The job market has consistently surprised the Fed. America’s unemployment rate has fallen to less than 4 percent from 10 percent in 2009. Despite the decline, employers have found plenty of workers to hire, generally keeping job gains strong, and inflation has responded only weakly.
Why? Employees have been staying in the labor market longer, and more recently, would-be workers have begun coming in from the sidelines. The share of adults who work or look for work, which had staged a long-running decline, has stabilized. The trends suggest that the jobless rate may be losing some of its oomph as a policy guide.
Against that backdrop, Fed officials have revised their estimates for the unemployment level they believe would be consistent with stable inflation in the long run down to 4.3 percent — a big change from 2010, when they believed that number was above 5 percent. They see the jobless rate bottoming out at 3.7 percent this year, before creeping higher.