Memo to Fed: It’s OK

The torrent of words from the annual conference sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyo., this past week, and from the satellite meetings there, throws no light on whether the Fed will raise interest rates next month. The rockiness of the stock market notwithstanding, it should.

If rates don’t rise at least a bit, businesses and consumers will conclude that the Fed still expects choppy economic waters and will pull in their only recently extended horns.

Stock price declines in China, on Wall Street and around the world make headlines, but they were inevitable — sometime — after five years of suppressed interest rates that lured investors into buying shares to chase dividends, when they could earn only pitiful yields on bond investments. The stock prices’ connection to the real economy is very slender. Five years of rising stock prices did far less stimulating than the Fed expected.

China’s economy is not collapsing and neither is the American. The Commerce Department’s routine revision of second-quarter data showed the economy rising at an annual rate of 3.7 percent, far better than the 2.3 percent of the first assessment. Unemployment has fallen to 5.3 percent.

For many months Fed members and Fed-watchers have wondered whether interest rates should or would rise. Every meeting of the policy-making Open Market Committee has shown the members deterred by weak economic data. It’s just possible that some of that weakness was the result of the Fed’s timidity.

A normal array of interest rates sends important signals to all economic actors, signals that have been distorted now for five years. One example: The value of many pension funds has been suppressed by their inability to earn normal long-term rates. Many elderly savers have counted on short-term savings and have had to deal with less income than they planned for.

If the economy stumbles again, it would be better to let Congress try to stimulate it than to rely on the Fed.