Should the American people suffer to reduce inflation?

Not long ago, many people predicted a long, hot summer of inflation. To their surprise — and to some Republicans’ dismay — it’s not happening. Consumer prices were broadly unchanged in July and current forecasts – estimates based on preliminary data – suggest inflation will remain low in August.

However, I don’t know any economists who think that inflation has been defeated. Much of the recent good news is the result of falling gas prices, which won’t last. It’s true that we’re likely to get another round of good news from falling food prices: The Food and Agriculture Organization’s index of global food prices collapsed in July, and the effect is likely to be felt in supermarket stores in a few months.

In fact, beef is already getting cheaper.

Still, the Federal Reserve has learned from plenty of experience not to let policy be driven by movements in volatile food and energy prices, and core inflation still looks high. So the Fed is not about to reverse; will continue to raise interest rates to cool the economy, which is very likely to lead to at least some rise in unemployment and very likely a recession.

In pursuing this strategy, the Fed follows orthodox policy. But are there less painful, heterodox strategies we could pursue instead?

I would like to believe that there is and heterodoxy sometimes works. Unfortunately, I don’t see how it works under the current US conditions.

What do I mean by unorthodox politics? Broadly speaking, there are two ways to reduce inflation without putting the economy under a painful squeeze. One is what we used to call income policy: direct government intervention, whether through control or moral suasion, to limit price increases. The other is a policy of holding down prices by expanding supply.

But nothing like that seems possible in modern America.

What is our problem? Probably just a classic case of too much money chasing too few goods, resulting in a very hot economy – one in which there are far more job openings than there are people looking for work.

And any attempt to suppress the inflation caused by this red-hot economy with controls will almost certainly be crushed instantly by market forces.

Does this mean that Congress and the President should ignore the possibility that some companies are taking advantage of the inflationary backdrop to exploit their monopoly power? No, a little naming and shaming won’t hurt and may speed up the disinflation process. But we’ll still need Fed tightening — reducing the amount of money chasing the limited supply of goods.

Unless we can increase the supply of goods. Could we not reduce inflation, say, by investing in infrastructure, thereby increasing the productive capacity of the United States? In general yes. And we do, in fact, do that. Last year’s infrastructure law and the just-passed Inflation Reduction Act are largely investment bills that will ultimately make the US more productive and therefore curb inflation — more so, I think, than many people realize.

But these benefits, in addition to being uncertain in size, will take years to materialize. And the Fed believes — correctly, I think — that it is running on clockwork. So far, inflation expectations remain fixed, but we cannot count on this happy state to persist if inflation remains high for an extended period. Therefore, the Fed should act to reduce core inflation fairly quickly.

So the orthodoxy – reducing inflation by engineering a delay – is that. It’s not yet clear whether this slowdown will be severe enough to be labeled a recession, but it will be painful for consumers even if it isn’t. There are a lot of good things to be said for a hot economy and tight labor markets, and we’ll miss them when they’re gone. But there seem to be no realistic alternatives.

Paul Krugman is a columnist for the New York Times.