Why the most important hedge is against unexpected inflation
Jan 2nd 2020IT IS HARD to say precisely when a cherished theory of inflation lost its sway. But if you had to pick a moment, it might be during an exchange last July between Alexandria Ocasio-Cortez, a first-time congresswoman who had risen quickly to prominence, and Jerome Powell of the Federal Reserve.The occasion was the twice-yearly testimony by the Fed’s chairman to Congress. The unemployment rate, noted Ms Ocasio-Cortez, had fallen by three percentage points since 2014, yet inflation was no higher. Might the Fed’s estimates of the lowest sustainable jobless rate have been too high in recent years? “Absolutely,” replied Mr Powell. The once-strong link between unemployment and inflation, known as the Phillips Curve, was a “faint heartbeat”, he said.Choose us for news analysis that respects your time and intelligenceSubscribe to The EconomistWe filter out the noise of the daily news cycle and analyse the trends that matterWe give you rigorous, deeply researched and fact-checked journalism. That’s why Americans named us their most trusted news source in 2017Available wherever you are—in print, digital and, uniquely, in audio, fully narrated by professional broadcastersThis website adheres to all nine of NewsGuard‘s standards of credibility and transparency.ORContinue reading this articleRegister with an email address