According to Jerome Powell, the Federal Reserve Chairman, the relationship between the unemployment rate and inflation no longer exists. “The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago … and has gone away,” Powell said during a testimony before the Senate Banking Committee.

2019 has seen 50 year lows in the national unemployment rate, and recent years have experienced inflation at under 2%. Historically, the link between unemployment rate and inflation was described by what is called the Phillips curve. The Phillips curve demonstrates an inverse relationship that as unemployment rates decrease, wages increase boosting inflation.

Powell continues and says that “At the end of the day, there has to be a connection because low employment will drive wages up and ultimately higher wages will drive inflation, but we haven’t reached that point. In many cases, that connection between the two is quite small these days.”

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