Mr. Phillips and His Curve: “What Should the Fed Do?” Weblogging
Nick Bunker says:
: A Kink in the Phillips Curve: “Look at the relationship between wage growth and another measure of labor market slack, however, [and] the [Phillips-Curve] relationship might hold up. Take a look at Figure 1:
This is entirely consistent with inflation-expectations anchored near 2%/year–or inflation so low that shifts in inflation expectations are not a thing–and a Phillips Curve that gradually loses its slope as wage growth approaches the zero-change sticky point:
This is entirely consistent with inflation-expectations anchored near 2%/year–or inflation so low that shifts in inflation expectations are not a thing–and a Phillips Curve in which the right labor slack variable is some average of prime-age employment-to-population and the (now normalized) unemployment rate:
It is really not consistent with any naive view that holds that the Phillips Curve has the unemployment rate and the unemployment rate alone on its right-hand side, and that inflation is about to pick up substantially with little increase in the employment-to-population ratio.
Thus not only does the right wing of the Federal Reserve expecting an imminent upswing of inflation because of MONEY PRINTING! have it wrong, it strongly looks as though the center of the Federal Reserve has it wrong too…