Treasury Secretary Janet Yellen says the Biden administration’s multi-trillion dollar spending plan may result in higher inflation and higher interest rates, but that’s nothing to worry about.

As remarkable as that sentiment is, it’s taken hold across government, including at the Federal Reserve, whose market-distorting policies show no signs of changing. But not everyone is cool with the Fed’s policies, or thinks inflation is no big deal. Former New York Fed president Bill Dudley writes that the monetary wizards have put the possibility of a “full-blown recession” on the table:

Officials have indicated that they won’t raise short-term interest rates from their current near-zero level until three conditions are met: employment has reached its maximum sustainable level, inflation has reached 2%, and inflation is expected to remain above 2% for some time. This means monetary policy will remain loose until overheating begins – and cooling things off will require the Fed to increase interest rates much faster and further than it would if it started raising rates sooner.

The result will be more volatility in short-term rates, and a greater danger of an economic hard landing.

The conceit that government economists can successfully manipulate the trillions of economic decisions that occur each day is bad enough. That such conceit extends to fine tuning an economy as large, diverse, and rapidly changing as the U.S. economy is even worse. It creates distortions and ultimately, big trouble.

As the invaluable James Grant of Grant’s Interest Rate Observer once said:

…central banks are arsonists and firemen. They are arsonists because they strike the matches which set off the fire. It’s like an underground fire in a coal mine: You can see the smoke seeping up out of the ground and the ground is warm under foot, but you can’t see the flames. Then, time passes and the fire spreads and becomes more fierce and hotter. Finally, it bursts out of the ground. That’s in some way what happens in the credit markets.

And by the time we notice the flames, the damage has already been done. But if you’re eager to relive the 1970s, with stagflation, bell bottoms, and disco, then the Fed has you covered.