That is, even if the unemployment rate today is consistent with the short-run NAIRU, the short-run NAIRU may have to rise over time as it converges toward the long-run NAIRU, at least once productivity growth stabilizes (or increases in productivity growth slow by a sufficient amount). 4. A transition to below-trend growth and rising inflation?
From the end of 1995 until mid-2000, growth had been above trend and, as a result, the unemployment rate had been declining. For much of the period, core inflation was declining. I believe the economy will ultimately be confronted by a transition and that we may already be in this transition, specifically to slower growth and perhaps also higher core inflation.