Unemployment Rates Drop Too Low
It might be indirect, but there’s an interesting link between declining unemployment rates and a possible recession.
“There is not a robust relationship here,” said Beckworth. “[But] if unemployment drops too low, the Fed gets worried inflation will take off. So, it increases interest rates. If it raises rates too far then yes — it can spark a recession.”
The threshold for this to occur is very technical and defined by the Congressional Budget Office. The unemployment rate must fall to three-tenths of a percentage point or more below the nonaccelerating inflation rate of unemployment.
