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At 5.1%, unemployment is at a seven-and-a-half-year low in the US. This is a fact that is unlikely to be ignored by the Federal Reserve when it takes a decision on interest rate.

Data released this week showed unemployment benefits claims fell to a seasonally adjusted 275,000, making it the 27th straight week when such claims have been below 300,000. It is a sign of a tight labour market.

The only complication for the Federal Reserve is the low inflation in the US. The combination of low inflation and a tightening labour market may appear to give conflicting signals.

They’re not conflicting. Sooner or later, a tight labour market will lead to demands for higher wages, ending the mismatch between low inflation and low unemployment.

This is something that should not be ignored by central banks across the world and especially the ones where the clamour for monetary loosening is approaching drum-beating levels.

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