The Federal Reserve may be a complex, far-reaching agency responsible for regulating banks, mortgage rules and the smooth flow of money in the world's largest economy. But its Congressionally mandated goals number just two: maximum employment and stable prices. Gauges of both are out in the week ahead.
These two indicators are important as the central bank inches closer to ending its zero interest rate policy in the months ahead. They were mentioned three times in the Fed's statement last week. While it continued to keep interest rates at zero percent, these two measurements will weigh heavily on the Fed's future decisions about when and how fast to raise interest rates.
There is no doubt the Fed is confident its fulfilling it's first aim. “A range of labor market indicators suggests that underutilization of labor resources has diminished since early this year,” said the last week's statement. On Friday, the July employment data is expected to show another month of solid, but not spectacular, job gains.
It's a different case for prices. Or at least for the Fed's favored meter for prices – the academically named personal consumption expenditures price index. June's data will be released Monday. Consumers may not agree, but official inflation gauges have been tame. Too tame for the Fed's liking. Stable prices, for the central bank, does not mean falling prices. Nor does it mean no price increases. The Fed is aiming for steady inflation of about two percent per year. In May, it was one-tenth of that.
The drop in oil prices has meant relief for drivers, but also it has tamped down inflation. While unemployment is low, workers are not experiencing sizable pay hikes. That also has kept inflation too low for the Fed.
Steady job growth and a convincing uptick in inflation are the two gauges pointing the way for the Fed to reach its goals.
Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.