William Polley is uncertain about what the Fed should do:
William J. Polley: August 2006 Archives: Try as I might to be single-handed, I can't say for sure what the Fed will do. I can come up with a lot of reasons to raise them one more time. I do worry a bit about the 6 to 18 month picture for inflation if they pause now. I'd like the increase to be now and the pause to be for the remainder of the year. But the markets have made up their mind, and Bernanke may not want to stir them up too much. They could very well send a strongly worded statement that though they pause now an increase in October is the default option unless new data changes that stance. If such a statement comes off as credible, it would be an acceptable compromise. We shall see.
And the mysterious, vowelless knzn says that the Fed would be sleeping more easily if it were targeting nominal unit labor costs:
Economics and...: What would happen if the Fed were targeting unit labor costs?: as it should. For one thing, people like me wouldn't be so panicked about stagflation right now.... [W]hen you look at unit labor costs, it's just another ordinary day. I reserve judgment, though, on whether we'll be panicked tomorrow morning, when the second quarter productivity report comes out.
Also, people like Brad DeLong wouldn't be so worried about import prices... [which] don't directly influence US labor costs.... Incidentally, the Fed might have started to tighten more quickly during the early part of 2005, after a couple of unpleasant unit labor cost numbers came out. In retrospect, that would have been a good time to tighten...