The Fed – Unemployment Rate Benchmarks

August 2020

Unemployment Rate Benchmarks

Richard K. Crump, Christopher J. Nekarda, and Nicolas Petrosky-Nadeau

Abstract:

This paper discusses various concepts of unemployment rate benchmarks that are frequently used by policymakers for assessing the current state of the economy as it relates to the pursuit of both price stability and maximum employment. In particular, we propose two broad categories of unemployment rate benchmarks: (1) a longer-run unemployment rate expected to prevail after adjusting to business cycle shocks and (2) a stable-price unemployment rate tied to inflationary pressures. We describes how various existing measures used as benchmark rates fit within this taxonomy with the goal of facilitating the use of a common set of terms for assessments of the current state of the economy and deliberations among policymakers.

Keywords: labor market, monetary policy, unemployment, business cycles.

DOI: https://doi.org/10.17016/FEDS.2020.072

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