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A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Jan 15 2015

A Broken Relationship: The Phillips Curve Revisited

This year has started with a sense of inevitability about it, as a slew of positive data in recent months heightened expectations that the Fed will raise rates mid–year, or soon thereafter. To be sure, the labor market just had its best year since 1999. But while the unemployment rate registered its lowest reading since mid-2008, nominal average hourly earnings growth declined to a 26-month low in December, contrary to what one might expect if the labor market were truly tightening.

Still, there is a pervasive sense that the labor market is tightening, further empowering the Fed to raise rates. Will a declining jobless rate necessarily induce higher wage growth and thereby inflation? By investigating the relationship between the unemployment rate on one hand, and wage growth and inflation on the other, ECRI sheds some light on the timing of any future rate rise.

In our latest research, we take an in-depth cyclical look at the Phillips Curve, the relationship that encapsulates the Fed’s dual mandate, providing critical insight into the Fed’s thinking.

Related News & Events

A Bit of a Surprise?

ECRI January 13, 2015

One of 2014’s biggest surprises – falling oil prices – is completely consistent with our timely call on global growth. When made last July, that forecast was opposed to the consensus view. More

 

2015: Slowing Ahead

Al Jazeera December 24, 2014

A few times since the Great Recession we’ve had year-over-year GDP growth stronger than in Q3 2014, only to slide back again. More