To formulate the nation's monetary police, the Federal Reserve (Fed) considers several factors, including: the real gross domestic product (GDP), the consumer price index (CPI), non-farm payroll employment, housing starts, industrial production/ capacity utilization, retail sales, business sales and inventories, advance durable goods shipments (new orders and unfilled orders), lightweight vehicle sales, yield on 10-year Treasury Bond, the Standard and Poors (S&P) 500 Stock Index, and M2, in addition to anecdotal information from the Beige Book. (Federal Reserve Bank of New York, 2005). In order to understand how the Fed formulates monetary policy, one must understand how each of these factors contributes to an understanding of monetary policy. In this paper, the role of both lightweight vehicle sales and the S&P 500 stock index in the formulation of the nation's monetary policy will be explained. .

             The S&P 500 is "one of several indices designed to measure changes in price of a broad array of stocks." (Federal Reserve Bank of New York, 2005). As implied by the name, the S&P 500 is a list of 500 U.S. corporations, which have been ordered by market capitalization. Furthermore, the corporations have been carefully selected, so that they are representative of various aspects of the U.S. economy. "All of the companies in the list are large publicly-held companies which trade on major U.S. stock exchanges such as the New York Stock Exchange and Nasdaq. The market-value weighted performance of the stocks of these companies" makes up the index. (Wikipedia, 2005). The S&P 500 is available daily in newspapers and on-line. The reason that the S&P 500 helps form monetary policy is that the stock market measure's the current value of the nation's stock capital, which helps indicate consumer confidence in the economy. "A high and/or rising stock market may signal robust growth of business investment and consumer spending in the near future while a low and/or falling stock market may signal sluggish spending.