The Fed has done its part
Now, it’s Mr. Trump and Congress’s turn to help the economy — which is in far better shape than they let on.
THE COST of borrowing money is about to go up slightly, due to a Federal Reserve decision Wednesday to raise its benchmark interest rate by a quarter of a point for only the third time since December 2008, with further increases this year likely. By and large, this is a good thing, not so much for what the new target rate — 0.75 to 1.0 percent — will do as for what it represents. Ten years after the worst financial panic and recession since the Great Depression, the United States economy is decidedly healing and almost healed.
Abundant jobs and rising hourly earnings — up 2.8 percent relative to this time last year — are drawing workers back into the labor force. If job growth continues at the 235,000-per-month pace recorded during February, the United States will reach its pre-recession level of employment by May, according to analysts at the Brookings Institution’s Hamilton Project.
In short, the Federal Reserve believes that the economy can keep growing on its own under normalized credit conditions — that is, with interest costs and loan terms less reflective of deliberate Fed stimulus. A soft landing is at hand. The nightmarish predicament portrayed in Donald Trump’s rhetoric during the 2016 campaign, and since, may describe 10-year-old historical conditions, but not presentday reality in the vast majority of the country. For this, the cooler heads who mostly kept the Federal Reserve out of the political hurly-burly over the past difficult decade, current Fed Chair Janet Yellen and her predecessor, Ben S. Bernanke, deserve a lot of credit, and we can only hope that the president will take that into account when and if he chooses a successor to Ms. Yellen in 2018. A maximally independent and apolitical Fed is a vital American asset.
Yet the Fed’s turn to higher rates is also a necessary acknowledgment of the limits of the central bank’s power. The longer-term challenges to growth — raising both the percentage of workingage people who participate in the labor force, and their productivity — are largely beyond the Fed’s ability to engineer. Establishing a sustainable fiscal policy and modernizing the labor market are tasks for the elected officials in Congress and the White House. The situation calls for gradual but real deficit reduction, so as to preserve “fiscal space” for future crisis spending and tax cuts, as well as active measures to make work pay, such as an expanded earned-income tax credit and child care.
Deregulation as envisioned by the Republican majority could promote growth, if pursued with care and moderation. But many measures President Trump and the Republican Congress have in mind — massive tax breaks for high earners, cuts to basic research, slashing health insurance and increasing protectionist measures — seem either beside the point or counterproductive. To the extent they are being justified by reference to an economic emergency that lies years in the past, they are also dishonest. The American economy is back on an even keel. If only we could say the same about the politicians now in charge of it.