Federal Reserve and Monetary Policy: Did You Get A Raise?

Minutes of the Federal Open Market Committee March 22, 2005

The key phrases are “disposable income”, “resource and labor market slack” and “energy prices”. I personal think the consumer spending part is masked by tax refund season and is therefore currently an unreliable indicator for future spending. The income number comes from the Bureau of Labor Statistics. This number is “marginal”, but I consider it useless. See:
Greenspan's Testimony. Highest gasoline prices at the pump before “driving season”, enough said.

Long term inflation and inflation expectation boils down to the labor market. Here is the definition of “economic slack”: defined as the difference between the current level of output and the level of output the economy could produce if all available resources were fully utilized. From Remarks by Vice Chairman Roger W. Ferguson, Jr.
To the Andrew Brimmer Policy Forum: National Economic and Financial Policies for Growth, Employment, and the Improvement of Equity, at the 2005 Annual Convention, Allied Social Science Associations, Philadelphia, Pennsylvania
January 7, 2005
Interpreting Labor Market Statistics in the Context of Monetary Policy

The paper indicates that the Employment Situation Report is currently not a very good indicator of “economic slack”.

The Federal Reserve Monetary Policy is to achieve price stability and full employment. Trillions of dollars in the global market place, Bush's failed trade policies and “off-shoring is good for America” has made the Fed's monetary policy a joke.

Worker productivity and “geo-political risk” are always the fall back terms. I personal think that there is enough evidence that the removal of the “carry trade” is going to cause market volatility. I think the Fed is aware of this. It is my opinion that the Fed is really indicating that they are going to increase short term rates a quarter of a point until the financial markets become dis-functional. Then they will quite.