It is often said that generals tend to fight the last war. Something similar might be said of Jerome Powell’s Federal Reserve. At a time when both domestic and external factors point to the deceleration of inflation to below the Fed’s 2 percent inflation target, the Fed is sticking to its high interest rates to regain inflation control.

The Fed’s inappropriately hawkish monetary policy stance risks inviting real financial system strains and a hard economic landing.

Over the past two years, the Fed adopted an unusually aggressive monetary policy in response to inflation’s surge to 9.1 percent in June 2022. Not only did it raise interest rates by 5.25 percentage points, representing the fastest interest rate hiking cycle in the postwar period, but it also shrunk its balance sheet by over $1 trillion by not rolling over the maturing Treasury bonds and mortgage-backed securities. The net result of these policies has been a contraction in the broad money supply (M2) for the first time since the Fed started publishing this data in 1959.

While the shift to aggressive monetary policy tightening might have been appropriate at its start in March 2022 when inflation was raging, it is........

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