The gap between the U.S. unemployment rate and the headline CPI inflation rate has shrunk to just 0.1 percentage point, the smallest divergence since 2022. This comes as May inflation rose to 4.2%, the highest level since April 2023, while unemployment remained steady at 4.3% in March, April and May. Historically, periods when this gap approaches zero have coincided with Federal Reserve rate hikes. The most recent comparable episode occurred in 2021‑2022, when inflation outpaced unemployment for 22 consecutive months, prompting the Fed to raise rates by 5.25 percentage points between March 2022 and July 2023, reaching 5.5%, the highest since 2001. Inflation has thus returned to the Fed’s primary focus.