The US Federal Reserve is aiming its mighty fire hose at the show, but the forest is burning. As a result, people can drown even as their house catches fire.

That pretty much sums up the sorry state of America’s inflation fight.

On Wednesday, the Fed – the US central bank – raised interest rates by three-quarters of a percentage point and announced further rate hikes to come, possibly as early as September.

This followed an increase of a quarter point in March, another half point in May and three quarter points in June.

On Thursday, the Commerce Department announced that the US economy had contracted for the second straight quarter.

While this isn’t technically a recession (economists inside and outside the White House have spent much of the past few days deconstructing the word “recession”), it does no doubt the US economy is slowing down.

This, to put it mildly, makes no sense.

Inflation has erupted around the world – the consequence of pent-up demand from more than two years of pandemic hasn/a limited supplies of everything from computer chips to wheat due to difficulties in operating the global economy.

Add to that Putin’s war in Ukraine driving up global energy and food prices, and China’s Covid lockdowns, and you have the perfect conflagration.

That’s not all. Big companies are actively raising their prices because consumers have so little choice. Companies use inflation as a hedge.

Prices at the gas pump have fallen slightly over the past month, but they are still breathtaking. (Here in California, I pay over $6 a gallon.)

At the same time, the big oil reached a gush. Exxon just reported second-quarter profits of $17.9 billion, more than three times what it earned a year ago. Chevron’s profit more than tripled to $11.6 billion.

The two American oil giants do not reinject their profits into energy, green or otherwise. They buy back their shares to reward investors and managers.

Or consider the giant corporations selling consumer staples, like Proctor & Gamble (maker of everything from Gillette razors to Tide detergent).

On Friday, P&G reported another quarter of rising profits despite rising raw material and transportation costs. How did he achieve this feat? By further increasing its prices.

Meanwhile, half of the recent rise in grocery prices has come from beef, pork and poultry. Only four major conglomerates control these markets, and they coordinate their price hikes to make big profits – again, using “inflation” as an excuse.

If markets were competitive, firms would keep prices low to prevent competitors from grabbing customers. But they are raising prices even as they reap record profits.

The Fed’s fire hose doesn’t touch any of that.

Meanwhile, we are told not to worry because the labor market is doing very well.

Waste.

The labor market has two aspects: jobs and wages. The number of jobs has increased significantly. Let’s hope this continues. But hourly wages fell, when adjusted for inflation.

If the Fed continues to raise interest rates – even if the domestic economy avoids an official “recession” – most workers will fall further behind.

The standard of living of almost everyone who borrows money is already declining. Due to the Fed’s rate hikes, the average rate on credit card debt rose to 17.25% (from 16.34% in March, before the Fed started raising interest rates). Rates for student loans, car loans and mortgages are also rising.

The government should use a better targeted fire hose on the conflagration, which will not weigh so heavily on the bottom 80%.

For starters, impose a temporary windfall tax on big oil companies, giant sellers of basic consumer goods and big agricultural companies. This would reduce their incentive to price predatory.

Bolder enforcement of antitrust laws — even the threat to block mergers and break up giant corporations — could also reduce their eagerness to raise prices.

If Congress refuses to allow the government to use its bargaining power to reduce pharmaceutical prices, Big Pharma is a good candidate for temporary price controls. (Prices controlled by FDR by decree.)

Finally, higher taxes on the wealthy — like the ones Democrats finally seem poised to pass — will help dampen aggregate demand, putting out some of the fire of inflation.

The Fed’s only firefighting tool – interest rate hikes – is going in the wrong direction. It hits the workers rather than the companies responsible for most of the price increases (beyond rising global supply costs).

We must fight against rising prices, not against workers.