How Business May Pay the Price of FOMC Rate Inaction

The video discusses the tradeoffs in monetary policy, focusing on the costs of tightening versus doing nothing. It highlights the risks of inflation and labor market tightening, noting that the Fed is concerned about potential wage increases. The discussion includes an analysis of wage growth and economic indicators, critiquing common measures like average hourly earnings. The video concludes by examining market variability and the challenges in accurately measuring wage growth.

What is the main concern when deciding whether to tighten monetary policy or do nothing?

• The response of the stock market

• The immediate impact on the economy

• The risk of future inflation

• The effect on international trade

What happens if action is not taken at the monetary policy crossing point?

• Interest rates decrease

• The risk of inaction grows quickly

• Unemployment rates increase

• Wage growth stabilizes

What is the Fed's preferred measure of wage growth?

• Employment Cost Index

• Consumer Price Index

• Gross Domestic Product

• Average hourly earnings

Why is average hourly earnings considered a poor measure of wage gains?

• It is not reported frequently enough

• It does not account for employment changes

• It only includes high-wage industries

• It is not recognized by the Fed

How does the mix shift in employment affect average hourly earnings?

• It stabilizes the average

• It increases the average

• It has no effect

• It decreases the average