Calling Occupants ... of Interplanetary Quite Extraordinary Craft

MELBOURNE, Fla. -- What do we know?

We

know that

The economy has a capacity to grow over time that is limited by the sum of the trend rate of growth in the labor force and the trend rate of growth in productivity.

We know that subtracting the change in hours worked from the change in output yields the change in productivity; we know that subtracting the change in unit labor costs from the change in compensation yields the same result (and we know that not all of the calculations in the table below are precise owing to rounding).

We know that my superiors hate it when I reprint central-bank literature -- Padinha? One more time, you worthless overpaid mo-ron: Copy-pasting Fed quotes does not constitute a column -- and we know I'm going to do it anyway. Cause that helps us to

know what policymakers think.

If productivity growth should level out or actually falter because additional technology synergies fail to materialize, or because output per hour has been less tied to technology in the first place, inflationary pressures could re-emerge, possibly faster than some currently perceive feasible.

For, obviously if productivity growth slows, unit labor costs would rise, first pressuring profit margins, and then prices. Indeed, we cannot rule out such a process if labor productivity growth simply levels out. Our ability to forecast, when a diminishing pool of potential workers begins to raise costs or when productivity trends change, is limited. We do know, however, that if, and when, either materializes, inflation pressures are likely to again surface.

We know there rests on productivity a tremendous burden to grow at an increasingly faster pace through a continuation of the process that has so successfully contained inflation and supported economic growth in recent years. We know that the pickup in productivity is relatively recent; we know that such an acceleration is not sufficient proof of an irreversible trend for a variable as statistically volatile as labor productivity; we know that it is not clear-cut evidence of a shift in the productivity trend because productivity normally accelerates when output growth rises. We know that there have been other periods in our postwar records that exhibited similar patterns of acceleration only to fall back to subnormal growth; we know that it took only four quarters for the productivity number to show a 3-point deceleration during the advanced stages of the 1961-1969 boom.

We know that there's a great

case to be made that the productivity thing (along with the

wage considerations that go along with it) is not (and never was) what a lot of people thought to begin with.

We know that a piece from the

Market News

Fedwatcher hit late last night. We know that Fedwatchers are streaky, like batters; we know that this guy's been hitting way above average lately. We know that he served up the following nuggets.

Recent statistical and anecdotal reports of increased wage-price pressures are not a fluke and in fact may disguise the true extent to which inflation has become embedded in the economy, worried Fed officials say. Although productivity growth remains strong, officials are increasingly concerned that labor compensation is beginning to catch up with productivity growth, leading to less favorable unit labor costs. ... A common, though not universally held, Fed view is that wages are a lagging indicator of inflation. If true, and many officials believe that it is, this means that underlying inflation may be further along than the data suggest, sources say.

The Fed has been hoping that its incremental monetary tightening strategy, which has thus far involved 125 basis points of tightening in five steps, would slow the economy in time to prevent an outbreak of inflation. But recent numbers on both growth and inflation have begun to sway the Fed into thinking that its gradualist approach to raising the federal funds rate has been inadequate. The Fed has not ruled out either more aggressive action at scheduled Federal Open Market Committee meetings or more frequent moves via intermeeting rate hikes.

And Please Come in Peace ... We Beseech You

What do we know?

Possibly faster than some currently perceive feasible. Other patterns of acceleration only to fall back to subnormal growth. Although productivity growth remains strong. Wages are a lagging indicator. Price acceleration may be further along. More aggressive action.

Growth above trend raises utilization rates. Rising labor force utilization rates raise wage change relative to productivity growth. An increase in wage change relative to productivity growth raises labor costs. An increase in labor costs results in higher price inflation.

That's the way -- right or wrong -- policymakers are

lookin at things.

As such, the fact that we've already worked our way into the wage-productivity portion of the process is exponentially more important than the fact that the labor-cost numbers ain't yet screamin red. (They're rising at only a 0.7% year-on-year rate (see table above) now; a few more quarterly increases like the 1.8% pop we

got this morning would push them higher in short order.) The Feds think that's comin -- and that's what matters.

As such, all things considered, the Fed's goin fitty.

That's your narrator's opinion anyway.

And hey.

You're never required to agree with it.

Side Dish

So my mom is eating some cheese and she says to the boy

Hey. You wanna piece of this cheese?

And he says

Well what kind is it?

And she says

Brie.

And he says

No. I don't eat suspicious foods.

Anyway.

Hey be serious about the poll today OK? I need help with something.

I'm thinkin I wanna write more a little more informally. A little more real-world. Like maybe a little more graphically and with more cussin. Cause that's how everyone I know thinks and talks.

The problem is that not everyone would take kindly to that. Like the other day I wrote some things in a column that ended up not getting posted on thinking that it was just a bit over the top and would have irked some of the more sensitive readers (although if you wanna see it drop me a

line and I will try to mail it to you). And that's fair enough.

Tell me what you think though. We can at least vote on it.

The column?

Good the way it is.

Go to it. You won't offend me.

Already overboard. More formal please.