Donald Lambro

WASHINGTON -- Expectations that the Federal Reserve's interest-rate hikes are nearing an end has re-energized Wall Street's bull market -- perhaps even Americans' optimism about the economy.

Last week's stock rally, fueled not only by news out of the Fed but also by new corporate earnings and profit reports, was further evidence that the economy is operating on all cylinders, producing jobs in increasing numbers and finally earning the respect it deserves from financial markets.

There was also a palpable sigh of relief at the White House and among Republicans in Congress that this year's continued rise in stocks may be just what is needed to repel the Democrats' furious election-year offensive.

It is going to be much harder for Democratic candidates to argue that the economy and the country are going to hell in a hand basket when businesses are reporting higher profits, jobs are in increasing supply and worker retirement plans are getting richer.

Higher business revenues and fatter profits also mean increasing tax revenues at federal, state and local levels. Indeed, most state governments are reporting budget surpluses and it will not be long before we will likely see another spurt of deficit-cutting revenue in federal coffers as well.

The economic news heading into last week, with the glaring exception of oil and gas prices, was pretty good to begin with.

The March job numbers were great, shrinking unemployment to 4.7 percent -- lower than the average rate in the 1960s, 1970s, 1980s and 1990s. We've created over 5.1 million new jobs since August 2003, more than Europe and Japan combined.

Consumer confidence was climbing, with the Conference Board Index rising to 107.2 in March, its highest level in nearly four years.

Real disposable incomes were up 2.2 percent in the last 12 months. In fact, real per capita after-tax income has risen by 8.3 percent since 2001.

Inflation, that wearily worrisome boogeyman that frightens the Fed so much, has not been as scary as they feared. Core inflation, when volatile food and oil prices are excluded, rose by a tame 2.1 percent in the last 12 months.

But last week's news out of the Fed, which cheered the stock markets, appeared to be a sign that they no longer feared inflation, or at least the core rate. Instead, they feared that their credit tightening could go too far in their efforts to cool the economy and sandbag it in the process, a concern raised in this column in February.

"Most members thought the end of the tightening process was likely to be near," said the minutes of the Fed's last closed-door meeting on March 27-28. That was the operative sentence that sent Wall Street into a frenzy of stock buying.

Donald Lambro

Donald Lambro is chief political correspondent for The Washington Times.