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The Phillips Curve – Yes, there is a trade-off

The Phillips curve is unstable and, therefore, an imperfect guide for policy.

But unstable does not mean nonexistent, and imperfect does not mean useless. As long as the tools of monetary policy influence both inflation and unemployment, monetary policymakers must be cognizant of the trade-off.

Mr. Powell was smart to acknowledge during his congressional hearing that the Fed’s track record is flawed. But the uncertainty inherent in monetary policymaking does not mean that “the single most important macroeconomic relationship” can now be ignored.

The Fed’s job is to balance the competing risks of rising unemployment and rising inflation. Striking just the right balance is never easy. The first step, however, is to recognize that the Phillips curve is always out there lurking.

Chosen excerpts by Job Market Monitor. Read the whole story at Yes, There Is a Trade-Off Between Inflation and Unemployment – The New York Times

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