March 14 (Bloomberg) — Janet Yellen says Federal Reserve policy makers need to look at a broader range of data to get a good handle on the job market. She hasn't highlighted one labor indicator that economists say is sounding inflation alarms: short-term unemployment.
With total joblessness at 6.7 percent in February, still higher than the Fed wants, the rate for those who've been out of work less than 27 weeks was just 4.2 percent. That's near the lowest since April 2008 and 0.6 percentage point below the average since 1948, Labor Department data show.
The depressed level suggests the U.S. labor market is tightening, raising the odds that a pick-up in wages will eventually lead to faster inflation, according to economists including Michelle Girard of RBS Securities Inc. That's important because Fed policy makers have cited a slack job market and subdued inflation as reasons for keeping short-term interest rates near zero even as the economy picks up.
"If the Fed is wrong and the labor market is tighter, firms are going to have to start at some point paying more," said Girard, chief U.S. economist for RBS in Stamford, Connecticut. "Some of the Fed's comfort level — 'We can just sit with these easy money policies without any worries about future inflation' — might be called into question."
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