When Is The Jobless Rate Too Low?

Labor markets aren't tight enough to send prices soaring

Inflation bugs weren't calmed Oct. 19 by a Labor Dept. report showing that consumer prices outside of food and energy rose just 0.3% in September. They worry that labor markets are too tight, wages will shoot up, and inflation will come to a boil. They note that the unemployment rate this year is averaging 4.3%--far below the 6% or so that was long considered the "natural rate of unemployment," below which inflation would take off. With the job market this tight, says Ken Matheny, senior economist at Macroeconomic Advisers, a St. Louis-based consulting firm, "You run the risk that two to three years from now, you'll have higher inflation, higher unemployment, and higher interest rates. It's a slippery, somewhat dangerous slope."

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