Good day. Federal Reserve Chairman Jerome Powell is drawing on a playbook from the 1980s, when Paul Volcker was Fed chief, as he aims to reduce inflation even at the risk of recession. Mr. Powell and his colleagues are expected to strike another blow in their fight against inflation at the central bank's two-day policy meeting beginning today, with a third straight 0.75-percentage-point interest-rate increase seen as likely.

Now on to today’s news and analysis.

Fed leader Jerome Powell has made a rapid about-face during one of the most tumultuous periods for the economy and central bank since the 1970s. After championing an aggressive stimulus campaign just 12 months ago, he has this year led the most rapid tightening of monetary policy since the early 1980s.

For most of the past two decades the Fed could focus on full employment because inflation seldom deviated much from 2%. Today, though, with inflation at 8.3%, the highest since Paul Volcker’s tenure, Mr. Powell has concluded that, like Mr. Volcker, he must devote his attention to that problem, even if doing so takes a serious near-term toll on employment.

• Treasury Yields Hit Decade High Ahead of Fed Meeting

Goldman Sachs' economists believe the Fed will raise interest rates four more times between now and the end of 2023—and then hold them in the 4.25% to 4.5% range until 2024. The team, led by Jan Hatzius, released its thoughts ahead of the Fed's September policy meeting, which starts Tuesday. Like many other firms, Goldman expects the Fed to raise interest rates by 75 basis points later this week.

A bipartisan House bill introduced Monday calls for more competition in the credit-card market and takes aim at Visa and Mastercard. House Representatives Peter Welch (D., Vt.) and Lance Gooden (R., Texas) are sponsoring the bill, which follows an identical, bipartisan Senate bill introduced in July.

1 p.m.: ECB’s Lagarde speaks in Frankfurt

3 a.m.: ECB’s de Guindos speaks at the Insurance Summit 2022 of Altamar CAM in Cologne

Over the past year, the Federal Reserve has approached interest-rate adjustments on a meeting-by-meeting basis, focusing on minor differences about what it might do next. Meanwhile, prices continue to rise. The economy now faces a serious risk of persistent high inflation, Andrew T. Levin and Mickey D. Levy write for WSJ Opinion. To avert such disaster, the Fed needs a systematic strategy—including contingency plans—and it needs to explain to everyone what that strategy is. The Fed needs to clarify its strategy by using a simple benchmark such as the Taylor rule, a proven guideline for adjusting interest rates in response to changes in economic activity and inflation, the writers add. The Fed publishes the prescriptions from the Taylor rule and other policy benchmarks in its semiannual reports to Congress. It should use these benchmarks to guide its policy for restoring price stability.

Mr. Levin is a professor of economics at Dartmouth College. Mr. Levy is a senior economist at Berenberg Capital Markets. Both are visiting scholars at the Hoover Institution and members of the Shadow Open Market Committee.

• The National Association of Home Builders’ monthly confidence index fell 3 points to 46 in September, the trade group said. It’s the ninth month in a row that the index has fallen, and excluding the pandemic, the September reading of 46 is the lowest since May 2014. A year ago, the index stood at 76. (Dow Jones Newswires)
• Dozens of small drillers helped fuel a resurgence in the busiest U.S. oil patch over the past two years. But they tapped many of their best drilling spots, and will have to ease their rapid pace of drilling as their inventory shrinks, analysts and executives say.
• Global trade flows fell sharply in July, an indication that global demand for goods is slowing as high energy prices and rising interest rates weaken household spending power. An early indicator of trade flows developed by WSJ and published Monday points to a 2.8% fall in July, adjusted for the seasonal ups and downs of exports of goods between countries. (DJN)
• China's central bank on Tuesday kept its benchmark lending rates unchanged, in line with expectations as Beijing held off on monetary easing to avoid increasing downside pressure on its currency. (DJN)
• Malaysia's trade surplus rose in August from the previous month, driven by higher exports of electronic and petroleum products. The Southeast Asian nation reported a trade surplus of 16.92 billion ringgit ($3.72 billion), compared with MYR15.49 billion in July. (DJN)
• Sweden's central bank on Tuesday lifted its key policy rate to 1.75% from 0.75%, raised its rate path and signalled an end to asset purchases at the end of the year as it fights a continued surge in inflation. Economists polled by The Wall Street Journal before the decision had all expected a 75 basis points hike to 1.50%. (DJN)
• Germany's producer prices rose strongly in August from a year earlier, driven by higher energy prices, posting the biggest increase ever recorded, the German statistics office Destatis said. (DJN)
• Swiss watch exports accelerated in August, driven once more by good performance in the key U.S. and China markets, according to data released Tuesday by the Federation of the Swiss Watch Industry. (DJN)

This newsletter was compiled by Michael Maloney in New York and Perry Cleveland-Peck in Barcelona.

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