Data suggests assumptions on unemployment may be wrong

Tim Duy

According to UO economics professor Tim Duy, the results of July’s jobs report will be closely looked at by the Federal Reserve as it sets its monetary policy.

In an article written for Bloomberg, Duy said the planned policy — hiking up interest rates — is based on the idea that the natural unemployment rate –– the hypothetical minimum amount of unemployment that can be achieved –– is around 4.7 percent. There will always be people between jobs, people whose skills don’t match demand and businesses that can’t afford to hire new workers, so the natural unemployment rate is a sign of a healthy economy.

However, the United States’ current rate sits at 4.3 percent, and many experts expect it to continue falling. However, inflation and wages remain low, suggesting that the Fed’s estimate of natural unemployment could be incorrect.

“Given the inflation data, (the Fed) might be willing to remain patient and slow the expected pace of rate hikes if unemployment remains near current levels,” Duy wrote. “But that patience will wear thin if it looks like unemployment will soon drop below 4 percent.”

For more, see “Why These Job Numbers Matter to the Fed.”

In addition to his professorial duties at the UO, Duy is the senior director of the Oregon Economic Forum and the author of the UO Statewide Economic Indicators, Regional Economic Indicators and the Central Oregon Business Index. He is also a member of the Oregon Governor’s Council of Economic Advisors and the State Debt Policy Advisory Commission.