Fed Vice Chair Richard Clarida said price inflation appeared “less responsive to resource slack” in recent decades. A “flatter Phillips curve permits the Federal Reserve to support employment more aggressively during downturns”. But it also increases the cost of “reversing unwelcome increase in long-run inflation expectations.
He added that a “flatter Phillips curve makes it all the more important that inflation expectations remain anchored at levels consistent with our 2 percent inflation objective”. For now, based on the evidence reviewed, he judged that US inflation expectations “do reside in a range that I consider consistent with our price stability mandate”.
