“So it’s hard to really speculate and theorize as to why it might all of the sudden steepen, now as the unemployment rate continues to go lower … surely wage pressure should re-emerge,” Evans said.
A steepening Phillips Curve would suggest that wage growth is rising, while a flat curve would highlight an economy that has little inflation but low unemployment.
Evans added that he is not worried in case there is a sudden pickup in inflation.
“I also take great heart from the fact that if we get inflation we know how to deal with inflation,” he said. “We increase interest rates.”
Evans, who believes that the actual expectations regarding inflation is one of the factors driving inflation itself lower, said that the Fed should reinforce its commitment to bring inflation to 2 percent.
“It’s a challenge for monetary policy to communicate that our inflation objective is 2 percent,” he said. But communicating it and thus raising sentiment surrounding inflation “would help us to get to 2 percent on inflation itself.”
