Key points
- Looked flat from the 1990s to 2019: low unemployment barely moved inflation.
- Supply shocks can shift it, breaking past patterns.
- The Fed uses it to judge slack and inflation pressure.
Example
If unemployment is 3.5% and the Phillips Curve implies wage growth should be 5%, but actual wage growth is 3%, the curve may have flattened.
In history
In 2021-22 inflation rose far faster than the flat curve of the 2010s predicted, leading many economists to argue the curve is steeper when the labour market is very tight.
Related terms