Why must the Fed act aggressively to contain inflation?

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The Federal Reserve Must Act Aggressively to Contain Inflation to Prevent Entrenched Expectations and a Prolonged Period of High and Variable Inflation

St Louis Fed President James Bullard has emphasized the necessity for the Federal Reserve to act boldly and aggressively in raising US interest rates to contain inflation. This urgency stems from the risk that if inflation expectations become entrenched, the US could face a decade of high and variable inflation. To counter this, Bullard advocates for front-loading rate hikes to bring inflation under control swiftly and return it to the Federal Reserve's 2% target.
Aggressive Rate Hikes to Combat Entrenched Inflation

The Federal Reserve recently implemented a significant three-quarters of a percentage point interest rate hike, the largest since 1994, bringing the benchmark rate to a range of 1.50% to 1.75%. This action signals a commitment to aggressively combat inflation. Projections indicate that the Fed's policy rate is expected to reach 3.4% by the end of the current year, with Bullard personally aiming for the policy rate to hit 3.5% by the end of 2022.
Preventing a Decade of High and Variable Inflation

Bullard's strong stance is rooted in the potential consequences of inaction. He warned that a failure to act decisively could lead to a prolonged period of economic instability characterized by high and unpredictable inflation. By acting "forthrightly and aggressively," the Fed aims to prevent inflation from becoming a deeply embedded issue that could plague the economy for an extended duration.
Potential for Rate Reductions After Inflation Control

While advocating for aggressive tightening now, Bullard also indicated that once inflation is brought under control and disinflationary forces begin to emerge, the Federal Reserve might consider lowering interest rates. This suggests a strategic approach of tightening policy sufficiently to achieve the inflation target, after which a shift in monetary policy could occur.
Downplaying Recession Risks Amidst Tightening

Bullard has expressed a view that the aggressive rate increases are more likely to slow the economy to a sustainable trend pace of growth rather than push it into a recession. He noted that, given the current stage of the US economic expansion, it would be unusual for a recession to occur without an external shock. Fed Chair Jerome Powell has also affirmed the central bank's "unconditional" commitment to reining in inflation.

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Why must the Fed act aggressively to contain inflation?

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