HKS Authors

See citation below for complete author information.

Frank and Denie Weil Director of the Mossavar-Rahmani Center for Business and Government
Charles W. Eliot University Professor


The Federal Reserve seeks to cool an overheated US labor market to ease wage hikes and reduce job vacancies, without a painful spike in unemployment. But empirical evidence indicates that these goals have never been accomplished together and remain unlikely now. In fact, fighting inflation will require a reduction in job vacancies and also an increase in unemployment. The inverse relationship between job vacancies and unemployment is measured by the Beveridge curve, named after a British economist. Blanchard, Domash, and Summers find that the Fed’s hope that vacancies can be decreased without increasing unemployment flies in the face of historical empirical evidence. The current low unemployment rate and the very high vacancy-to-unemployment ratio suggest that the labor market is overheating and the natural unemployment rate has increased. It has increased about 1.3 percentage points from its pre-COVID level, implying the labor market is even more overheated than suggested by the current unemployment rate.


Blanchard, Olivier, Alex Domash, and Lawrence Summers. "Bad news for the Fed from the Beveridge space." Peterson Institute for International Economics Policy Briefs, July 2022.