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Is the next recession being postponed?

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28.06.2017

This is not your father’s inflation — and that’s good news. Business cycles often end when higher inflation causes a country’s central bank (the Federal Reserve in the United States) to raise interest rates, slowing the economy and, perhaps, triggering a recession. The good news: The next recession may be delayed, because the Phillips Curve has shifted.

The Phillips Curve is an analytical tool used by economists. It shows the relationship between inflation and unemployment. In general, as unemployment goes down, inflation goes up, because companies compete for scarcer labor by offering higher wages. Wage increases are then passed along to consumers in higher prices. So: Preventing or slowing higher inflation often relies on higher interest rates, even if that risks recession.

(The Phillips Curve is named for New........

© Washington Post