Unemployment: Lower for Longer? (FRBSF Economic Letter, 4 min read)

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Senior Research Advisor at Federal Reserve Bank of San Francisco, Nicolas Petrosky-Nadeau and Robert G. Valletta, question whether monetary policy tradeoff between labour market conditions and price stability has weakened in the US? They find macroeconomic evidence that non-inflationary unemployment has in fact drifted towards 4% in recent time. Through further micro evidence, they gave an intuitive explanation of why this noninflationary unemployment has glided lower in recent time. They discovered, in recent time, there has been a substantial improvement in job matching. Implying quicker job-finding rates for those seeking employment. This was especially true for disadvantaged groups (ethnic minorities).

Why does this matter? A crucial question on the lips of the market and central bankers alike is at what level of unemployment rate will price inflation reignite? Their research has highlighted despite a low level of unemployment rate relative to the historical standards. The labour market may have more room to run, hence a low level of interest rate and inflation could stick around for longer.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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