Why Low Unemployment Is Bad News for Wall St.

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If last week's Wall Street free fall went some way to persuading Alan Greenspan not to continue hiking interest rates, Thursday's record employment figures may make him think again. On Thursday Chairman Alan received the latest indication of an overheating economy when the Labor Department reported that fewer Americans have filed joblessness claims in the past month than at any time since Richard Nixon's first term. "These numbers show us that we're clearly scraping the bottom of the labor pool," says TIME senior business writer Bernard Baumohl. "It means that we're probably going to see the unemployment rate, which is already at a record low, go even lower. And that could encourage the Fed to continue to raise interest rates."

Last month when Greenspan was asked if he'd slow the rate hike growth in order to stabilize the stock market, he told a Senate subcommittee that it's not the Fed's job to safeguard the stock portfolios of day traders. Translation: Securing traditional economic indicators, such as inflation, take precedence over what he's termed the "irrational exuberance" of day traders. "Alan Greenspan has always believed that at some point when the demand for wages exceeds supply it will lead to increased wages and then increased costs to consumers," says Baumohl. "For that reason we can expect another interest rate hike in May, but in light of these new statistics, the question becomes whether it will be the usual quarter-point hike or a full half-point increase."