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Jobs, Inflation And The Phillips Curve

Jan 7, 2019

The Phillips Curve measures the relationship between inflation and unemployment. And the Curve predicts that when unemployment is low, inflation tends to rise. Conversely, If unemployment goes up, then inflation should come down. Because then companies don't have to raise wages to compete for workers.

Right now, though, the Phillips Curve doesn't seem to be working as a predictive instrument. The Friday jobs report was awesome. We added 312,000 jobs, wage growth is strong, and unemployment is still below 4%, and has been for a while. Phillips Curve fans should be running up the inflation red flags right about now, and yet the Federal Reserve, and Chairman Powell in particular, say they're not worried.

Why is that? Is the Phillips Curve dead? Did Paul Volcker kill it, back in the 70s and 80s? Or is it just in hibernation? Cardiff and Stacey spoke to some of the biggest economic minds in the business at the American Economics Association conference in Atlanta over the weekend, to get their takes.

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