Inflation Has Been Undershooting, and the Phillips Curve Has Flattened First, for the past several decades, policymakers relied on the empirical relationship between unemployment and inflation embodied in the Phillips curve as a key guidepost for monetary policy. The Phillips curve implied that as labor market slack diminished and the economy approached full employment, upward pressure on inflation would result.
However, since 2012, inflation has tended to change relatively little—both absolutely and relative to earlier decades—as the unemployment rate has fallen considerably.