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Fed's Williams says Phillips Curve linking inflation to employment is 'alive and kicking'
The relationship between employment and inflation known as the Phillips Curve is "alive and kicking," said New York Fed President John Williams on Friday. The Fed has traditionally been worried that low unemployment will lead to rising inflation. Because there have been no signs of inflation over the past few years, even though the unemployment rate has been so low, has led many economists to start to doubt this relationship, known by the "Phillips Curve" shorthand. In a speech at a forum on monetary policy, sponsored by the University of Chicago Booth School of Business, Williams said that the data shows the Phillips Curve correlation still exists, particularly if you exclude some goods and use mainly services prices. Williams said the central bank must be "vigilant" about inflation moving up or down and how the public expects inflation to behave over the longer term. Not only should the Fed worry about higher inflation, it must be alert to declining inflation expectations, he said. Williams said the Fed should review its 2% inflation target to make sure it takes account for expectations moving in both directions.
Kudlow suggests Trump seeks like-minded nominees for Fed
WASHINGTON — A top White House economic adviser said Thursday that President Donald Trump will seek to fill two Federal Reserve Board vacancies with nominees who don’t believe a rapidly expanding economy has to fuel faster inflation.
“The White House wants highly capable, competent people who understand that you can have strong economic growth without higher inflation,” White House National Economic Council head Lawrence Kudlow told reporters.
He said surges in the economy’s productive capacity mean that more people can work at higher wages without causing inflation to pick up.
Trump has repeatedly criticized the Fed in recent months for raising interest rates. He wondered aloud last year if he could fire Chairman Jerome Powell, whom he had picked for the job, though advisers weren’t sure if he was serious. White House officials said later Powell’s job was safe, and it is unclear whether Trump could remove the Fed chairman even if he wanted to.
