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The FED and Its Policies

August 6, 2014 | Weekly Commentary

The FED cannot do much more than it is doing to support the stock market and asset prices. Two metrics that influence the Federal Reserve’s Monetary Policy are:

Employment: The Fed is looking for signs that the slack in the job market is declining. They are following the U6 “underemployment” rate or the level of people working part-time because they can’t find full-time work or are otherwise marginally attached to the labor force. The gap between the U3 (total unemployed) and the U6 (underemployed) suggests there is plenty of room for the labor markets to tighten up before there is a risk that rising wages will lead to inflation. The U3 and U6 unemployment measures are still higher than the peaks seen during previous recessions.

Inflation: The Consumer Price Index increased .30% in June over the prior month.  Year over year the inflation rate remained steady at 2.10%.  Two-thirds of the increase was primarily driven by the gasoline index.  However, since June, oil and gas prices have decreased which should lower inflation expectations and keep the Federal Reserve on the same easy monetary policy path.

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