Fed’s Williams: Phillips curve is alive and well

In hşis prepared remarks to be delivered in the discussion titled ‘Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or Is It Just Hibernating?’ New York Fed President John Williams argued the traditional trade-offs between employment and inflation, known as the Phillips Curve, was ‘alive and kicking.’

“inflation persistence has fallen significantly for the CSI (Cyclically Sensitive Inflation) as well. This means that transitory shocks no longer get embedded in inflation expectations, but instead have relatively short-lived effects on inflation,” Williams explained. “This is a very favorable development for the economy and monetary policy, which can safely “look through” transitory shocks.”

“In summary, the Phillips curve is alive and well. I wholeheartedly agree with the authors that we must not be complacent about inflation expectations becoming unmoored, whether at too high or too low a level,” Williams concluded.