U.S. Jobless Rate Closing in on Nairu Estimate – Real Time Economics

The Wall Street Journal

The U.S. unemployment rate is getting closer to the Federal Reserve’s estimate of the non-accelerating inflation rate of unemployment, or Nairu–a rate that is happily low, but not so low that the economy and job market risk overheating and causing inflation.

It is impossible to know exactly where this theoretical jobless rate stands, and it could change over time, depending on trends in worker productivity and other measures of labor-market slack. Fed officials estimate it to help guide their interest-rate-policy decisions. Many Fed officials put it in the 5.2% to 5.5% range. Some think it might be as high as 6% or as low as 5%. The trick for the Fed is to help guide unemployment into this comfort zone with interest rate policies and keep it there. When the economy is soft, the Fed encourages borrowing and spending with low rates, and when it is too strong, it does the reverse.

At 6.1% in June, the jobless rate was getting closer to where some officials put Nairu. Its quick approach to this level helps explain why some regional Fed bank presidents are talking about interest rate increases. Fed Chairwoman Janet Yellen, who testifies before Congress on Tuesday and Wednesday on the economic outlook, has argued that hidden forms of labor-market slack, such as people taking part-time jobs when they want full-time jobs, gives the Fed extra room to maneuver.



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Source: blogs.wsj.com

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