Washington: A Return to Normalcy

IN THE SPACE OF JUST 24 HOURS, the three biggest issues in Washington returned to normal — U.S.-Russia relations, Federal Reserve monetary policy, and negotiations in Congress on fiscal policies. A return to normalcy is a very positive theme.

WE BEGIN WITH THE HUGELY SUCCESSFUL week for Joe Biden, whose job approval rating is virtually certain to rise in coming days. Not only is Western Europe again on the same page as the U.S., but Vladimir Putin and Biden have lowered the temperature; there are plenty of serious issues, but there’s a willingness to negotiate.

IT WOULD BE NAIVE TO CONCLUDE THAT relations between Washington and Moscow will be warm, but a mood of pragmatism will prevail after the erratic Donald Trump era. Putin knows what to expect from the U.S. and Biden knows there are issues. Neither will trust each other; a wariness strikes us as more healthy than Trump’s naivete.

THOUSANDS OF MILES FROM GENEVA, a similar return to normalcy is apparent at the Federal Reserve, which sent a signal yesterday that a desire to “go big” on the economy has its limits. We ranted for months about over-heating (especially in the labor market), and the Fed now agrees — embracing its normal goal of stable inflation.

THE GOOD NEWS is that a rate hike is well over a year away; tapering of asset purchases won’t begin until this winter. How clever — the Fed has sent a signal that it will resist any long-term inflation, while not actually having to take action any time soon. Historically low interest rates will persist even as the economy surges.

EVEN THE DYSFUNCTIONAL CONGRESS is showing signs of returning to traditional deal-making, rejecting left wing demands for huge new spending while also rejecting a call from some conservatives to abandon any further outlays for infrastructure. The center may hold; a deal by later this summer — our base case — still seems possible.

AFTER FIVE DEMOCRATS AND FIVE REPUBLICANS floated a compromise last week, another dozen Senators have tentatively agreed to the deal, boosting prospects for a $1 trillion package. Lots of details have to be ironed out — including how (or whether) this will be paid for, but there are clear signs of progress.

OBVIOUSLY, THERE WILL BE CHALLENGES: Russia still seems to encourage hacking and cyber ransom; the Fed will have to confront a serious labor shortage; and Congress has to deal with a budget resolution, an extension of the debt ceiling, and calls for more spending and taxes, all of which could easily stall.

BUT THIS WEEK MAY BE REMBERED as a turning point — a metaphor, if you will — for the end of the Trump instability. Just as a new era began in late 1919 as the Great Pandemic ended, things are returning to normal today on many fronts. Normal is good.

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