68% of Americans are very concerned that unemployment will remain high. Largely consistent with fearsof higher inflation, 45% are very concerned that interest rates will climb. Even after the sharp recovery on Wall Street over the past year, 35% are very concerned that the stock market will fall -- possibly reflecting, at least in part, the percentage of Americans who are significant investors in the stock market.
The FOMC statement last week suggests that "the pace of economic recovery is likely to be moderate for atime," and goes on to note that "substantial resource slack [is] continuing to restrain cost pressures."Gallup's economic data supportthe idea of a moderate economic recovery .Gallup's underemployment
dataalso help explain why so many are concerned that unemployment will remain high.However, it is not clear that slack in the U.S. economy is going to keep prices low. For example, theBureau of Labor Statistics reported two weeks ago that producer prices increased by 6.1% in March on a year-over-year basis. Gas prices, a component of producer prices, are up 80 cents per gallon, or 39%,compared with a year ago.While the FOMC might point to the relative stability of producer prices minus food and energy -- theseincreased 0.8% in March year over year -- to support its claims about inflation, Americans can't simply exclude food and energy costs from their monthly expenses. Nor, it appears, do they exclude them fromtheir expectations for future inflation.It is not difficult to justify keeping interest rates at historic lows, given 19% underemployment andsubdued inflation. However, if Americans' inflation fears are correct, then the Federal Reserve may facesome increasingly difficult policy decisions. Flooding the economy with money when inflation is surging isa much easier decision politically than economically. Increasing interest rates as midterm electionsapproach is just the reverse.
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