Economy Improves Just Enough For the Federal Reserve to Kill It

Janet Yellen
The Associated Press

The problem facing Democrats as they roll into the 2016 election cycle is that the economy has improved just enough for the Federal Reserve to kill it with an interest-rate hike.

That’s one of the consequences for engineering an anemic “recovery” that takes years to materialize, and then touting it to voters as an economic miracle. The “Happy Days Are Here Again” card is very easily overplayed.

Politico argues “an economy that is strong enough for the Fed to start hiking rates should favor Democratic front-runner Hillary Clinton,” but if the Fed delivers the expected rate hike in a few weeks, it could “roil global markets, slow U.S. growth and provide an opportunity for Republicans in an economy that retains significant structural problems that have left many voters deeply frustrated and casting about for tough-talking outsiders like Donald Trump.”

I see we’re still blaming Obama’s dreary economy on “structural problems” that have nothing to do with his policies, and portraying those who think America can do better as starry-eyed naifs looking for magical saviors. Even liberal Democrats tacitly admit the economy isn’t living up to Obama’s boasts when they fret about “limited gains so far in workers’ take-home pay and continued risks to the U.S. from global terrorism and other outside shocks,” to go along with years of complaining about “income inequality” getting worse under the farthest-Left president in generations.

Of course, they hold Obama blameless for all of that in their rhetoric – he’s both the genius architect of an economic recovery that just arrived years behind schedule, and a helpless spectator to forces beyond his control. For better or worse, voters outside of the hardcore Democrat base aren’t likely to be so forgiving, especially if the Fed calls Obama’s “economic recovery” bluff by raising interest rates.

It may prove impossible to resist that rate hike, though.

Pressure against artificially low rates has been mounting, and if various economic targets are met in November, it might be difficult to make the case for continuing the program. Politico anticipates Federal Reserve chair Janet Yellen will “stress that the Fed would pause its rate hiking campaign quickly if it appears to be damaging the economy and that it will stop well short of previous levels.”

That might be a reasonable economic strategy – although probably easier said than done – but it would be an unmitigated political disaster for Democrats, thoroughly vindicating the arguments of those who have long said Obama’s economy was artificially sustained through monetary manipulation.

There are signs the economy might be in for a bit of turmoil no matter what the Fed does. The Chicago Purchasing Manager’s Index, which is seen as a bellwether for the overall American manufacturing sector, took an alarming dive in November. The size of the workforce remains at 30-year lows, and wages are still too flat, making a few decent unemployment reports look like a narrow, rickety bridge over a very deep gulf. Forecasts for fourth quarter GDP have been quietly slashed from encouraging to anemic.

Clinton’s campaign will bank heavily on Americans having virtually no long-term memory when it comes to the economy, forgetting seven years of Obama malaise to focus entirely on a few months of (hopefully) decent news. That’s probably not a bad bet overall, as it seems clear enough from previous elections that people pay more attention to the current state of the economy.

But independent voters have longer memories, and an appetite for hearing about new approaches after two-term presidencies wrap up.

America obviously needs growth that isn’t debatable, a recovery without asterisks, a boom strong enough to bring the workforce back and ameliorate our government fiscal crisis. If we’re facing long-term structural problems, we want a crack at resolving them, or at least growing strong enough to survive their chronic pain. Democrats will have a hard time running on an economy so fragile that the Fed can’t touch it, for fear of shattering it into a million pieces.