Federal Reserve Chair Janet Yellen and her colleagues have to decide who’s got the right take on the job market: economists crunching data on Wall Street or staffing agency executives dealing with employers on Main Street. Pointing to building wage pressures, some economists argue the U.S. economy has returned to full employment, with little or no slack left in the labor market. Staffing specialists, meanwhile, say the situation on the ground is more complicated. They echo some of Yellen’s arguments that the improving jobs outlook will draw more people into the market and keep wages from rising too fast. Who’s correct is of crucial concern for policy makers because they have tied their decisions on the timing of their first rate rise since 2006 and the pace of the increases thereafter to the tautness of the labor market. “The whole question of how close we are to full employment is probably the most critical issue facing the Federal Reserve right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, for IHS Inc. If the number crunchers on Wall Street have it right, the Fed runs the risk of sparking unwanted inflation the longer it waits and the slower it goes. If instead staffing specialists are seeing the situation correctly, the central bank can afford to hold back.
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