While I do not believe the Federal Reserve made a serious mistake on Wednesday in raising rates, I believe that the “preemption of inflation based on the Phillips curve” paradigm within which it is operating is highly problematic. Much better would be a “shoot only when you see the whites of the eyes of inflation” paradigm of the kind I have advocated for the last several years.

Such a paradigm would be more credible, more likely to result in the Fed’s satisfying its dual mandate, reduce the risk of recession and increase the economy’s resilience when recession comes.

Many of my friends have recently issued a statement asserting that the Fed should change its inflation target. I suspect, for reasons I will write about in the next few days, that moving away from inflation targeting to something like nominal gross domestic product level targeting would be a better idea. But I believe this issue is logically subsequent to the question of how policy should be made in the near term with the given 2 per cent inflation target.