The Rate Decision

Leena had been at the central bank for three months when she was allowed, for the first time, to sit silently in the back of the rate-setting meeting. She understood perhaps half of what she heard, and it frightened her how much rode on the other half.

The problem on the table was the worst kind. Prices were climbing, but the economy was barely moving — the trap the older economists grimly called stagflation. Raise rates to fight inflation, and you might strangle what little growth remained. Do nothing, and prices ran wild.

A sharp-voiced deputy blamed trade. Years of creeping protectionism, she argued, had made everything more expensive; the country had walled itself off and was now paying for the privilege at every checkout.

Someone countered that the newest tariff on imported components had backfired, taxing the very parts local factories needed to build anything at all. What had been meant to protect jobs was quietly destroying them.

The word nobody wanted to say finally surfaced: recession. If they raised rates too far, the governor admitted, output could shrink for a year or more, and millions would feel it in lost work and frozen wages.

The final complication was political. A proposed embargo on a neighboring country threatened to choke off the last cheap source of fuel, and no interest rate could fix a problem made in a foreign capital.

They argued for two hours and settled on a cautious quarter-point rise. Leena walked out into the evening, sobered. She had come expecting formulas. She had found, instead, a room full of brilliant people guessing carefully in the dark.