This article draws parallels between today’s economy and that of the early to mid-1960s. Back then, the economy was at full employment, but inflation wasn’t rising. Shortly after that, inflation started to rise rapidly, eventually hitting uncomfortable high rates. Is that likely to happen in the near future. The article discusses what’s similar today and what’s different.
Back then, joblessness ultimately fell enough to help trigger higher wages and prices, a relationship described by what economists call the Phillips Curve.
Today, “even though we agree that the Phillips curve is flat, it is not dead,” Matthew Luzzetti, Peter Hooper and their co-authors write. Reaching the threshold where low joblessness will push up wages and inflation more quickly “likely requires at least another 0.5 percentage point decline in the unemployment rate.”