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Comment by derf_ | Hacker News Reader

> Is it telling me that when unemployment is low, central bank policy is to raise interest rates?

You may dimly recall from your undergraduate Macro courses a relationship between unemployment and inflation called the Phillips Curve [0], which is used to evaluate one of the "dual mandates" the Fed tries to fulfill with its interest rate setting policy.

The problem, of course, is that there is evidence from the Fed's own research that suggests that the Phillips Curve is balderdash [1]. That doesn't stop central banks (including the Fed) from pretending it's still true, though.

[0] https://en.wikipedia.org/wiki/Phillips_curve

[1] https://www.philadelphiafed.org/-/media/research-and-data/pu...

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> central banks (including the Fed) from pretending it's still true

I can’t recall a major central bank basing a policy decision on the Philip’s Curve since the 1970s.

http://blogs.marketwatch.com/capitolreport/2016/03/16/live-b...

12:29 pm

The Philips Curve is alive, [Federal Reserve Chair Janet] Yellen says.

That's not a quote, it's a, well, headline-level interpretation. Followed by a more exact (but still not exact) interpretation, which states the existence of an inverse relationship; there's considerable support for the idea that an inverse relationship between unemployment and inflation exists at least in the short run, but that it is more complex than the original extension of the Phillips curve to unemployment and general inflation (it originally addressed unemployment and wage inflation) would suggest.

You are right, of course. Here's the exact quote:

So the Philips Curve posits that there is a relationship between the degree of slack in the labor market and inflation, and it is an empirical relationship that, while not absolutely tight, has been a consistent relationship over time, and I believe that relationship still holds.

https://www.c-span.org/video/?406675-1/federal-reserve-chair...

> there's considerable support for the idea that an inverse relationship between unemployment and inflation exists at least in the short run

Would you care to cite some? I'm certainly familiar with the post-70's forms of Phillips Curve theory (it's discussed in the very Wikipedia article I linked). But I also cited a 2017 paper from the Philadelphia Fed that looked very hard for such a relationship and couldn't find one, and which itself cites prior research going back to 2001 that agrees.

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