Even if the Phillips Curve is a weak theory, the Fed believes in it which proves they will act accordingly

At a press conference following the Fed’s Open Market Committee meeting on June 14, 2017, Janet Yellen remarked: “We continue to feel that, with a strong labor market and a labor market that’s continuing to strengthen, the conditions are in place for inflation to move up” (Yellen 2017). Likewise, Fed Chairman Jerome Powell believes the Phillips curve “continues to be meaningful for monetary policy” even though the strength of the relationship between unemployment and inflation “has weakened” (Powell 2018).6 A few years earlier, in 2015, then president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, in an interview with the Wall Street Journal, stated: I think a policymaker has to act on the view that the basic relationship in the Phillips curve between inflation and [un]employment will assert itself in a reasonable period of time as the economy tightens up, as the resource picture in the economy tightens. I am quite confident that that basic expectation will materialize.… I don’t know if I would quite say that I am resting everything on a model, but I am certainty prepared to get comfortable based on [an] expectation that seems to me to have compelling logic [Hilsenrath 2015, interview with Lockhart]. A final example of how the Phillips curve continues to be treated by Fed officials as a useful guide to policy, even in the face of strong evidence during the last 20 years that the degree of unemployment is a poor indicator of inflation, comes from a working paper prepared by the staff of the Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs in 2018: While inflation appears to be insensitive to labor market slack, policy needs to take proper account of the prospects for persistently tight labor markets leading to higher inflation, or other imbalances, that could eventually endanger prospects on the employment side of [the Fed’s] policy mandate [Erceg et al. 2018: 18]. All of the forgoing examples show that central bankers are not yet willing to discard the Phillips curve as a policy tool, even though the evidence for a downward sloping curve is meager. Indeed, as early as 2002, William Niskanen, a former member of President Ronald Reagan’s Council of Economic Advisers, declared: “The concept of a Phillips curve should be considered empty when most of the variation in the data must be explained by shifts in this presumed relation. In any case, the Phillips curve proved to be a poor basis for forecasting and a worse guide to policy” (Niskanen 2002: 194).