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Fed Is Caught Between Phillips Curve and Yield Curve
As the Federal Reserve prepares for its annual late August summit in Jackson Hole, Wyoming, financial markets will start to focus more on what monetary policy in 2019 is going to look like. What's becoming clear is that there are now two main ways for how to think about monetary policy. There's the Phillips curve model, the theory that as the labor market continues to tighten it will put upward pressure on inflation and lead the Fed to favor continued interest rate increases. And there's the yield curve model, the growing view that an inverted yield curve, with short-term interest rates having a higher yield than ... (full story)