IF we needed any reminding that our world can change with nerve-rattling speed, we got it last week when the security services uncovered a plot by Islamofascists to slaughter innocent air travellers. Suddenly, a cup of coffee looks suspiciously like a terror weapon, an iPod like an explosive device, and a plane trip becomes even more of a hassle than it has been.

Other changes, less potentially lethal than the latest security scare, are in store. The most obvious one comes from the decision of the Federal Reserve Board’s monetary-policy gurus to pause in their two-year programme of ratcheting up interest rates.

Now, a decision by the Fed to wait for incoming data before deciding whether to continue tightening, taken alone, is hardly earth-shaking. But the reasons underlying the Fed’s move mean that the lives of many Americans, and by extension many workers and consumers in other countries, are about to change.

Uppermost in the Fed’s mind is the fact that the American housing market is coming off the boil. It is not collapsing, but cooling sufficiently to deprive American consumers of one source of funding for their trips to the shopping malls.

Until now, Americans have been able to cash out the rising value of their homes, and use the proceeds to fund a life of low savings and high living. That has created high levels of demand for all sorts of domestic goods, and kept millions of Chinese, Central Americans and other foreigners happily at work turning out the stuff Americans have been buying in such quantities that the US trade deficit has reached record levels.

If the Fed is right that the more normal housing market will combine with high petrol prices to discourage consumers from visiting the malls as often as they have in the past, and from loading their SUVs with furniture from Ikea, flat-screen television sets from Korea and trainers from China, America’s sneeze will give the world a bit of a cold. Not even the locust-like descent on Prada shops by America’s version of Britain’s chavs can sustain consumer spending at current levels.

None of this is likely to produce anything resembling a recession. It’s just that after a long period of above-trend growth, a slowdown to more sustainable levels is going to feel worse than it actually is, especially to panicky politicians who are hoping that an economic feel-good factor will offset war weariness.

Add to the effect of the Fed’s policy shift another change that is likely to affect Americans more than they realise. Something has been happening to the way the benefits of economic growth are being distributed in the United States. For reasons not fully understood, America’s highest earners are garnering the largest share of the rise in the nation’s income. At the same time, the benign overall inflation figures mask the fact that the cost of living is rising more rapidly for the elderly (the price of drugs), than for the affluent young (who buy computers and flat-screen television sets). Result: a middle class that is beginning to question the American Dream that has done so much to ensure social stability, and that has typically rejected the appeals of leftish class warriors.

Finally, if someone woke up after a two-year nap, he would not recognise the American political landscape. Al Gore, a political has-been a few years ago, is now astride the environmental movement, taking his apocalyptic greenhouse-gas film from town to town like a movie star. In the process, he has turned himself into one of the left’s hopes to nip in the bud the presidential bid of that famous right-wing warmonger, Hillary Rodham Clinton.

Meanwhile, enough Connecticut Democrat voters — led by super high-earners in Greenwich, where hedge-fund moguls are two-a-penny — decided that the party’s 2000 vice-presidential candidate and long-serving senator, Joe Lieberman, is too pro-war, and too inclined to support President George Bush on some issues. So, by a narrow margin they replaced him with a self-styled, self-made millionaire — if a scion of a former chairman of the JP Morgan investment bank can properly be termed self-made. Ned Lamont will now be the Democrats’ standard bearer in November’s election.

Connecticut may be a small state but the decision of its Democrat voters portends a big change in the political landscape. Every congressman up for re-election in November who voted to support the war in Iraq is wondering if he should be looking for a post with one of the many Washington lobbying firms that provide post-congressional employment for those with no desire to give up the capital’s posh restaurants for the hominy-and-grits (a kind of porridge) served in the home-town diner.

The net result, Republicans privately admit, is that the Democrats are likely to take control of the House of Representatives and, possibly, of the Senate.

That would have a profound effect on domestic policy. Anti-war candidates lean left on domestic policy issues. They are unlikely to support Republicans’ efforts to repeal the inheritance tax, or to contain domestic spending. They are more likely to support a tightening of environmental rules, and less inclined to allow drilling for oil and gas in offshore and Arctic areas. They are more likely to blame high petrol prices on oil- company conspiracies, and less likely to favour relaxation of corporate-governance standards.

Bush and his Republican advisers have one hope: that last week’s terror scare will awaken Americans to the fact that the nation is indeed engaged in what the president and Britain’s prime minister, Tony Blair, quite correctly have been calling a war to preserve western civilisation.

If that happens, the president will find himself blessed with a more conservative Congress, which would be good news for corporate America, desperate to have its research-and-development tax credit renewed, and the provisions of Sarbanes-Oxley relaxed.

Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute

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