The U.S. economic recovery reached another milestone in February: The nation’s unemployment rate fell to 5.5%, the top end of the range considered normal by most Federal Reserve policy makers.
In their latest economic projections, released in December, 17 Fed officials pegged the longer-run U.S. unemployment rate somewhere in the range of 5% to 5.8%. The so-called central tendency of the range–removing the three highest and the three lowest estimates–was 5.2% to 5.5%.
The jobless rate fell into their broader range last year. Now, it has reached the range as estimated by the center of the rate-setting Federal Open Market Committee.
That’s a significant threshold because it represents what many economists call the nonaccelerating inflation rate of unemployment, or Nairu. The Fed could try to push the unemployment rate lower, but in theory that would stoke inflation–and the U.S. central bank’s mandate is to pursue both “maximum employment” and “stable prices.”
So does that mean the Fed considers its work done on the labor front? Maybe not. As the Journal’s Jon Hilsenrath wrote last month, some Fed officials are thinking about revising down their estimates for long-run unemployment. After all, the jobless rate has fallen sharply with little sign of mounting price or wage pressures.
Fed Chairwoman Janet Yellen told lawmakers last month that while the labor market has seen improvement, “too many Americans remain unemployed or underemployed, wage growth is still sluggish and inflation remains well below our longer-run objective.” That didn’t exactly sound like a description of an economy operating at full employment.
We’ll find out more on March 18, when Fed officials release updated economic projections – including new estimates for the long-run unemployment rate.
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