Whip inflation now

Americans know inflation when they see it – even if the Fed says "Don't worry." Gas-pump prices are hitting record highs, and prices are rising for food (4.8 percent), healthcare (5.1 percent), and even women's apparel (7.3 percent). Is the Federal Reserve expecting a rise in joblessness to cool these inflation jets?

Let's hope not.

For months, the central bank has been rapidly opening its money spigot to boost banks caught in the credit crunch of the subprime mortgage crisis. It hopes to prevent an economic slowdown from descending into recession.

But in high finance, timing is everything and the Fed can't take its eye off the twin threat of inflation, which is more damaging and more difficult to lasso than a recession.

In January, consumer prices were rising at a 4.3 percent annual rate. Elderly Americans on fixed incomes are especially vulnerable to this erosion of their assets. At that rate, an income of $50,000 can drop in value to $35,000 within a few years.

Mr. Bernanke should listen more to their concerns and other Americans than to Congress and Wall Street. He must show political courage by raising interest rates sooner rather than later.

Bernanke's predecessor, Alan Greenspan, wasn't always so expert in his timing. After lowering rates dramatically from 2001 to 2003, the Fed failed to raise interest rates quickly enough to help prevent a housing-price bubble. Its collapse is still leaching equity out of home values.

In mid-March, the Fed is expected to cut interest rates again, the sixth drop in six months. Some experts, such as John Taylor of Stanford University, worry that the Fed has lowered rates too far, fanning inflation's fire. Commodity prices are climbing to record levels, a sign that the market anticipates inflation will outlive the economic downturn. Oil prices may flatten out this year, but their effects will seep into other prices for a long time.

"History suggests the Fed finds it a lot easier to lower interest rates than to raise them," said Charles Plosser, head of the Federal Reserve Bank of Philadelphia and a key Fed player, this week. "We can't wait too long for inflation expectations to materialize, otherwise you get behind the curve."

Congress didn't help the battle against inflation by passing a bill in 2005 that subsidizes corn to make ethanol for fuel. Corn prices have doubled, creating a competition for farm acreage that has pushed up prices for wheat and other food. A weak dollar has also boosted inflation by making imports more expensive.

Fortunately, workers aren't currently pressing for big wage hikes, which contribute the most to inflation. Hourly wages and benefits were up 3 percent in the last quarter, a slower pace than in 2006. But even with unemployment rising, some economists fear a return to the 1970s when both inflation and joblessness rose.

From his days at Princeton, Bernanke has a reputation as a hawk against inflation. But that will be put to the test in coming weeks. His academic expertise is on the Depression, when the Fed failed to respond wisely. He should hope no future historian looks critically at the Fed's failure to nip inflation in the bud in 2008.