Key points
- Fed officials' estimates have recently clustered around 4%.
- Unemployment below it tends to push wages and prices up.
- Related to the Phillips curve.
Example
If NAIRU is 4.2% and unemployment is 3.8%, the labour market is tight and wage growth may speed up, making rate rises more likely.
In history
In 2022-2023 unemployment fell to 3.4%, below most estimates of NAIRU, and inflation proved sticky, so the Fed kept rates high.
Related terms