So the Fed has raised rates. It was, I’d argue, a mistake, although not as severe a mistake as it would have been a year ago. Anyway, it seems like a good time to review where I think the economy stands, and what it means for monetary and fiscal policy.

At this point, the evidence does suggest that we’re close to full employment. It’s not so much the headline unemployment rate, which is questionable given low labor force participation. But wage growth has accelerated, and the quit rate is back more or less to pre-crisis levels, suggesting that workers feel pretty good about job prospects.

Does this mean that the case for easy monetary and fiscal policies is over? No, but it’s subtler now: it hinges mainly on the precautionary motive. Right now the economy looks OK, but things may change. Of course they could get better, but they could also get worse — and the costs of weakness are much greater than those of unexpected strength, because we won’t have a good policy response if it happens.

What I mean is that because interest rates are still near zero, a bout of economic weakness can’t be met with strong monetary expansion; and discretionary fiscal stimulus is politically hard, especially given who’ll be running things. This strongly suggests that you want to build up some momentum, get further away from a lee shore, pick your metaphor; that means letting the economy build strength, inflation rise modestly. So as I said, I believe the Fed made a mistake, and would welcome a modest (1 or 2 point? maybe more?) rise in budget deficits, especially if it involved infrastructure spending.

But what if we are about to get significant fiscal stimulus from Trump? Well, it won’t be well-targeted, in terms of either demand or supply; that infrastructure build looks ever less likely, so we’re talking high-end tax cuts with low multipliers and little supply-side payoff. Such a policy might vindicate the Fed’s rate hike, but it should still wait and see.

Meanwhile, Trump deficits won’t actually do much to boost growth, because rates will rise and there will be lots of crowding out. Also a strong dollar and bigger trade deficit, like Reagan’s morning after Morning in America.

So, the probable outlook is for not too great growth and deindustrialization. Not quite what people expect.