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Falling Unemployment Will Complicate the Inflation Fight

Red-hot labor demand doesn’t seem to be cooling anytime soon.

By Reade Pickert | May 05, 2022 at 12:03 PM

The U.S. unemployment rate probably fell to 3.5 percent in April, matching the lowest reading since the 1960s, and many economists expect it to keep declining—potentially complicating the Federal Reserve’s fight against inflation.

The reason? Red-hot labor demand doesn’t appear to be cooling any time soon. Job openings and quits are back to fresh highs, and employment costs are growing at a record pace. Such intense need for workers risks sparking even faster wage growth at a time when the Fed is already trying to tamp down the highest inflation in four decades.

“We’re going to be at historically very low unemployment rates very soon,” said Gad Levanon, chief economist at the Burning Glass Institute, a labor-market research group. “I don’t see what will reverse it unless we hit a recession.”

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