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RWP 20-11, September 2020; updated March 2023

In a macroeconomic model with drifting long-run inflation expectations, the anchoring of inflation expectations manifests in two testable predictions. First, expectations about inflation far in the future should no longer respond to news about current inflation. Second, better anchored inflation expectations weaken the relationship between unemployment and inflation, flattening the reduced-form Phillips curve. We evaluate both predictions and find that the Federal Reserve’s communication of a numerical inflation objective, first through its Summary of Economic Projections and later through the announcement of a 2 percent target in 2012, better anchored inflation expectations. Moreover, inflation expectations in the United States have remained anchored amid the volatility of the COVID-19 pandemic. In contrast, similar analysis reveals no evidence of anchoring in Japan despite the adoption of a numerical inflation target.

JEL Classification: E31, E52, E58

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  • Bundick, Brent, and A. Lee Smith. “Did the Federal Reserve Break the Phillips Curve? Theory and Evidence of Anchoring Inflation Expectations.” Federal Reserve Bank of Kansas City, Research Working Paper no. 20-11, September. Available at External Link


Brent Bundick

Sr. Research and Policy Advisor

Brent Bundick is a Senior Research and Policy Advisor in the Economic Research Department of the Federal Reserve Bank of Kansas City. He rejoined the Department in 2014 after com…

A. Lee Smith

Senior Vice President

Andrew Lee Smith is a Senior Vice President and Economist at the Federal Reserve Bank of Kansas City. In this role, Lee has oversight of macroeconomic research and serves as an a…