The Federal Reserve is getting some credit for averting a more severe market sell-off yesterday with its three-quarters of a point rate cut. But the economy has both a gas pedal and a brake pedal. Chairman Bernanke can push the gas pedal all he wants, but if the Democrats are pressing down hard on the brakes, the economy isn’t going to be moving forward.

With Democrats in Congress and the presidential campaign trail campaigning hard on the promise to end President Bush’s tax cuts on dividends, capital gains, and other income, it’s no wonder that the global equities markets have taken a dive. A stock, after all, is a chance at a future dividend or capital gain, and increases in taxes on dividends and capital gains would make stocks worth less.

Meanwhile, as Mayor Bloomberg pointed out yesterday, the increasingly interconnected global economy has to be shaken by the prospect of Republicans running for president on anti-immigration platforms and Democrats running on anti-trade platforms. “All these economies are linked together and our country has tried to look inward at the very time to be looking outward,” Mr. Bloomberg said yesterday at a press conference in Queens. “We should be trying to encourage the best and the brightest from around the world to move here, to bring their knowledge, bring their capital, bring their spirit, to expand our economy. And sadly we are going in the other direction.”

No matter how sophisticated the computerized trading operations and the hedges of the hedge funds get, markets will always at some level reflect the emotions and foibles of their human participants. The American economy has incredible resilience and strength, and as the politicians run around with “stimulus” plans to get us out of a recession, it’s not even clear that we are in a recession. The unemployment rate in December was a relatively healthy 5%. Real GDP in the third quarter of 2007 grew at the healthy annualized rate of 4.9%. That the dollar has lost so much value suggests that the levers that need to be used in this crisis are something other than those available to the Fed — like, say, tax cuts.

Tomorrow’s release of new projections from the Congressional Budget Office will likely show a forecast of a budget deficit worsening amid a slowing economy. Local, state, and federal budget deficits and tax revenues are increasingly tied to the capital markets and the so-called rich, so much that some of our wisest budget observers have said that when Wall Street catches a cold, Albany gets pneumonia. Bernanke could be a race-car driver like a 1990s Alan Greenspan, but until Congress addresses the labor shortages with immigration legislation and the long-term costs of entitlements with Social Security privatization and market-oriented health-care reform, not to mention the risk of the Bush tax cuts expiring, the American economic race car is going to be moving along at less than the full speed of which it is capable.