The fundamental problem with the Federal Reserve, in one telling quote

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last updated 8 October 2015

The Federal Reserve released the minutes from its September meeting today. We learned the results of that meeting the day it ended, but the minutes can still provide a window into what's going on in the heads of the Fed officials who vote on monetary policy. Take this quote:

To some [members], the continued subdued trend in wages was evidence of an absence of upward pressure on inflation from current levels of labor utilization. Several others, however, noted that weak productivity growth and low price inflation might be contributing to modest wage increases. A number of participants reported that some of their business contacts were experiencing labor shortages in various occupations and geographic areas resulting in upward pressure on wages, with a few indicating that the pickup in wages had become more widespread.

Consider that line against something you'd never read in the Fed minutes. Something like: "Other members responded that their contacts amongst the unemployed and low-income workers saw no evidence of rising wage pressure at all."

Fed officials understandably rely on their contacts throughout the world of business owners to gauge regional changes in the economy. Those contacts have vested interests in having monetary policy prioritize low inflation over low unemployment. That doesn't mean the stress and worries they're under are not genuine. But with the exception of recent activism efforts, people who desperately need job growth to continue have no equivalent access to Fed officials' ears. Cold aggregate data is all that speaks for them.

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That's bound to have an impact on how the Fed weighs it priorities. Hearing from people on the ground may be qualitative, not quantitative, but it can help parse the quantitative data. Human beings are social creatures, after all, and Fed officials are only human.

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