How will Fed respond to worrying economic signals?

IT has become one of Washington's favourite maxims restated numerous times by both Democrats and Republicans: The US Federal Reserve operates above politics as it pursues monetary policy and tries to achieve its main non-political goal of price stability.

The chair of the US Central Bank and its top officials, we have been told, are technocrats sans political-ideological bias who just happened to be appointed by the US president and who are not supposed to make decisions based on the timeline of an election year.

Well, tell that to former president Jimmy Carter, who upon entering office in 1977 faced the immediate challenge of high unemployment which the Fed initially fought by lowering interest rates. That in turn led to an improving economy and helped create more jobs - but also ignited a sharp rise in inflation.