##s. 2 standard economic thinking has long offered an explanation for this : if unemployment were to remain this low for this long, employers would be pushing up wages as they compete for scarce workers, and rising labor costs would feed into more - rapid price inflation faced by consumers. this dynamic between unemployment and inflation is known as a phillips curve relationship, and at times it can pose a fundamental tension between the two sides of the fed ’ s mandate to promote maximum employment and price stability. recent low inflation and unemployment have some analysts asking, “ is the phillips curve dead? ” 3 others argue that the phillips curve still lurks in the background and could reemerge at any time to exact revenge for low unemployment in the form of high inflation. my comments today have two main objectives. the first is to explain how changes in the phillips curve help account for the somewhat surprising but broadly shared current forecasts of continued very low unemployment with inflation near 2 percent. at the risk of spoiling the surprise, i do not see it as likely that the phillips curve is dead, or that it will soon exact revenge. what is more likely, in my view, is that many factors, including better conduct of monetary policy over the past few decades, have greatly reduced, but not eliminated, the effects that tight labor markets have on inflation. however, no one fully understands the nature of these changes or the role they play in the for example, there have been four periods with quarterly average unemployment below 4 percent since 1950. in an early 1950s episode, inflation ranged from below zero to 8 percent. toward the end of the 1950s, unemployment was near 4 percent for a time, dipping to 3. 9 percent for one quarter. during this low unemployment period, inflation rose steadily from under 1 percent to over 3 percent. the remaining two episodes with unemployment under 4 percent - - one each in the 1960s and 1990s - - are discussed later in the speech. this question is asked in the title of a recent editorial by alan blinder ( 2018 ), and a google search reveals many similar titles. the research on the topic is reviewed more fully later in the speech. - 3current context. common sense suggests we should beware when forecasts predict events seldom before observed in the economy. 4 thus, my second objective today is to explain, given this uncertainty about the unemployment - inflation relationship, the important role that risk management plays in setting monetary policy. i will explore the fomc ’ s monitoring and balancing of

of uncertainty and misperception for monetary policy, " finance and economics discussion series 2018−059 ( washington : board of governors of the federal reserve system, august ), http : / / dx. doi. org / 10. 17016 / feds. 2018. 059. figure 6. indicators of inflation expectations quarterly percent inflation compensation households professional forecasters note : inflation compensation is the difference between yields on nominal treasury securities and yields on treasury inflation− protected securities ( tips ), which are indexed to the total consumer price index. the series reports weekly averages of daily data and extends from january 1998 through september 2018. household expectations are median long−term expectations from the university of michigan surveys of consumers. the data are quarterly averages and extend through 2018 : q3. the survey of professional forecasters ( spf ) values are expectations for average personal consumption expenditures ( pce ) price index inflation over the next 10 years. before 2007, expectations are for consumer price index inflation, adjusted to a pce basis. the data are quarterly and extend through august 2018. source : for inflation compensation, federal reserve board staff estimates using data from the federal reserve bank of new york ; for households, university of michigan surveys of consumers ; for professional forecasters, survey of professional forecasters ( retrieved from federal reserve bank of philadelphia real−time data center ). figure 7. appearance of the words " shortage ( s ) " and " bottleneck ( s ) " in the federal reserve ’ s beige book quarterly word count note : the series is the sum of the word counts in the two beige books for each quarter. data extend through 2018 : q3. source : federal reserve board staff calculations. figure 8. indicators of labor market tightness jobs hard to fill most important problem monthly percent monthly percent poor sales quality of labor note : " jobs hard to fill " series is the share of firms reporting that they have at least one hard−to−fill job opening. " most important problem " series is responses to the question " what do you view as your single most important problem? " all data are monthly and extend through august 2018. source : national federation of independent business small business economic trends. figure 9. real−time assessments of the natural rate of unemployment percent 6. 00 fomc blue chip spf cbo 5. 75 5. 50 5. 25 5. 00 4. 75 4. 50 4. 25 note : the federal open market committee ( fomc