0.25 percent solution hurts Trump plan

Janet Yellen gave President Trump an early Christmas “gift” on Wednesday — a lump of coal.

Yellen, in her final action as head of the Federal Reserve, raised interest rates 0.25 percent and promised three more hikes next year — until the Fed funds rate is above 3 percent.

Yellen will be off the Fed board for those three hikes, but it’s unlikely that Jerome Powell, her successor, will diverge from that plan.

Trouble is, raising rates gives the central bank wiggle room to tinker with the economy, but it also could contribute to a slowdown as consumers moderate spending.

That would put the central bank at odds with what Congress and the White House are trying to accomplish.

The hike was the third this year and the fifth since the Fed started “normalizing” rates two years ago.

The central bank also has been getting bonds it purchased during quantitative easing off its books.

By buying US government bonds the Fed acted as a shill in the market and pushed rates to rock bottom. Now its bond holdings seem to have decreased by more than $100 billion in just the past month. Those actions are a gentle way to push up rates.

Meanwhile, the Trump administration says it sees the economy growing by 3 percent or better in the coming years — a goal that is modest but an improvement over recent years.

On Wednesday, the Fed said it sees the economy growing 2.5 percent in 2018 and 2.1 percent longer term.

So even as the Republicans are trying to put together a tax reform plan that they say will boost the economy, Yellen is taking action that will slow it down.