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U.S. Adds a Whopping 162,000 Jobs in a Bright Spot for the Economy

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The U.S. labor market report for August 2026 showed a strong labor market with the unemployment rate falling to a historically low 4.1 percent.—wsj.com

U.S. at Above-Target Inflation

The U.S. annual inflation rate was 3.7 percent in July 2026. In fact, inflation has remained above the Federal Reserve’s 2 percent target for five and a half years.—federalreserve.gov

The Positive Output Gap

In the second quarter of 2026, U.S. real GDP was $24.27 trillion and potential GDP was $24.07 trillion.—fred.stlouisfed.org

 

Answer the following questions to check your understanding of the story.

What is the downside to having a historically low unemployment rate?

Wrong! - What are structural, frictional, and cyclical unemployment? Do we want zero unemployment? Are discouraged workers a sign of a strong labor market?

Correct! - When the unemployment rate is very low, businesses have difficulty finding workers because many people who want jobs already have them.

What does the output gap tell us about the natural unemployment rate?

Wrong! - The output gap, which equals real GDP minus potential GDP, is positive. What does that tell us about the natural unemployment rate?

That's Right! - The output gap, which equals real GDP minus potential GDP, is positive, so the unemployment rate is below the natural unemployment rate. The natural unemployment rate is greater than 4.1 percent.

What is the expected Federal Open Market Committee (FOMC) decision at its September 15-16 meeting?

Wrong! - What is the effect of lowering interest rates on aggregate demand growth and inflation? Does the FOMC instruct banks to change their loan policies or make fiscal policy decisions?

You're Right! - Raising interest rates slows down aggregate demand growth, discourages firms from hiring more employees, and reduces inflationary pressure from wage growth.

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