Back in March 2015, the Federal Open Market Committee (FOMC), the policymaking body of the federal reserve, had a problem. In reality at that particular time they had a whole range of problems, but one in particular would set them on their current course. Their overarching task as they define it is to create or foster the best set of circumstances where unemployment can be the lowest possible without triggering wild swings in consumer prices.

This is, of course, the Phillips Curve where today economists believe in a short run tradeoff between unemployment and consumer price inflation. The theory suggests that as more people go back to work there will be fewer left unemployed on the sidelines, so at some magical point the level of remaining “slack” will diminish such that employers will begin competing for employees. Rising demand against lower supply leads to a rise in the price for labor, or wages. As wages rise, spending power does, too, thus consumer prices are set off.

The central bank must therefore decide, if you believe all this, to get ahead of demand so that when that magical point is reached it doesn't spiral out of control; in the view of orthodox dogma rapidly rising wages are somehow a bad thing. It places a good deal of importance on figuring out ahead of time the level where recovery stops and slack ends. Since monetary policy “tightening” takes time to work, the FOMC must vote in advance of actually seeing that magic point.

As with all things related to economics, it is for economists and policymakers defined by econometrics. An endless series of simulations is run using the most up-to-date data in order to try to anticipate the moment slack disappears and the economy therefore “overheats” into wages then inflation. At the end of 2012, these models predicted a long run “central tendency” for the unemployment rate of between 5.2% and 6.0% that would define what we know as “full employment.” It meant that around 6% the economy should begin showing signs of wage growth and inflation pressures; so that by 5.2% the Fed better have long before started to act in order to stay within its self-defined boundaries of “price stability.”