The labour market is, by contrast, a source of pragmatic and accessible signals of where growth is relative to trend. If employment is growing faster than the working-age population, and the unemployment rate is coming down, those are pretty good signs that the economy is running faster than ‘trend’. It can take a while for spare capacity to be absorbed.
Therefore policy settings might need to be expansionary for a number of years. So it is natural to want to ask whether extended periods of expansionary monetary policy might lead to unintended consequences.