One implication of the strong labor market is that the FOMC's maximum employment goal has been achieved and monetary policy can be utterly focused on fighting inflation. Any fear that we might face two-sided risk in achieving our dual mandate was blown away by the January employment numbers.
But an excessively tight labor market complicates the path toward achieving price stability, because wages are growing faster than they have in decades, at a pace that may contribute to keeping inflation elevated. We see this excess pressure in the fast growth of services prices, where labor costs are a higher share of overall input costs and shortages of workers are reportedly most acute.