America is fully employed, or so say the statistics.

Federal Reserve officials think the job market is strong enough to justify higher interest rates. They’re afraid inflation will get out of control.

But if inflation is a problem, it’s not yet apparent in the average worker’s paycheck. “Just wait,” the inflation hawks say.

Like many economic dilemmas, this one includes several big assumptions.

One is that having a job means you have a steady income. Maybe you want more, but you at least have some kind of reliable baseline.

A pile of evidence says that may no longer be a good assumption. If so, Janet Yellen and whoever follows her will be making a huge mistake. We all need to get ready for it.

Why Employment Data Is Misleading

We all know people who are unemployed or underemployed—probably more than the stats say we should. Are the official numbers wrong?

Yes, they could be flawed. But even if they’re right, it doesn’t mean everyone is happy about it.

Maybe you lost your job because your company went bankrupt. No other employers in your area need your skills. You can’t sell the house and move because you’re underwater on the mortgage. With no better choices, you take a lower-skilled job at half your former pay.

Someone like that shows up as “employed full-time” in the stats. Yet they now live in a whole new world.

Such scenarios explain a lot of our discomfort. We have employment stats, we have income stats, but we lack visibility on how they interact. This makes a difference.

Swinging Paychecks

Data from the JPMorgan Chase Institute shows income swings are largest among the poor and the rich.

People on both ends of the income scale share similar variability, but they don’t feel similar pain.

Wealthy people have savings and/or can borrow if cash is low. For those on the lower end, an unexpected car repair or medical expense at the wrong time can ruin them.

Does any of this show up in the unemployment rate? No. People can be steadily “employed,” but in terrible financial condition. And many are.

Maximum Monetary Uncertainty

The problem is this sort of thing is not part of the Fed’s mandate. The law charges them with maintaining full employment and price stability.

The problem here is that “full employment” doesn’t mean everyone is okay. It can and does coexist with widespread financial misery.

In spite of that, Janet Yellen and the other members see the sub-5% unemployment rate as “mission accomplished.” It is their cue to stop promoting job creation and start fighting inflation.

This is why the Fed is (slowly) lifting interest rates and planning to reduce its bloated bond portfolio.

Predicting what the Fed will do is even harder than usual right now. The seven-member Board of Governors has three vacancies. President Trump hasn’t nominated anyone to fill them.

Moreover, Janet Yellen and Vice Chair Stanley Fischer will both likely retire in early 2018.

We could see five of seven seats change in the next year or less, and we don’t yet know who will get them. We also don’t know how quickly the Senate will confirm any new Fed governors.

Next year’s “dot plot” forecasts mean little when the key dot-makers are halfway out the door and their replacements may have entirely different ideas.

We are in a time of maximum monetary uncertainty. By this time next year, the Fed could be…

• Still on its present slow-tightening course.
• Sitting on its hands and doing nothing.
• Raising interest rates more aggressively.
• Cutting rates lower or even going negative.

All those scenarios are completely plausible. Worse, they’re equally plausible. That makes it very hard to have a matching investment strategy.

Investment Strategies

I’ve found investments that don’t depend on Fed policy. We have dividend-paying stocks from defensive sectors, floating-rate ETFs, business development companies, and other income-generating alternatives.

I’m also looking overseas, where the outlook is easier to discern. Last month, I added a risk-managed emerging market ETF. I’m considering some European dividend stocks, too.

This is a weird environment, and it’s tempting to just sit on your hands and wait. But if you do that, you may have to wait a long time. You might miss good opportunities, too. The best answer is to be ready for anything.

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Patrick Watson is an Austin-based financial writer and senior editor at Mauldin Economics. Follow him on Twitter @PatrickW