Long Term Perspective
When the economy is operating at full throttle, a falling unemployment rate frightens policymakers as they anticipate that rapidly rising wages will turn into runaway inflation. In fact, wage growth did accelerate in 2005 and over most of 2006 as the jobless rate headed lower. A rising jobless rate often alleviates wage pressures but is typically associated with economic recession. Federal Reserve policymakers aim for balanced growth with virtually no inflation.

Short Term Perspective
The unemployment rate rebounded 0.1 percentage point in November to 4.5 percent. Fed officials believe that labor markets are tight. Hourly earnings are still in the 4 percent vicinity for year-over-year growth. The trend has accelerated over the past two years, and is a concern for Fed officials.