Expectations and the Final Mile of Disinflation

Richard Crump, Stefano Eusepi and Aysegul Sahin

No 20240305, Liberty Street Economics from Federal Reserve Bank of New York

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 (search for similar items in EconPapers)
JEL-codes: D84 E24 E31 E32 J11 (search for similar items in EconPapers)
Date: 2024-03-05
New Economics Papers: this item is included in nep-mac and nep-mon
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