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 Washington Post Sunday - - SUNDAY OPINION -

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.

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