People rely on past experience and information to form expectations . They only gradually modify their expectations .
Future expectations are the same as current observations.
Thus the unanticipated inflation rate is positive. If the inflation rate is rising, the public systematically underpredicts what the inflation rate will be next period. If the inflation rate is falling, then the public systematically overpredicts the rate of inflation for next period. Thus, with adaptive expectations the public can be systematically fooled if inflation is accelerating or decelerating. When inflation rose, unemployment fell.