THE AMERICAN economy shrugs off trouble with such disarming ease that it is hard to take trouble seriously. Wall Street hit a rough patch last week, but it has since been recovering. There was one unnerving inflation report on Friday, but Tuesday's consumer price rise was generally judged to be more comforting. The economy is growing faster than is traditionally thought to be sustainable, but so what? The productivity of American workers is rising fast enough to make higher growth possible without triggering inflation.

This is the truth but not the whole truth. The single most impressive achievement of the American economy, underpinning most other ones, is indeed that productivity is rising. Thanks to downsizing, outsourcing, and the smart use of computers, firms are managing to squeeze more value out of each hour of labor. This enables them to raise wages without raising prices; the workers then spend the extra money, fueling growth, stoking corporate profits and driving stocks upward. Some early skeptics of the productivity revolution, including Fed Chairman Alan Greenspan, now concede that the economy's sustainable non-inflationary growth rate has risen from 2.3 percent a few years ago to around 3 percent today.

This is remarkable. But the economy is currently growing not at 3 percent but at 4 percent, suggesting that sooner or later inflation will raise its head again, obliging the Fed to push interest rates up and possibly triggering a stock market crash in the process. So far this has not happened, thanks to an import boom: The gap between American demand and American production, which might normally yield inflation, was filled instead by foreign products. But this cannot go on indefinitely. The huge trade deficit created by the import boom will eventually drive the dollar down, forcing import prices up and hence stoking inflation.

At some point the economy will slow; the only question is whether this will happen gradually or suddenly. By raising interest rates cautiously, 0.25 percentage points at a time, the Fed hopes to secure a "soft landing" rather than a hard one. There have been two such rate hikes this year, and a third is expected when the Fed next meets in mid-November. These moves may cool demand down bit by bit, so that growth returns to a sustainable rate and the trade deficit starts to narrow.

The main threat to this gentle gradualism lies in a stock market panic. Sometimes a bit of irrational optimism on Wall Street can actually be helpful.