U.S. on the road to 1950s-style unemployment, but it may only be a pit stop

• The last time the U.S. unemployment rate fell below 3%, as one Federal Reserve official has predicted it will this year, the Korean War was nearing its end and a recession that saw legions of workers lose their jobs was just around the corner. 
• While the circumstances were unusual, it nonetheless presented a now-familiar pattern - a falling unemployment rate eventually giving way to recession - that current Fed officials will be challenged to avoid as they try to slow the fast pace of inflation without wrecking an expansion that is delivering strong gains for workers. 
• Emblematic of the current confidence in the job market's strength, St. Louis Fed President James Bullard last week said he expects the U.S. unemployment rate to fall below 3% this year. That flashback to the 1950s in itself would be a warning for some economists. 
• Such a low unemployment rate is "a red flare" that the economy is overheating, with fast price and unavoidable wage increases and the U.S. central bank pushed to be more aggressive, said Tim Duy, a University of Oregon professor and the chief economist of SGH Macroadvisers. "I don't see where there is a good way out" that tames inflation without triggering a recession and the associated jump in unemployment. 
• It's a tradeoff - of jobs for price control - the Fed thought had become less relevant. In the decade before the onset of the coronavirus pandemic, unemployment drifted towards 3.0% without triggering inflation, and policymakers felt that showed the economy could put far more people to work than previously thought with prices remaining stable.

(Source: Reuters)