But because the labour market is so hot and we have an exceptionally high number of vacant jobs, there is scope to cool the labour market without causing the kind of large surge in unemployment that we have typically experienced in recessions.
As we use higher interest rates to cool inflation, we’ll be watching very closely for signs that the economy and the labour market are responding. One way to explore the needed adjustment in our labour market is through the lens of what economists call the Beveridge curve. This curve depicts the typically inverse relationship between job vacancies and unemployment (Chart 3).