Tomorrow Yellen speaks at Jackson Hole on 'labour markets'. That topic is at the heart of the debate on wage inflation, inflation generally and the speed/timing of Fed interest rate hikes. On one side of the debate are the neo-Keynesians, typified by Yellen and many of the Fed governors (with a benign view on wage inflation). In the other camp are the hawks. In their thinking the falling participation rate is set to continue and the slack in the labour market is fast disappearing. Currently, they are winning the data battle. In particular, in coming years, the number of baby boomers retiring/leaving the workforce should overwhelm the number of discouraged workers who return. The key risk for markets, therefore, is that the Fed is behind the curve and rate hikes occur sooner/faster than expected (NB the recent divergence between the yield curve and the level of jobless claims-see chart)