Other real-time indicators also have reflected a non-inflationary monetary environment. Bond yields around 4.25 percent remain at four-decade lows. Spot commodity prices (that exclude energy and gold) have flattened out and stabilized over the past twenty months. The exchange value of the dollar has been gradually rising this year. Even the oil spike is abating. Sweet West Texas intermediate crude is trading around $65 a barrel, 7 percent off its August 30 peak. Unleaded gasoline has plummeted 25 percent.

The Fed, nonetheless, has a close call. It may decide that the temporary loss of economic output from the Gulf Coast could set up an inflationary threat from too much liquidity chasing a short-term loss of goods. This could explain the recent gold price increase, and it might induce the central bank to withdraw excess liquidity by raising the key interest rate to 3.75 percent from the prevailing 3.5 percent.

Fortunately, President Bush has signaled his aversion to any tax increases to finance emergency Katrina assistance. So the tax-cut extensions for capital gains and investor dividends appear likely to pass in next month’s budget act. This pro-growth policy will be bolstered by Bush’s use of Jack Kemp’s enterprise-zone tax-and-regulation-free policies to rebuild New Orleans and the Gulf area. These measures will quickly restore private capital formation and lost output and help bring monetary policy back into non-inflationary balance as the availability of more goods will absorb excess liquidity.

What’s needed from today’s Fed meeting, therefore, is a recognition of our current low-inflation, post-Katrina realities. Let policymakers raise the fed funds rate to 3.75 percent if they will. But also let them recognize that this economy doesn’t need any more braking. Let them issue a policy directive indicating that monetary tightening has ended for now, putting the key interest rate in neutral. Let them take credit for restraining inflation by keeping money creation generally in check.

But most important of all, let them recite the central bankers’ Hippocratic oath to “do no harm.”