The Fed Takes a Step Into the Danger Zone

Anecdotal evidence from corporate layoff announcements and recent labor settlements also suggest that a major acceleration in worker compensation should not be concern. Corporate managements are too addicted to their stock option profits to permit outsized unit labor cost growth. If workers get too intransigent, there's always the ability to move engineering as well as production to China or India.

This time around, fortunately, spiking commodity prices have not found their way into unit labor costs. And as most know, those are by far the biggest inputs in the cost structure.

So for a whole bunch of reasons I believe that inflation concerns are yesterday's news. Even with $70-per-barrel oil.

Furthermore, since monetary policy works with a 12-18 month lag, the real economic impact of the last 14 -- count them, 14 -- rate hikes are still working their way through the system. The Fed cannot keep raising rates until the economy has visibly slowed. By then it's much too late to stop.

A real risk of recession then would be present and we do not need that at this point in the cycle. Last quarter's GDP, even with all its flaws, suggests my contention regarding slowing growth is correct.

What the Fed needs to do now is pause the rate hikes and watch the economy for a few quarters. It can easily resume in the latter half of the year if the economy has not mellowed to its liking. I mean, do these guys get paid by the rate change? If not, give investors, employees, consumers and managers a break. Unlike your 1% fiasco, get it right this time! Because if you give us one rate hike too many, things could get awfully ugly, very quickly. And then Ben would really need his helicopter!