Milton Friedman famously taught that monetary policy operates with long and variable lags of anywhere up to eighteen months or two years. Jerome Powell’s Federal Reserve appears to be neglecting that teaching at its peril.

Instead of taking into account the damage that its high-interest rate policy is already having on the financial system and future economic growth, the Powell Fed hews to a strictly data-driven and backward-looking monetary policy. Under that policy, the Fed anticipates that interest rates will stay high for longer until it sees the clearest evidence that inflation is moving steadily toward its 2 percent inflation target. That heightens the chances of a hard economic landing and renewed banking system problems before yearend.

Unfortunately, today’s stronger than expected employment numbers do not allow us to expect interest rate relief before the year’s end. Coupled with inflation’s recent stickiness, the fact that employment growth remains strong and unemployment is still close to its historic low will be........

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