Low U.S. unemployment reflects a vigorous economy but does not risk fueling inflation at the moment, U.S. Treasury Assistant Secretary for Economic Policy Mark Warshawsky sa id on Monday.

At this stage I don't think we have a concern about that because there is still capacity both on the production side and also on the labor market side, he said in response to a question about tight conditions hitting wages and inflation.

U.S. unemployment dipped to 4.7 percent in March from 4.8 percent the previous month, data out on Friday showed, prompting concern in financial markets the Federal Reserve may raise interest rates higher than previously thought to keep price-pressures at bay.

But Warshawsky said that low labor-participation rates among young people, who have probably decided to stay in school longer to earn a better education, meant that the unemployment measurement exaggerated how tight the jobs' market has become.

Those people will come into the job market. So there is still capacity. I think we still have room to grow before we get into a classic, capacity-constraint, Keynesian-type inflation, I don't see that immediately on the horizon, he told a regular monthly news briefing on the economic outlook.

Many economists believe U.S. full-employment -- a theoretical threshold beneath which the demand for labor bids up wages and causes inflation -- is 5 percent.

They say that the Fed is more likely to retain a policy-tightening bias for as long as unemployment levels remain beneath this point. The U.S. central bank has raised rates in 15 consecutive quarter percentage point steps to 4.75 percent and has warned that further policy firming may be needed.


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