Until recently, the Federal Reserve seemed to be stuck with the delusional notion that inflation in America could be tamed with small increases in interest rates.
Two reports apparently hit boss Jerome Powell and his colleagues to the core and provoked a reassessment of the situation.
One was the latest inflation report, which rose 8.6 percent, well above most of central bankers' expectations and hidden hopes.
The second was a University of Michigan poll finding that citizens' inflation expectations were at risk of slipping.
This rightly seemed to the central bankers to be particularly dangerous: once ideas about how prices will develop become unstable, there is hardly any stopping them.
Winand von Petersdorff-Campen
Economic correspondent in Washington.
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The Federal Reserve responded with the largest interest rate cut since 1994, making it clear that it would tighten until inflation is curbed.
With the decision, the Fed is also fighting for its credibility, which has suffered thanks to the notorious underestimation of the level and duration of inflation.
The interest rate step is all the more remarkable because Jerome Powell has overtaken his own communication, with which he recently presented an interest rate increase of 0.5 percentage points as sufficient.
In order not to take the markets completely by surprise, communication strategies, which were popular in Alan Greenspan's time, were also evidently reverted to.
Warning remarks were made here and there, with the result that, as if by magic, almost all analysts were able to predict the key rate hike of 0.75 percent that actually occurred by Monday at the latest.
That wasn't badly done.
It is not only with this backroom diplomacy that Powell shows that he has arrived in reality.
Unfortunately, it's not always pretty.
He faces her anyway.
That deserves recognition.