EMPLOYMENT

Great Recession, which cost nearly 9 million of their jobs.

The last time the U.S. unemployment rate was roughly as low as the 3.7 percent it is now the economy was overheating, inflation was spiking and a short recession soon followed.

Most economists say that isn’t likely to happen again, but there are parallels between the two eras.

1969

A long stretch of low unemployment had led to a classic case of an overheating economy by December 1969. Growth was a robust 5.8 percent in 1964. Yet President Lyndon Johnson added more stimulus by ramping up government spending to pay for his expansive “Great Society” anti-poverty programs and for the Vietnam War.

Steel mills and other factories

cranked out more goods to support the war effort. Annual growth topped 6 percent in 1965 and 1966. The unemployment rate fell below 4 percent in February 1966.

With more Americans splurging on appliances, televisions and cars, inflation started to accelerate. Prices jumped 4.7 percent in 1968. One in three workers belonged to a union, and many union contracts required annual cost of living increases. So did many non-union contracts.

All that ignited what economists call a “wage-price spiral”: Paychecks grew to keep pace with inflation. Inflation, in turn, rose as companies raised prices to afford to pay those higher wages. Inflation hit 6.2 percent in 1969. The stage had been set for more than a decade of soaring prices, escalated by gasoline-price spikes in the 1970s.

Responding to runaway inflation, the Federal Reserve jacked up the short-term interest rate it controls to nearly 9.25 percent in the fall of 1969.

Congress also raised taxes in a belated effort to pay for the war and social spending. That double-whammy tipped the economy into a recession, with annual growth plummeting to just 0.2 percent in 1970.

In December that year, the unemployment rate jumped to 6.1 percent. The rate wouldn’t fall below 4 percent again until September 2000.

2018

By many measures, the U.S. economy is now in a far different place. The Fed’s biggest chronic problem hasn’t been overly high inflation. Until very recently, the problem has been overly low inflation. The Fed’s preferred inflation gauge remained below its 2 percent target for six years until finally touching it in May this year.

In part, that’s because consumer spending is comparatively weak.

And, as a consequence, economic growth hasn’t topped 3 percent for a full calendar year since 2005.

The Fed kept its benchmark rate

at a record low near zero for seven years. Even after a succession of rate hikes, the Fed’s key rate remains in a still-low range between 2 percent and 2.25 percent.

The economy had already grown, if modestly, for more than seven years when President Donald Trump added stimulus in the form of corporate and individual tax cuts. Congress later passed legislation that increased spending on defense and social programs.

And while inflation remains low, Trump has imposed tariffs on steel and aluminum and about half the goods the United States imports from China. It has also threatened duties on imported cars. Tariffs tend to elevate inflation by raising costs, which could lead the Fed to step up the pace of its rate increases.

“That’s a risk that some economists have worried about,” Andrew Chamberlain, chief economist at the jobs website Glassdoor, said. “We could have a hangover effect.”