Today’s Must-Must Read: Greg Ip: Hard Decisions on Easy Money: Growth Now or Turmoil Later?

…It’s also getting some less savory side effects. Asset prices are sky high, fueling fears of a chaotic reversal that could hammer the economy as wealth evaporates and credit dries up. This leaves Fed officials conflicted as they weigh when to lift interest rates…. Given the harm past crises have inflicted, maintaining financial stability is hardly at odds with full employment. At some point, financial stability may be a reason for the Fed to tighten. That point is still some ways off. Raising interest rates now trades tangible harm for intangible benefits. Only once the economy can safely withstand higher rates and the associated turmoil will such a trade-off make sense….

Market turmoil is unpleasant but rarely threatens the economy…. Interest rates today may not in fact be artificially low. Global forces such as excessive saving, low inflation and low investment are also at work. This is why markets have priced in a lower path of Fed tightening than the Fed itself seems to contemplate…. The Fed should not be under any illusions: holding rates at current levels raises the odds of future turmoil. For now, those odds aren’t high enough to sacrifice some growth.