Hot off the AP wire:

NEW YORK - Stocks rallied Friday as moderating job growth reinforced Wall Street’s hopes that the Federal Reserve may soon end its series of interest rate hikes. The Dow Jones industrial average climbed more than 110 points to a fresh six-year high.

Things are looking up, America! You can feel it in the air. Our fearless investors, the guys on the front lines, are starting to believe again, because… um, because…

Investors saw a slowdown in April employment growth as the latest sign of a softening economy, a reason for the Fed to stop raising interest rates. That countered worries over rising wages, which followed an upswing in employers’ labor costs on Thursday.

Okay, the idea of a “softening economy” right now might not make you too comfortable. And that bit about investors worrying about rising wages might sound, on the surface, like Wall Street doesn’t want the average American to earn a little more and start digging themselves out of debt.

But really, it’s not about wages it’s….

“People are taking the weaker job creation, the stability in the unemployment rate and the uptick in jobless claims and spinning that into a hope the Fed will move to the sideline sooner than later,” Cafferty said.

… it’s about interest rates. The Fed! Those bean counters don’t want inflation to return, so they’re scaring our pals in the investment community, who really don’t want the rest of us to have to pay $3.50 for a gallon of -

…although some believe higher gasoline prices will pressure consumer spending and keep the economy from overheating.

Okay, some. Some believe that an America paralyzed by ionospheric gas prices would keep interest rates down and therefore help widen the wallets of investors. Some believe that. Not all.

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There are probably a lot of you who think that this is inevitable - that the Fed’s job is to hold down inflation and that employment and consumer spending are the engines of inflation. That a somewhat predatory relationship between America’s general misfortune and investors’ happiness is therefore inevitable as well.

Really?

Let’s remember something about the modern Fed and its patron saint, Alan of Greenspan. From his appointment in 1987 until deep into the 90’s, St. Alan believed that an unemployment rate of anything less than 5% spelled DOOM for the economy and would be the cause of runaway inflation. So from the Reagan administration through the first Bush administration through the beginnings of the Clinton years, Greenspan jiggered rates to ensure that 1 in 20 “willing and able” Americans were unemployed at any given time.

You can look it up.

Greenspan wasn’t doing this out of a desire to be a supervillain (though he had the face for it). No, he just happened to believe in an (unproven and hotly disputed) economic theory that told him that too many people working was fodder for inflation.

In the mid-90’s, the Clinton administration prevailed upon Greenspan to allow (cautiously at first) the unemployment rate to slip below 5%. The unemployment rate crossed the threshold in 1997, and by 2000 it had actually dipped below 4%.

And believe it or not, you could still buy a loaf of bread for less than $100. Inflation didn’t rise. Greenspan had been wrong about the direct relationship between unemployment and inflation. He saw that he’d been mistaken, too. But he didn’t make a huge deal about it, because he would’ve had to have sent out a lot of apology cards to the people he’d made sure couldn’t find jobs between 1987 and 1996. The cost in stamps alone would’ve caused inflation to rise, and Hallmark’s selection of “Sorry I Impoverished Your Family” cards was anemic at best.

Am I saying that the current Fed’s philosophy is misguided and too phobic about inflation? Of course not - I’m not nearly smart enough to parse what is and isn’t important in keeping the economy afloat. I barely understand what I just wrote. In fact, looking back, I don’t understand it. [I tend to live out “Flowers for Algernon” on a daily basis as my coffee starts to wear off.]

But I do know this: The Fed itself might not understand the relationships perfectly either, not anymore than they did during “Greenspan’s 5% Period.” So it might not be necessary to set up this ghoulish relationship between the investment community and the rest of the country. It would just require the Fed to be a multiplier, not a divider. The “good times for the average guy = higher rates from the Fed = bad times for investors” equation might not be as necessary as we think, at least not at all times.

Or maybe I’m wrong. But if I am, I make this pledge: I promise to be quick and responsible about sending out all those “Sorry Your Breakfast Costs $34,000″ cards.