Short Term Perspective The pool of available labor increased modestly in November for the second straight month, but stands at historically low levels. The low supply of labor causes concerns among Fed officials that wage demands may pick up steam - and that this could lead to price hikes for consumer goods.
Long Term Perspective The civilian unemployment rate can indicate tightness in the labor market. But economists and policy makers have long held the belief that the unemployment rate can give a misleading picture of the degree of labor market tightness because the supply of labor isn't fixed. Indeed, people are often not counted as part of the labor force when the economy is in recession because they simply give up job hunting. As a result, the unemployment rate is often underestimating the true level of unemployment. In good economic periods, people are more likely to enter the labor force because they have more confidence they will find a job. Thus, the Fed chairman likes the idea of going to the source - that is, the source of available labor. The labor pool consists of the unemployed plus those not in the labor force who report they want a job now.