Discussion Paper
Expectations and the Final Mile of Disinflation
Abstract: In the aftermath of the COVID-19 pandemic, the U.S. economy experienced a swift recovery accompanied by a sharp rise in inflation. Inflation has been gradually declining since 2022 without a notable slowdown in the labor market. Nonetheless, inflation remains above the Federal Reserve’s 2 percent target and the path of the so-called final mile remains uncertain, as emphasized by Chair Powell during his press conference in January. In this post, we examine the unemployment-inflation trade-off over the past few years through the lens of a New Keynesian Phillips curve, based on our recent paper. We also provide model-based forecasts for 2024 and 2025 under various labor market scenarios.
Keywords: Phillips curve; inflation; unemployment; natural rate of unemployment; expectations;
JEL Classification: D84; E24; E31; E32; J11;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2024-03-05
Number: 20240305