Inflation has been rising for months. But it was more than 13 days this fall that Jerome Powell, the chairman of the Federal Reserve, decided the central bank had to get more serious and try to stifle him.

The story of Powell’s latest pivot – the sharp turn to tightening monetary policy announced on Wednesday – shows a lot about the decision-making approach of the man President Biden appointed for a second term as first banker central part of the country.

In short: He can stick to whatever political path he has chosen in the face of public pressure as long as the evidence doesn’t undermine his assumptions, but he’s ready to change course quickly when data suggests the world is. different.

The Fed’s steering committee said on Wednesday it would speed up the end of the central bank’s bond buying program and likely hike interest rates earlier than expected in early November. The mantra from Fed officials throughout the summer months that inflation was likely to be transient is now, officially, history.

More than usual at a Federal Reserve press conference, Mr Powell recounted the events that caused his political pivot.

Complaints of high inflation have been mounting since the spring, but Mr Powell and the Fed have stuck to their view that it will fade and that they must act carefully to withdraw their stimulus policies. That started to change with an economic data on October 29 that is being closely followed by economists but making relatively little headlines – an increase in the cost of employment index.

The surprisingly high number suggested that employer spending on wages and benefits was growing faster during the summer months than economists had expected. This put Mr. Powell on alert that inflationary pressures may be broader and more lasting than the Fed expected.

This, he said, prompted him to consider adjusting plans for a Fed policy meeting five days later, in order to end the central bank’s bond buying program. faster than analysts expected. He and his colleagues on the Federal Open Market Committee stuck with the plan, but two more data points in the days that followed made it clear that inflation risks were mounting.

First, on November 5, a strong jobs report showed strong job creation and a rapidly falling unemployment rate. Then, on November 10, the consumer price index showed a surge in inflation. It was enough for Mr. Powell. As colleagues began giving speeches and interviews in the days that followed, they made it clear that a more hawkish approach to monetary policy was in sight, which Mr Powell said in testimony to the Congress last week.

“I think the data we got around the end of the fall was a very strong signal that inflation is more persistent and higher, and the risk of it staying higher for longer has increased,” he said. he declared during the press conference. “And I think we’re reacting to that now.”

The particular constellation of evidence that emerged from these three data points from October 29 to November 10 – since confirmed by other data releases – suggested that an inflation problem that once seemed primarily limited to automobiles, banknotes aircraft and a handful of other products had become larger.

And as employers pay more in wages and other costs to keep their employees, the possibility of them simply passing those costs on to customers in a self-reinforcing cycle of higher wages and higher prices has become more real. This so-called wage-price spiral was a feature of the high and sustained inflation that lasted from the late 1960s to the early 1980s.

Central bankers still face a tension between under-reacting and overreacting to the latest economic headlines. On the one hand, if they react too quickly to incoming information, politics can become erratic, creating unnecessary market volatility and failing to see through the temporary forces shaking the economy.

But if they react slowly, it can create a risk of being out of step with the realities of the economy. Historical examples include the increase in interest rates by the European Central Bank in 2008, even as what would become the global financial crisis began to weigh on the European economy.

In the worst case scenario, it could lead the economy to perform badly because of a mixture of stubbornness, ego and refusal to admit a mistake.

Mr Powell’s strategy has been to forecast how Fed leaders think the economy is likely to evolve, to stick to his guns even in the face of external pressure, but then d ‘be prepared to abruptly change course if the evidence becomes convincing that the predictions were wrong.

It’s also the model featured in a previous Pivot from Powell in late 2018 and early 2019, although it is a change in the opposite direction to this one.

The Powell Fed hiked interest rates four times in 2018, earning it scathing public attacks from President Donald Trump. And at its December 2018 meeting, nearly all of the officials assembled considered multiple additional rate hikes during 2019 to avoid inflation.

In the days that followed, markets plunged and bond markets and the like suggested that the Fed had made a mistake – that the economy was unable to withstand these rate hikes. Mr Powell abruptly changed his tone in January 2019, and by mid-year he was cutting rates rather than raising them.

In this episode as now, Mr. Powell resisted the accusation that the Fed had made a mistake. (“I wouldn’t consider that we are late,” he said on Wednesday. “I would consider that we are now in a position to take the steps that we will need to take, in a thoughtful manner, to address any issues. including that of excessively high inflation. ”)

His first term as Fed chairman was, indeed, the embodiment of a perhaps apocryphal quote attributed to John Maynard Keynes: “When the facts change, I change my mind. What do you do?”

As they weigh whether or not to confirm it for a second term, senators will ultimately determine whether Powell’s pivots, especially the most recent, were too fast, too slow, or about right.