Powell was called on to save the economy. His next challenge will be even tougher.

For Federal Reserve Chair Jerome Powell, the way forward is charged with peril: If he slams on the brakes too fast, the economy could falter and even slip into recession, dashing hopes for the Fed's goal of “maximum employment.” | Alex Wong/Getty Images.

With inflation surging at its highest rate in four decades, the Fed has begun to pull back on its extraordinary support for financial markets and is talking about raising interest rates much sooner than anyone expected.

For Powell, the way forward is charged with peril: If he slams on the brakes too fast, the economy could falter and even slip into recession, dashing hopes for the Fed's goal of “maximum employment.” Moving too slowly to rein in price spikes risks the danger of even higher inflation.

For his part, Powell argues that the central bank has positioned itself so that it can more easily react no matter how the economy develops, expressing confidence that the central bank would be able to remove some of its support without unduly denting the recovery.

Among the uncertainties facing central bank policymakers: the surprising persistence of the virus and its variants; lingering supply chain disruptions that have driven up the prices of goods; and an upheaval in the labor force that has resulted in millions of Americans quitting work, creating a tight job market that can lead to more inflation.

“They can either look like they’re trying to rein in inflation, or they can look like they’re trying to support the economy and financial markets,” said Jim Bianco, the head of financial analysis firm Bianco Research

That means the central bank will have to act more quickly to increase borrowing costs now, which could cause turmoil in financial markets, he said

He said the danger instead is that the Fed will overreact to levels of inflation that ultimately prove temporary, hurting the millions who still haven’t returned to the labor force

They argue that inflation is significantly being fed by supply chain issues that the central bank isn’t equipped to solve

Former Fed Chair William McChesney Martin once said the central bank’s job was “to take away the punch bowl just as the party gets going.” But Sahm argued that a few rate increases don’t have to ruin anything