Donald Lambro

Unemployment is a low 4.6 percent as a result of 5.3 million new jobs created in the last three years. But wages edged up by less than 0.1 percent in May, hardly a sign that labor costs were rising at an excessive rate that could worsen inflation.

Productivity, inflation's worst enemy, rose by a robust annual rate of 3.7 percent in the first quarter. Personal incomes were up 6.7 percent in the month of April. Industrial production rose 4.7 percent in the past year.

Corporate earnings on the whole have been spectacular. U.S. exports have been brisk. The economy came roaring out of the first three months of 2006 with a vibrant growth rate of 5.3 percent, but with its core inflation rate remaining within modest bounds.

While there are signs the economy may be cooling off a little, which is, after all, what the Fed wants, this economy is not remotely in any danger of tanking. That is, unless the Fed overshoots in its zealous and misdirected drive to slow growth.

What Bernanke never seems to acknowledge -- and what the Fed may be ignoring -- is the free market's self-correcting mechanisms to keep the economy from overheating and to keep inflation in check.

Rising oil prices certainly are an additional cost, much like the Fed's interest-rate hikes, but fuel prices are effectively applying the brakes to an economy that appears to be gently slowing down.

Higher fuel bills tend to get passed on in the costs of everything we buy or absorbed by businesses attempting to keep their prices competitive enough to keep their customers coming back.

But the overlooked story of the oil-price surge is that it has not appreciably dampened economic growth -- yet. For the most part, the U.S. economy has absorbed the higher costs, often offsetting them with cost-cutting elsewhere in the means of production, distribution and marketing.

Take the airline business, for example. Gloom-and-doom analysts have long been predicting that higher fuel costs were going to sack the industry. The airlines have certainly struggled since 9/11 brought airline travel to a near halt, but right now higher fuel prices haven't dampened air travel.

"With a record 207 million passengers expected to fly this summer, the airline industry is on track for one of its best periods in years," writes columnist Keith Alexander in Tuesday's Washington Post.

This economy is a lot stronger than the bears give it credit for, but is it strong enough to withstand further Fed pounding?

Donald Lambro

Donald Lambro is chief political correspondent for The Washington Times.