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Informing the public about the Federal Reserve

What is the lowest level of unemployment that the U.S. economy can sustain?

Even in good times, a healthy, dynamic economy will have at least some unemployment as workers switch jobs, and as new workers enter the labor market and other workers leave it. The lowest level of unemployment that the economy can sustain is difficult to determine and has probably changed over time due to changes in the composition of the labor force, and changes in how employers search for workers and how workers search for jobs.

Many estimates suggest that the long-run normal level of the unemployment rate--the level that the unemployment rate would be expected to converge to in the next 5 to 6 years in the absence of shocks to the economy--is in a range between 5 and 6 percent. Policymakers' judgments about the long-run normal rate of unemployment in the Summary of Economic Projections are generally in this range as well. For example, in the most recent projections, FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 5.8 percent. 

Though a variety of factors influence the level of unemployment in the economy, the Federal Reserve makes monetary policy decisions that aim to foster the lowest level of unemployment that is consistent with stable prices.   

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Last update: September 26, 2013