Understanding US unemployment & inflation measures

Today, Jan 28 US Federal Reserve's Open Market Committee (FOMC) will hold a regular meeting and shall formulate its vision of US monetary policy for the near future. Due to fallen commodities prices and changes in monetary policy in Europe, financial markets expect the US Fed can also change the rhetoric and move the previously expected rate hikes and policy tightening further in the future. Let's try to take a deeper look at main indicators US Fed uses for setting policy guidelines according to its dual mandate: employment situation and inflation rates.

As the FOMC has repeatedly stated, it does not use a "mechanistic" approach to the determination of current labor market's condition, but considers the situation in the complex. There are 6 main indicators of unemployment in the US: the "main" or "official" unemployment rate (according to the International Labour Organization definition of "unemployment") and 5 other measures. "Official" unemployment rate (or U-3) is a percent of total labor force, which includes all jobless persons who want to find a job, available to take a job and have actively sought work in the past four weeks. 3 broader measures are: U4: U3 + "discouraged workers", or those who have stopped looking for work because current economic conditions make them believe that no work is available for them; U5: U4 + other "marginally attached workers", or "loosely attached workers", or those who "would like" and are able to work, but have not looked for work recently for any reason and U6 (broadest measure) includes U3 and U4 + part-time workers who want to work full-time, but cannot due to economic reasons (underemployment). And there are 2 narrower measures: U1: Percentage of labor force unemployed 15 weeks or longer and U2: Percentage of labor force who lost jobs or completed temporary work (for more explanation check this US Bureau of Labor Statistics page)

Regarding the inflation FOMC prefers the Personal Consumer Expenditure Price Index less Food & Energy (so called Core PCE Price Index) as the main inflation indicator instead of more widely known Consumer Price Index (CPI or its "core" - less food & energy variant). The reasons for that are complex and explained in detail in various papers from FRS staff (e. g. check this explanations on the FRB of San-Francisco web-page). But as the data shows, all four main inflation measures usually moves close enough. And for now all of it still lower than pre-crisis levels and far enough from FOMC "floating" target range (2%-2.5%).

And all six unemployment indicators are still higher than its pre-crisis levels (while each of it improved significantly over the recent years), therefore it can be concluded that current situation at least not forces FOMC to any policy tightening. And in order to boost economy for some more time, such a decision really may be postponed to later date (than previously expected).