• Inflation: Stress-Testing the Phillips Curve


    The well-known Phillips curve describes inflation as a persistent process that depends on public expectations of future inflation and economic slack, a measure of how stretched the economys resources are. The role of each component has changed over time. In particular, maintaining the publics expectations that the Federal Reserve is committed to an inflation target of 2% has grown in importance over the slack component, in part because realigning expectations is costly to undo. Such considerations are important as the Federal Reserve evaluates its future policy options. The U.S. economy is running well above ... (full story)