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Fed's chairman said the link between inflation and unemployment has disappeared



Federal Reserve Chairman Jerome Powell said the link between unemployment and inflation has fallen.

"The link between the weak economy or unemployment and inflation has been strong fifty years ago … and it's gone," Powell said on Thursday during his testimony to the Senate Banking Committee. He added that the strong link between unemployment and inflation has been interrupted for at least 20 years and the link "has become weaker and weaker and weaker." "We also learn that the neutral rate is lower than I thought the natural rate of unemployment was lower than we thought, so monetary policy is not as adequate as we thought," Powell said.

Under the Fed's dual mandate for full employment and price stability, unemployment has been historically low, reaching 3.7% in June from 3.6% in May, the lowest level since 1

969. Inflation has been curbed in recent years and constantly under the Fed's goal of 2%.

So-called The Phillips curve, which relies on the Federal Reserve in guiding its policy, argues that with the reduction in unemployment, inflation has to rise, which has not happened during the economic expansion

at the end of the day. there is a link because low employment will lead to higher wages and, ultimately, higher wages will lead to inflation, but we have not reached this point. In many cases, this relationship between the two is quoted a little these days, "the Federal Reserve chief said.

Major US consumer prices grew most in almost one and a half years in June, but the jump did not change markets. "The expectations for interest rate cuts later this month.

Merchants are pricing a 100% chance of lowering the interest rate in July, partly because of inflation that remains so low, according to CME's FedWatch. Wednesday that the Fed will "act appropriately" to maintain expansion, as "currents" weigh on the economic outlook, and noted that US investment in business has declined "significantly" lately

The Federal Reserve has lowered its target inflation in 2019 at the meeting in June, as overall inflation grew at a slower pace than 1.5% compared to forecasts of 1.8% in March


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