The good news is that we are finally seeing some decent jobs growth with 295,000 jobs added in February. But it’s clear that there’s still a tremendous amount of slack in the labor market. Policymakers shouldn’t worry about the economy overheating—in fact, just the opposite. There’s more we should do to make sure the economy is working for working people.

Yes, the unemployment rate has dropped to 5.5 percent, but other indicators show how far we have to go before we have a healthy labor market, where wages are rising and anyone who wants a job can find one. There are nearly 6 million missing workers, who are not in the labor force but would be if job opportunities were stronger. The quits rate, meanwhile, is still depressed. A larger number of people voluntarily quitting their jobs would be an indication of a strong labor market—one where workers are able to leave jobs that are not right for them and find new ones.

And lastly, workers’ wages are not rising. In a healthy labor market, workers would be getting regular pay increases as their productivity increases and the economy grows. Nominal (non-inflation adjusted) wage growth in February was 2.0 percent for the nonfarm private sector over the year, and an even lower 1.6 percent among production and nonsupervisory employees. As shown in the figure below, wage growth has been flitting around 2 percent for nearly five years now.

Ideally, we would want to see year-over-year nominal wage growth at 3.5 to 4 percent. That means that, with inflation at 2 percent, workers would be getting real (inflation adjusted) wage increases of about 2 percent a year—consistent with economic productivity growth. This is represented by the horizontal shaded area in the figure.

We need to see consistent wage growth above this range before we’ll see a hint of upward pressure on prices. In other words, the Fed should not even consider raising interest rates to forestall inflation until wage growth is consistently above this target.

Consistently strong job growth will eventually lead to a tighter labor market that generates faster wage growth, but we are not there yet, and policy should stay supportive of growth until we are.