The Fed meets today for a one-day affair in order to decide how dovish their statement should be. If you listen to Bloomberg's interview with Frederic Mishkin [1], (former Fed Governor and member of the FOMC) you will understand their statement will be extremely dovish.

He stated the two key drivers for inflation are: consumer's expectations about future slack in the economy and future expectations about inflation. Are you laughing? The two key drivers for inflation are not easy money and credit; it's where we feel inflation is headed. Then the interviewer asked what new methods the Fed might use to measure inflation; he responded, there is nothing new here.

Therefore, the Fed is not considering using gold or the value of the dollar to measure inflation. They won't monitor money supply growth either. What they will continue to look at are things like the TIPS yield spread and the unemployment rate to get a grip on what the future rate of inflation might be.

To his credit he did say one thing encouraging. Mr. Mishkin believes that when the Fed begins to tighten---unfortunately sometime in the far distant future-the pace should not be at a gradual 25bps rate. In that we totally agree!