MONEY The Economy

For the Fed, There’s Only One Excuse Left to Keep Rates Low

Aerial view of housing development
David Zimmerman—Getty Images

The economy and inflation have now risen to levels where the Fed has to start thinking about raising rates. The only excuse left: the weaker-than-expected housing market.

The pressure is mounting on the Federal Reserve to start raising interest rates — and Fed chair Janet Yellen is running out of excuses.

On Wednesday, the Fed announced that it would keep short-term interest rates near zero and would continue to gradually taper its stimulative bond-buying program as the economy improves. No surprise there.

But the chatter for the Fed to stop coddling the economy really heated up Wednesday morning.

That was when a new government report showed that, after hitting a speed bump in the snowy first quarter, the economy really sped up between April and June. Gross domestic product grew at an annual rate of 4.0% in the second quarter.

What’s more, the government went back and revised some of its estimates for prior quarters. Uncle Sam now believes the economy grew well above the normal 3% rate in three out of the past four quarters.

“With this morning’s GDP release,” says James Paulsen, chief investment strategist and economist at Wells Capital Management, the “is-the-Fed-behind-the-curve fears among investors are increasingly evident.”

The GDP report included preliminary measures of inflation that might not sit well with Wall Street’s inflation hawks.

In the second quarter, the so-called personal consumption expenditure index, which is the Fed’s preferred measure of inflation, grew 2.3%. If you strip out volatile food and energy costs, core PCE still rose 2%. UBS economist Maury Harris notes that this represents a big jump from the 1.2% pace of core inflation in the first quarter. Plus, 2% is the target that the Fed has openly set for inflation.

While the actual level of inflation today may not be so worrisome, the ability to fight inflation after the fact is, says Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. “The challenge with inflation is that there’s a very long lag between policy and price pressures, so a Fed concerned with inflation 12 to 24 months down the road needs to start acting now to protect against the prospect.”

Three years ago, the Fed drew another line in the sand. The Fed back then said that it would not think about raising rates until the national unemployment rate fell to 6.5%. Back then, policy makers thought that this would not transpire until around 2015. However, the unemployment rate fell below this level in April and is threatening to fall below 6%.

US Unemployment Rate Chart

US Unemployment Rate data by YCharts

In recent months, as the Fed has tried to explain why it won’t hike rates soon despite rising inflation and falling unemployment, Yellen introduced a new reason altogether: housing.

In mid July, in a monetary policy report delivered to Congress, Yellen said:

The housing sector has shown little recent progress. While it has recovered notably from its earlier trough, activity in the sector leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing.

Later on in the report, Yellen noted that the lack of traction in the housing sector is probably preventing the labor market from reaching its full potential:

Even after rising noticeably in 2012 and the first half of 2013, real residential investment remains 45 percent below its pre-recession peak. The lack of a rapid housing recovery has also affected the labor market: Employment in the construction sector is still more than 1.6 million lower than the average level in 2006.

In announcing its rate decision on Wednesday, the Fed’s Federal Open Market Committee reiterated that while economic growth in general appears to be returning, “the recovery in the housing sector remains slow.”

The irony is that the two things that are likely to get the housing market on track are low mortgage rates and an improving job market.

To achieve the latter, the Fed is keeping rates low. Yet to achieve the former, the Fed needs to show the bond market that it is serious about combatting inflation. And the worst way to do that is keep rates low.

There, in a nutshell, is Janet Yellen’s conundrum.

MONEY

Higher Gas Prices Keep Inflation Just Above 2%

Gas nozzle and hose line graph
TS Photography—Getty Images

Inflation steady as pain at pump is offset by slower growth in food costs.

The Consumer Price Index increased 2.1% for the twelve months that ended in June, reports the Bureau of Labor Statistics. This is the second month in a row that the CPI broke 2%.

The index, which estimates overall inflation by measuring price changes in a “basket” of consumer goods, also showed .3% month-over-month growth from May to June of this year. That number is slightly down from May, which saw a .4% month-over-month increase.

Because food and energy prices tend to be volatile, many analysts and economists also look at the “core” consumer price index, which excludes those items, to get a sense of underlying inflation trends. The core CPI rose 1.9% since last June, says the BLS. This increase is roughly on par with last month’s year-over-year core CPI increase, suggesting inflation remains relatively steady.

According to the BLS, the CPI’s increase this month was primary driven by higher gasoline prices. The cost of gasoline rose 3.3% during the month of June and accounted for two-thirds of the entire index’s increase. The price of food, which had jumped in May, rose more slowly in June, increasing by only 0.1%

Investors watch inflation numbers closely because they may offer a clue about when the Federal Reserve may begin to raise key short-term interest rates, which the Fed has held near zero since the 2008 financial crisis. Chair Janet Yellen has said the central bank intends to hold rates down at least until inflation runs at 2%.

But though the closely watched CPI has notched above 2% for the second month in a row, it’s not the inflation number the Fed uses for its 2% target. Instead, it uses a number from the Bureau of Economic Analysis called the personal consumption expenditure, or PCE, deflator. This index covers a broader selection of goods and is also calculated somewhat differently. It also has been running lower than CPI recently—the latest reading was 1.8% for the twelve months ending in May, or 1.5% for the core number excluding food and energy. The BEA will release updated PCE numbers on August 1st.

The CPI typically runs 0.30 to 0.40 percentage points higher than the PCE index, says Mark Zandi, chief economist at Moody’s Analytics, speaking to Money.com on Monday evening before the release.

“The target CPI is 2.3% or 2.4%, somewhere in that range,” said Zandi. If so, today’s numbers suggest the Fed is getting closer to it’s target, but isn’t there yet.

Update: Due to an editing error, the story originally misstated the amount CPI typically runs above the PCE index. It has been corrected.

MONEY First-Time Dad

What Millennials Want That Their Boomer Parents Hate

Luke Tepper
Luke looks around for the inflation that has yet to come Taylor Tepper

It is nine letters long, (not legal weed), and causes investors' blood to boil.

Inflation. We really want some inflation. Now, if possible.

Macroeconomic forces are not top of my mind all the time. A couple of weekends ago, for instance, my wife and I played poker and drank beer on our friend’s rooftop patio. Our son Luke, clad in his new miniature gondolier outfit, crawled between our legs as one person after another told us how cute he was. That night Luke held onto one of my fingers while I gave him his midnight feeding. Later my wife and I slipped into his room for a few moments to watch him sleep.

I can tell you that at no point during our perfect summer day did the word inflation pop into our heads. We went to sleep thinking just how lucky we were to have such a beautiful son, rather than dwelling on the fact that we face an inflationary climate that is hostile to the economics of our new family.

We aren’t strangers to what economists call “headwinds.” Mrs. Tepper and I graduated from the same really expensive private college in 2008, just as the nation was mired in the worst recession in 80 years. We attended college (and later graduate school) as state governments across the country drastically cut higher education spending, which meant higher costs, which meant that we incurred a combined six-figures student loan marker. And entering the job market in the teeth of negative economic growth means we’ll be playing catch-up for years and years.

Given all that we (and Americans, generally) have endured since 2008, it might seem strange that I would ask for higher inflation. When the prices of goods rise quickly, the Federal Reserve is apt to raise interest rates. Higher interest rates make it more expensive to purchase a house, or borrow for anything. Don’t I want to own a house? What’s wrong with me?

For a little bit of context, let’s back up and look at where inflation has been over the past six years. If you look at the core price index for personal consumption expenditures (or core PCE), inflation is rising at an annual rate of 1.5%. In fact ever since Lehman Brothers declared bankruptcy it has barely budged over 2%.

inflation...

Even if you look at a broader inflation metric, like the consumer price index, prices have risen at 2.1% or lower for almost two years.

What does this mean?

For one thing, wage growth has stagnated at around 2% since we left school, and job growth, while picking up lately, has been relatively slow. Weak job creation and small pay increases means that people have less money to spend, which means fewer jobs and the cycle goes round and round.

So more economic growth (spurred on by more borrowing and spending) would help alleviate low wage growth, and help us ramp up our weekly paychecks. But it would also do something else. It would help us pay down our student loan debts.

Super low inflation is bad for people who have debt. Right now Americans owe more than $1.1 trillion in student loan debt. That means people our age are receiving raises that aren’t that high and have to confront a record level of debt before their careers really get going. With so much of our take-home pay earmarked for debt service, no wonder housing isn’t a priority, or affordable, for millennials (or the Teppers).

Of course, this kind of talk scares our parents (and rich people), who own bonds and other assets designed to preserve wealth instead of create it. Having already endured years of low interest rates, they really don’t want their bond portfolio to be hit by an inflation jump.

To which I say, tough. Many boomers entered the job market as the economy was expanding and college was affordable. Their children did not.

Luke has this one toy that he loves. It’s a sort-of picture book for infants consisting of a crinkly material, and he loves nothing more than smashing the thing between his hands and feet. In 17 years, he’ll want a car—and then four years of college.

I realize that the costs of these things will rise—prices always rise. It would just be nice if our salaries rose enough to pay for them.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

 

MONEY The Economy

Think the Fed Should Raise Rates Quickly? Ask Sweden How That Worked Out

Raising interest rates brought the Swedish economy toward deflation Ewa Ahlin—Corbis

Some investors are impatient for the Fed to raise interest rates. They may want to be a little more patient after hearing what happened to Sweden.

If you’re a saver, or if bonds make up a sizable portion of your portfolio, chances are you’re not the biggest fan of the Federal Reserve these days.

That’s because ever since the financial crisis, the nation’s central bank has kept short-term interest rates at practically zero, meaning your savings accounts and bonds are yielding next to nothing. The Fed has also added trillions of dollars to its balance sheet by buying up longer-term bonds and other assets in an effort to lower long-term interest rates.

Thanks to some positive economic news — like the recent jobs report — lots of people (investors, not workers) think the Fed has done enough to get the economy on its feet and worry inflation could spike if monetary policy stays “loose,” as Dallas Fed President Richard Fisher recently put it.

If you want to know why the argument Fisher and other inflation hawks are pushing hasn’t carried the day, you may want to look to Sweden.

Like most developed nations, Sweden fell into a recession in the global financial crisis. But unlike its counterparts, it rebounded rather quickly. Or at least, that’s how it looked.

As Neil Irwin wrote in the Washington Post back in 2011, “unlike other countries, (Sweden) is bouncing back. Its 5.5 percent growth rate last year trounces the 2.8 percent expansion in the United States and was stronger than any other developed nation in Europe.”

Even though the Swedish economy showed few signs of inflation and still suffered from relatively high unemployment, central bankers in Stockholm worried that low interest rates over time would lead to a real estate bubble. So board members of the Riksbank, Sweden’s central bank, decided to raise interest rates (from 0.25% to eventually 2%) believing that the threat posed by asset bubbles (housing) inflated by easy money outweighed the negative side effects caused by tightening the spigot in a depressed economy.

What happened? Well…

Per Nobel Prize-winning economist Paul Krugman in the New York Times:

“Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”

And deflation is a particularly nasty sort of business. When deflation hits, the real amount of money that you owe increases since the value of that debt is now larger than it was when you incurred it.

It also takes time to wring deflation out of the economy. Indeed, Swedish prices have floated around 0% for a while now, despite the Riksbank’s inflation goal of 2%. Plus, as former Riksbank board member Lars E. O. Svensson notes, “Lower inflation than anticipated in wage negotiations leads to higher real wages than anticipated. This in turns leads to many people without safe jobs losing their jobs and becoming unemployed.” Svensson, it should be noted, opposed the rate hike.

image (8)
Sweden

Moreover, economic growth has stagnated. After growing so strongly in 2010, Sweden’s gross domestic product began expanding more slowly in recent years and contracted in the first quarter of 2014 by 0.1% thanks in large part to falling exports.

As a result, Sweden reversed policy at the end of 2011 and started to pare its interest rate. The central bank recently cut the so-called “repo” rate by half a percentage point to 0.25%, more than analysts estimated. The hope is that out-and-out deflation will be avoided.

So the next time you’re inclined to ask the heavens why rates in America are still so low, remember Sweden and the scourge of deflation. Ask yourself if you want to take the risk that your debts (think mortgage) will become even more onerous.

MONEY The Economy

A Key Fed Official Says the Job Market is Just Fine. But is He Right?

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas
Richard Fisher, president of the Federal Reserve Bank of Dallas. Jose Luis Magana—Reuters/Corbis

With a little help from Jonathan Swift, Shakespeare, and World War II, Dallas Fed President Richard Fisher makes the case for why interest rates need to rise soon.

In between references to Shakespeare, beer goggles and Wild Turkey, Dallas Federal Reserve Bank President Richard Fisher— a member of the Federal Open Market Committee that sets the nation’s interest-rate policy— expressed concern Wednesday about the risks caused by the Fed’s ongoing stimulative policies.

Thanks to a dramatically improving jobs picture, according to Fisher, the Fed should not only cut off its bond-purchasing program (known as “QE3″) by October, but the central bank should also shrink its portfolio of assets and begin raising interest rates early next year or sooner.

Whether or not the economy can withstand monetary tightening — fewer jobs means fewer people able to buy stuff — is open for debate. The real question, though, is if the jobs picture is really that strong?

First some context.

In his colorful speech, Fisher, one of the Fed’s leading “inflation hawks,” reiterated his belief that the Fed’s rapidly escalating balance sheet (now at approximately $4.4 trillion) in combination with a near-zero federal funds rate has led to investors having “beer goggles.” (As Fisher explains it, “this phenomenon occurs when alcohol renders alluring what might otherwise appear less clever or attractive.”) This is what he says is happening with stocks and bonds, which are both relatively expensive.

To make his point Fischer quoted Shakespeare’s Portia in Merchant of Venice: “O love be moderate, allay thy ecstasy. In measure rain thy joy. Scant this excess. I feel too much thy blessing. Make it less. For fear I surfeit.”

Portia’s adjectives (joy, ecstasy and excess) describe “the current status of the credit, equity and other trading markets that have felt the blessing of near-zero cost of funds and the abundant rain of money made possible by the Fed and other central banks that have followed in our footsteps,” Fisher said.

Of course, the Federal Reserve hasn’t bought trillions of dollars of debt, and cut the main interest rate to nothing, for no reason. There was something called, you know, the Great Recession — the once-in-a-lifetime cataclysmic economic event from which the country is still recovering.

But, said Fisher, things are improving, especially in the labor market. Not only did businesses add almost 300,000 employees last month, but there are more job openings, workers are quitting more often and wages are rising. Is he right?

Let’s check out some graphs:

Job openings:

ycharts_chart-1

Fisher is right that job openings “are trending sharply higher.” This time last year, there were a little less than 3.9 million job openings. Right now there are more than 4.6 million – an 18% increase.

“Quits”:

quits

The healthier an economy, the higher the number of employees who quit their job to either find another or start a new business. Therefore a higher so-called quits rate, means a healthier labor market.

Like job openings, the number of quits has been rising since bottoming out during the recession. The major difference though is that the number of job openings has almost reached pre-recession levels, while quits has not.

Wages:

wage growth
BLS

Fisher admits that wages aren’t growing “dramatically.” Nevertheless, he cites the Current Population Survey and the most recent National Federation of Independent Business survey to show that wages are on the rise.

However, wage data from the Bureau of Labor Statistics shows that Americans in the private sector are earning $24.45 an hour, only up 1.9% from last year.

But these three metrics aren’t the only metrics to gauge the health of the labor market.

Long-Term Unemployed:

l-t unemployment
BLS

Before the recession, about 1.3 million workers were without a job for longer than 27 weeks. Today, that number is slightly more than 3 million. While that’s significantly better than the post-recession high of 6.8 million in August 2010, there are still a lot of workers who’ve been without a job for a long time.

“Long-term unemployment is still a significant source of slack in the economy and is accounting for a historically large share of the total unemployment rate,” says Wells Fargo Securities economist Sarah House.

Broader unemployment:

l-t2
BLS

And while the unemployment rate may signify the economy is moving closer to full employment, the picture is less sanguine if you look at a broader unemployment rate that takes into account the underemployed (part-time workers who want to work full-time) and discouraged workers. Before the recession that number hovered a little over 8%. It’s now 12.1%. And while it’s trending down, it’s not coming down fast enough. At least according to recent testimony by Federal Reserve Chair Janet Yellen.

Conventional wisdom says inflation will come when wages really start to rise. Some, like Fisher, think we’re getting really close to that point. But if you take into account wage data from the BLS and look at the millions of Americans who aren’t working to their full capacity, it’s not hard to see how tightening monetary policy might make life harder on lots of workers.

MONEY prices

Hershey Raises Candy Prices 8%

Hershey's chocolate bar
Chocolate lovers will be stuck paying a little bit more for their fix. Scott Eells—Bloomberg via Getty Images

The candy giant is boosting prices, but that doesn't necessarily mean inflation is on the way.

Hershey announced on Tuesday that it would be raising the price of its candy products by an average of 8%. The company, which makes popular candies like Reese’s Cups, Kit Kats, and its eponymous chocolate bar, cited rising commodity prices as the reason for the increases.

“Over the last year key input costs have been volatile and remain at levels that are above historical averages,” said Hershey executive Michele G. Buck. “Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year.”

This year has been particularly rough for companies like Hershey that rely heavily on the cocoa market. The Los Angeles Times writes that cocoa futures hit almost three year highs in June due to increasing demand and weather issues in major cocoa-producing nations. (That’s one reason U.S. chocolatier Russell Stover announced this week that it was selling itself to Swiss giant Lindt & Sprungli.)

In an economy where inflation is a constant worry (sometimes maniacally so), Hershey’s announcement will no doubt trigger further concern in some quarters. Business Insider titled its report on the price jump “INFLATION ALERT,” and drew parallels between the chocolate maker’s decision and a recent bump in the Consumer Price Index.

More expensive candy bars may indeed turn out to be a harbinger of things to come, but the candy giant’s price increases have more to do with expensive ingredients than larger economic concerns. As MONEY’s Pat Regnier points out, worrisome inflation tends to occur only when there is real wage growth. And since the job market has yet to recover to pre-recession levels, substantial inflation may not be something to be concerned about just yet.

It’s not clear if chocolate lovers should worry either, at least not yet. Mars, the other American chocolate giant, has yet to raise its prices. If Mars follows suit, expect sweets to become more expensive across the board.

Even if you can’t forgo your suddenly-more-expensive Hershey Kisses habit, here are some other ways to keep your personal rate of inflation under control.

MONEY Budgeting

3 Ways to Inflation-Proof Your Life

140710_HO_Inflation_1
Jason Hindley

The official inflation rate is low, but your personal CPI may be high. Keep it grounded with these moves.

Since the Great Recession, inflation has been unusually low, inching along at well below the 3% historical average. And over the past 12 months, the consumer price index has clocked in at a ho-hum 2.1%. But you are not the U.S. economy, and the costs of being you haven’t stagnated.

In some cases, that’s a good thing. If you’re in the market for a new TV or computer, for instance, you’ll pay dramatically less than you would have five years ago (see chart, below). Yet during the same period, prices of many of the biggest and most common expenses families pay, from child care and health care to key grocery items, have shot up. Meanwhile, in real terms, salaries are stuck in molas­ses, so consumers have roughly the same income as they did before Lehman Brothers collapsed.

Use these moves to keep price increases from eroding your paycheck.

Costs of Raising Junior

Strategy: Let Uncle Sam help. Diapers, summer camp, and orthodontia may be budget killers. But the biggest strain on parents comes from two expenses: child care (up from an average $87 a week in 1985, adjusted for inflation, to $148 now) and college (tuition and fees for state schools: up 27% in real terms since 2008).

Tax breaks can help you reduce those costs. Got children under 13? Sign up at work for a dependent-care flexible spending account to use pretax dollars to pay for up to $5,000 of child-care bills, says J.J. Burns, a Melville, N.Y., financial planner. That saves you up to $1,400 in the 28% bracket.

Your company doesn’t offer the FSA, or your costs exceed the limit? Claim the child-care tax credit on your 1040 for up to $3,000 in bills for one kid, $6,000 for two. A married couple filing jointly with adjusted gross income (AGI) over $43,000 can write off 20% of bills up to these amounts.

As for college, saving via your state’s 529 plan may put money back in your pocket, says Savingforcollege.com founder Joseph Hurley; check “What’s the Best 529 Plan for Me?” to see if that’s true for you. Contributions grow tax-free and are fully or partly deductible in 34 states and D.C. (withdrawals are tax-free in every state). Plus, once your child is in school, you may qualify for the American Opportunity Tax Credit on tuition and fees worth as much as $2,500 and a deduction of up to $2,500 on student-loan interest.

Everyday Expenses

Strategy: Find a cheaper substitute. If you grilled hamburgers this Fourth of July, then you already know about skyrocketing meat prices. And that’s not all: The prices of car insurance, butter, milk, and eggs have all risen at double or triple the CPI. For gas, make that sevenfold.

Solution? Substitute a lower-cost item or supplier that can fill the same need. Trade T-bones for chicken breasts—the price of which has tracked inflation the past five years. Reach for a glass of wine (down 2% over the past five years) instead of a bottle of beer (up 9%).Then take the strategy wider. Carpool to work or use public transit to save on gas. And shop around for a cheaper auto insurer.

Health Care Costs

Strategy: Comparison-shop. Workers’ contributions to health care premiums have climbed 26% in real terms since 2008, based on data from the Kaiser Family Foundation. Prescription: Compare prices, which vary widely even in-network for doctors, services, and drugs. By logging on to your insurer’s web tool you can save thousands on MRI and CT scans, specialists, and physical therapy.

Also, to avoid big bills later, take advantage of free preventive care like physicals, which most plans must now offer, says Katy Votava, president of Goodcare.com, a health-plan consultancy. You can’t do much better than paying zero.

What's cheaper

MONEY Economy

4 Takeaways from the Fed’s Big Meeting

Federal Reserve Chair Janet Yellen arrives for a news conference at the Federal Reserve in Washington
Federal Reserve chair Janet Yellen Susan Walsh—AP

This afternoon, the Federal Reserve released minutes from its mid-June meeting, providing a slightly more detailed picture of what chair Janet Yellen and her colleagues are thinking about the future of interest rates and monetary policy.

The June meeting itself had been a big shrug: The economy was getting better but not quickly enough to justify raising short-term interest rates; the Fed also said it would continue slowly tapering “quantitative easing,” the massive program of bond buying that’s meant to ease credit and stoke economic growth.

But here are three new things we’ve learned from the minutes.

1) Look for “quantitative easing” to end in October

We already kind of knew this, since the Fed has been reducing its purchases as a steady rate, but the minutes fill in a detail:

Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction. Most participants viewed this as a technical issue with no substantive macroeconomic consequences…

But:

… participants generally agreed … it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors. If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting.

Bear in mind that this just means the Fed will stop buying bonds. It will still own over $4 trillion worth of them.

2) The Fed is divided about how to read inflation data

In a press conference after the meeting, Yellen said that although inflation seemed to be picking up a bit, the numbers were too “noisy” to conclude that inflation would go above the Fed’s 2% target for long.

The minutes of the meeting suggest that the other Fed governors and regional Fed presidents are divided on this. Some are worried that inflation is still far too low, indicating an economy that’s still too slack. And it looks like the recent strong jobs numbers, released after the meeting, which brought unemployment down to 6.1%, won’t change the minds of the inflation doves.

Some participants expressed concern about the persistence of below-trend inflation, and a couple of them suggested that the Committee may need to allow the unemployment rate to move below its longer-run normal level for a time in order keep inflation expectations anchored and return inflation to its 2 percent target, though one participant emphasized the risks of doing so.

But there’s still a vocal hawk team. Although price increases are very low, their main concern is that the Fed won’t be able to react fast enough when the economy turns.

… other participants expressed concern that economic growth over the medium run might be faster than currently expected or that the rate of growth of potential output might be lower than currently expected, calling for a more rapid move to begin raising the federal funds rate in order to avoid significantly overshooting the Committee’s unemployment and inflation objectives.

3) The Fed is worried that it’s being taken for granted.

…participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions… [and] not factoring in sufficient uncertainty about the path of the economy and monetary policy.

What’s the problem with that? There’s always concern that easy policy will stoke an asset bubble. But Yellen has said that while she’s keeping this on her radar, it’s not a major concern yet. One good reason to think so: The housing market, the source of the really dangerous bubbles, is hardly frothy.

Despite attractive mortgage rates, housing demand was seen as being damped by such factors as restrictive credit conditions, particularly for households with low credit scores; high down payments; or low demand among younger homebuyers, due in part to the burden of student loan debt.

4) The labor market still looks weaker than it should be.

Although unemployment is down, some participants in the Fed meeting feel that many workers are still struggling to find work—they note that many workers have dropped out of the labor force altogether—and those with jobs still aren’t in a strong position to demand higher wages.

MONEY Food & Drink

The Skyrocketing Cost of Your July 4th Barbecue

Dollar sign drawn out of sparklers
fStop—Alamy

Drought and disease are driving high prices on hamburgers, lemonade, and fruit salad.

If you’re the person preparing the July 4th barbecue, prepare yourself for sticker shock at the grocery store. Prices for grocery store food items are up 2.7% compared to last year, according to the U.S. Department of Agriculture’s latest Food Price Outlook. But prices are even higher on some Fourth of July favorites—like beef, up more than 10% over last year.

What’s going on? California, an agricultural heavyweight, is facing one of the most severe droughts on record. Meanwhile, disease is attacking some popular produce. Here’s what that could mean for your holiday meal.

Hamburgers. Grocery stores are pricing most retail beef at record-high prices, up 10.7% compared to last year. That’s because over the past few years, droughts have shrunk cattle herds to their lowest sizes since 1951. This year’s drought conditions in Texas and Oklahoma haven’t helped matters.

Barbecued pork chops. The other white meat isn’t cheap either. Faced with the soaring cost of beef, some customers have switched to pork, driving prices up 12.2% since last year. Also, piglets are dying from porcine epidemic diarrhea virus. The good news? The hogs are fatter than they were last year, so the USDA predicts that prices might stabilize.

Hot dogs and deli sandwiches. Other meats cost 3.3% more than last year. Again, that’s probably because consumers are switching from more expensive choices like beef and pork. What it means for you: Alternatives are pricier than they were last year, but they may still be the best deal on meat.

Lemonade. Planning to make some fresh-squeezed lemonade? You might want to think again. Citrus prices are up a whopping 22.5% this year, thanks to a rough winter freeze in California and a deadly citrus disease outbreak in Florida. Switch to a mix and save a bundle–prices for sugars and sweets have fallen 1.5%.

Fruit salad. As of now, fresh fruit prices have risen 7.3% (mostly due to high citrus prices). But that might change by your Labor Day picnic. The USDA predicts fresh fruit prices will jump 5% to 6% later this year, so enjoy your fruit salad while it lasts.

Looking to trim your meat budget this barbecue season? Try these five tips.

Your browser, Internet Explorer 8 or below, is out of date. It has known security flaws and may not display all features of this and other websites.

Learn how to update your browser