Monetary policy rhetoric is also ramping up. Last Thursday, Chairman Bernanke expanded on his Jackson Hole speech by adding that "the Federal Reserve will certainly do all that it can to help restore high rates of growth and employment in a context of price stability." This is a significant escalation from merely contemplating the Fed's 'range of tools' to providing additional monetary stimulus, in our view. Furthermore, as expressed more forcefully by Chicago Fed President Charles Evans last week: "Suppose we faced a very different economic environment: Imagine that inflation was running at 5% against our inflation objective of 2%. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn't any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market… a fairly conservative estimate of that natural rate is 6%. So, when unemployment stands at 9%, we're missing on our employment mandate by 3 full percentage points. That's just as bad as 5% inflation versus a 2% target. So, if 5% inflation would have our hair on fire, so should 9% unemployment."

David Fuller's view This is one of the best issues of a very good letter, in my view, and I commend it to subscribers, not least the first paragraph. Those of you attending the 49th Annual Contrary Opinion Forum at Basin Harbor next month will meet Rod Smyth, who is also speaking.



The Federal Reserve is feeling the pressure, in my view, and not just from Tea Party populists. Employment issues will be at the centre of the USA's 2012 presidential election contest and the Fed will want to be seen to have done all it can to fulfil its dual mandate of maximum employment and stable prices.