US Unemployment Rate / Why Not Target a 3% ?

Sad to say, the Fed considers 5.2 percent to 6 percent the economy’s long-run normal rate of unemployment. Achieving that rate would be a vast improvement over today. Still, once upon a time and not all that long ago, America’s elites strived for full employment, a catchphrase now relegated to economic history.

Full employment was once defined as somewhere between 1 percent and 2 percent, a figure that reflects the normal ebb and flow of the workforce as people leave jobs seeking better opportunities. In the U.S. a full-employment economy more realistically is closer to the 3 percent to 4 percent mark, a level reached only a handful of times during the past half-century, in the 1950s, the latter part of the 60s and during the heady years of the dot.com boom in the 90s.

Try this thought exercise: How do you think Wall Street money mavens, mainstream economists, institutional investors and other elites would react if the Fed said its unemployment rate target isn’t 6.5 percent. Nor is it 5.2 percent to 6 percent. It’s 3 percent to 4 percent. A catastrophic ambition, right?  A cottage industry of reports would come out predicting a coming hyperinflationary storm. The murmuring movement among conservative lawmakers and their think-tank allies to mandate that the Fed consider only price stability in its policymaking would gain momentum and go mainstream.

Chosen excerpts by Job Market Monitor

via Why Not Target a 3% Unemployment Rate? – Businessweek.