Economists are chewing over a puzzle that could have profound implications for the future path of US interest rates: has the Federal Reserve changed its thinking about the relationship between unemployment and inflation?
To be more precise: does the Fed now think that the US economy can operate with unemployment as low as 4.5 per cent in the long term without generating inflation? Or does it simply think the inflationary effect of unsustainably low unemployment now takes longer to percolate through the economy than it did in the past?
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