In order to firmly anchor inflation expectations at 2%, the Federal Reserve has announced that it aims to achieve inflation moderately above 2% for some time – a strategy which reflects the fact that, when the Phillips curve is flat, anchoring inflation expectations matters even more. [16] The effects of this combined policy shift will become evident in the coming months.
Signs are emerging that the economy could break out of the liquidity trap and that the Phillips curve framework remains valid. At this stage, however, measures of underlying inflation[17] have not increased much in any major economy, and in the euro area they remain well below 2% (Chart 5).