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The Fed’s Dilemma: No Good Choices

by James Rickards
Daily Reckoning

Despite the absence of any empirical support, Fed governors and staff economics persist in their reliance on the Phillips Curve, which predicts that low unemployment leads to rising inflation. U.S. unemployment at around 4% is in fact at 17-year lows.

The Fed insists that the time to tighten monetary conditions is now, before the inflation emerges.

Yet as I’ve explained many times, the Phillips Curve bears no correspondence to reality. The 1960s were characterized by low unemployment and rising inflation. The late 1970s were characterized by high unemployment and high inflation. The 2010s have been characterized by low unemployment and low inflation.

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