Go Slow on Interest Rates

Only Goldilocks, with her belief that everything should stay “just right,” could have expected interest rates to remain at record lows. The only questions now are how soon and how high. The Federal Reserve got closer to the answer with Tuesday’s announcement that its door now is open to modest interest rate hikes, possibly as soon as this summer.

Painful things can happen when interest rates climb. The interest-carrying bills come due for those wall-mounted television sets purchased on credit with no money down. Home mortgages with adjustable rates look less attractive. So does the ever-more-costly borrowing needed to finance record federal deficits. Those eventualities, however, were clear from the outset. As Goldilocks learned, having it “just right” often leads to problems later on.

Interest rates are a powerful tool for chilling inflation or encouraging investment in a weak economy. What the Federal Reserve Board members are now biting their nails over is an economy that might be growing too fast and encouraging inflation. That situation normally calls for higher interest rates to dampen borrowing.

Such Olympian moves also have a powerful effect on ordinary people, especially those who, through no fault of their own, can’t find a job. The Fed’s recent, brief public statements hint at concern that pushing interest rates higher could stall the necessary but delicate business of creating needed jobs. That caution should add up to a slow approach.

Though the economy created 308,000 jobs during March -- the largest monthly increase in four years -- the Fed’s cryptic public statement suggested that one solid month wasn’t proof that job creation had moved into high gear.

All sides are waiting for Friday’s announcement of the April job creation figure. A full three months of robust job growth, though, would be a better basis for determining that consumer demand had finally outstripped higher productivity and that rates could move higher with little damage.

The jobs lost to recession haven’t been recovered, even if temporary and part-time work is counted. That means older people long out of work will compete this summer with teenagers and college students looking for summer jobs. For most Americans, being able to have a job is the only marker of economic health that matters.