We have often noted the Fed tries to choose a policy action that minimizes the consequences of a mistake. Which would have the least negative consequences today: easing too much and setting off an excessively strong rebound or easing too little and allowing the economy to slip back into recession? We would vote for the former.
[Increased interest rates might also mean a smaller pay raise as well as a more gradual increase in the value of your investments. But slower may be surer.] In the late 1970s and early 1980s, people were getting 10 percent pay raises,.. But housing prices were going up 12 to 15 percent, and so were cars.
The data reflect that main concern that Mr. Greenspan has voiced in his recent comments, i.e., that with labor markets this tight, there is a real risk that compensation costs will accelerate faster than the ability of productivity gains to offset those costs, thus boosting unit labor costs and thereby generating price increases