.75 percentage points of interest-rate rises this year. Today an increase of 2.5 points is expected. Both policymakers and financial markets think this will be enough to bring inflation to heel. They are probably being too optimistic again. The usual way to rein in inflation is to raise rates above their neutral level—thought to be about 2-3%—by more than the rise in underlying inflation. That points to a federal-funds rate of 5-6%, unseen since 2007.

Yet investors could be forgiven for asking questions of the economists’ models. These have consistently underestimated the pace of America’s jobs rebound. In the second quarter of 2020 the median respondent to the Philadelphia Federal Reserve Bank’s survey of professional forecasters thought unemployment two quarters later would average 11%; in fact it turned out to be only 6.8%. That was the biggest overestimate in the history of the survey and more than three times the next highest such error. In February this year forecasters expected unemployment in the second quarter to average 6.1%, only for it to fall below that rate in March. If the labour market continues to outperform expectations the economy will eat up slack and push up inflation sooner.