Powell Admires Paul Volcker. He May Have to Act Like Him.

The war in Ukraine threatens to keep costs elevated for longer. Gas prices have already surged, lifting headline inflation as consumers pay more at the pump. Disruptions to supply chains — and shortages in Russian and Ukrainian exports like neon, palladium and wheat — could curtail car and food production and the transport of goods, exacerbating global shortages.

Now, fresh virus restrictions in Shanghai and Shenzhen, China, a major technology manufacturing hub and port city, is boosting the risk that supply chains remain roiled in the coming months. Those shocks from outside come at a time when price pressures had already begun broadening to categories like rent, another development that could make inflation last.

It is not clear whether those factors will keep inflation drastically higher, but Fed officials will be watching warily.

If the Fed has to raise interest rates to painful levels to cool off the economy and put a lid on prices, it could send financial markets tumbling, erasing stock and housing wealth. It could also slow wage increases and throw people out of jobs as companies retrench, curtailing investment and hiring.

But Fed inaction — or under-action — would also carry risks. High prices that chip away at consumer buying power year after year would make it hard for families and businesses to plan for the future. They could especially hurt people who are out of work and living on savings, or the poor, who devote a big chunk of their budgets to necessities and have less room to cut back if costs get out of control.

Mr. Volcker, Mr. Powell’s long-ago predecessor, one of his professional idols, and — potentially, if things go wrong — his muse, died in 2019. But he had thoughts on the trade-off.

Maintaining confidence that a dollar will be able to buy tomorrow what it could today “is a fundamental responsibility of monetary policy,” Mr. Volcker wrote in his 2018 memoir. “Once lost, the consequences can be severe and stability hard to restore.”