There was some good news and some bad news coming out of yesterday’s Federal Reserve interest rate-setting policy meeting.

The good news is that the Fed now seems to have grasped that the economy is slowing and that inflation is on a decidedly downward path. The bad news is that the Fed has yet to recognize the importance of the unusual money supply contraction now taking place and the severe risks that its hawkish policy stance is posing to the financial system. This makes it all too likely that, in much the same way as in 2021, the Fed was behind the curve in raising interest rates to fight inflation. Next year, it will be behind the curve in lowering interest rates to prevent the economy from experiencing a meaningful economic recession.

Bowing to mounting evidence that the economy is slowing and inflation is likely to become yesterday’s problem, the Fed is now backing away from its oft-repeated mantra that interest rates need to stay high for longer to regain inflation control. Indeed, the Fed has now lowered both its........

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