9 In addition, research suggests that although increasing labor market tightness may show through to wage inflation, the pass-through to price inflation has become highly attenuated. 10 These results suggest that businesses tend to respond to increased labor costs by reducing margins rather than increasing prices later in the cycle.
Thus, as resource utilization continues to tighten over coming years, recent decades provide little evidence to suggest there will be a material nonlinear effect on price inflation. Policy The FOMC has communicated its reaction function under the new framework and provided powerful forward guidance that is conditioned on employment and inflation outcomes.