Opinion | Investors Love Jerome Powell

But Mr. Powell sounded much less hawkish at several points in his hour-long presser. It was especially striking to hear him say that current interest rates are close to “neutral,” meaning they are no longer accommodative. But even after Wednesday’s 75 basis-point increase, the fed funds rate is only 2.25%-2.5%. The inflation rate in June was 9.1%, which means real rates are still decidedly negative.

Mr. Powell also said he thinks rates might not have to increase all that much further, citing the June Fed median forecast of 3.25%-3.5%. Markets had been signaling ahead of the meeting that they believe the Fed will begin cutting rates a year from now. And while Mr. Powell didn’t bless that sentiment, he also didn’t do much to dispel it.

Not to be unkind, but when the fed funds rate was 2%-2.25% in October 2018, Mr. Powell said “we’re a long way from neutral” on interest rates. The inflation rate at the time was a mere 2.5%. Times and circumstances change, but the meaning of “neutral” can’t possibly have changed that much.

The Fed chief insisted more than once that he and his mates are determined to return inflation to their 2% target. We hope so. And it seems likely that inflation at annual rate will decline from 9% in the coming months as oil and other commodity prices have fallen. Slowing growth will also contribute.

But the lesson of the 1970s is that ending the anti-inflation fight too early leads to inflation that falls from its heights as the economy slows but still stays uncomfortably high at a new plateau. Then it rises again as the economy recovers and reaches new heights. Then do it all again, until the tightening medicine has to be far more severe than it would have been had the Fed stayed the course earlier.

It’s always a mistake to read too much into immediate market moves such as Wednesday’s. But if they’re right that the Fed is signaling an early end to tightening, then the danger is that we’re watching a false dawn in the anti-inflation fight.