2016-04 Is US unemployment rate getting too low?

As you have seen in the first year course, monetary policy is, in principle, simple. If the central bank predicts  inflation will rise, it raises interest rates and vice versa. In practice, of course, it is much more complicated. This article discusses what the FED may do in the next meeting . Its policy-making body, FOMC (Federal Open Market Committee) is holding a meeting tomorrow and on Wednesday.
So what is happening? With interest rates at record low, the US economy has been growing reasonably well and the rate of unemployment is now 4.9%. This means that it is near the so called "natural rate of unemployment" - a rate below which unemployment is so low that it leads to increasing inflation.

The other factors they will be looking at are:

• They say some measures of labor market slack suggest there are still gaps to be closed. The share of prime-age workers participating in the labor force—those 25 to 54 years old—is still below where it was before the crisis, at 81.3% in August, compared with 82.9% in August 2007.

• At the same time, the Fed’s preferred inflation gauge continues to run below its 2% objective, and inflation expectations have softened.

Below is a graph of what happened in the past.

So perhaps unemployment is still not too low, and in any case there are no signs that inflation will be increasing in the near future.

On Wednesday (unfortunately after class) we will know what they have done.