The Phillips Curve and Kevin Warsh’s Task Forces

While today’s comments are focused on the five new Warsh task forces and the Phillips Curve, we must put the points I will make in context. For that purpose, we use the chart below as a starting point. It depicts the growing US interest-rate burden. This wonderful chart was prepared by Steve Blitz, chief US economist at TS Lombard. We thank Steve for permission to share the chart and his recent missive with our readers. (Please see the reading list for that and other resources.)

One of the task forces is going to focus on the way the Fed addresses its outlook (forecast) for its dual mandate. That dual statutory mandate entails keeping inflation low (around 2%) and employment full.

One of the traditional ways to examine this issue is to use the Phillips Curve, which depicts the relationship between inflation and unemployment across time. A tutorial about the P-Curve follows the reading list. The chart below shows what happened with two similar but not identical periods of time. First is the P-Curve during the oil shock and Yom Kippur War period, and second is the P-Curve depicting the COVID shock / Iran War (oil shock) / Trump 2.0 tariff period. There were no tariff shocks of any significance during the ’70s, the first of the two periods represented. We include tariffs now because they raise prices (they are a sales tax), and they have some impact on employment as a second derivative. As you can see, the two periods acted quite differently.

We’re using the Consumer Price Index and the U3 unemployment rate. Were we to select other measures of inflation or other indicators of employment, the changes in the trajectories would be about the same. This is not a measurement problem. It is a policy problem.

Warsh may end up abandoning forecasting the mandates in their entirety. Or he may find task force members with their own biases on how to forecast inflation or unemployment. We will find out soon enough.

My recommendation, for what it’s worth, is that the Fed avoid using the Phillips Curve model to guide it. At best, the Phillips Curve tells you where you were months ago. Anything else is problematic. A tutorial on the Phillips Curve follows the reading list.

Reading List

“Federal financing needs restrain Warsh” | Global Data. TS Lombard,
https://hub.tslombard.com/report/macro-strategy-ideas/federal-financing-needs-restrain-warsh/35443/09eb8645a11de40f06ff0d4f60e699f3

“A Republic That Cannot Budget” | Daily Economy,
https://thedailyeconomy.org/article/a-republic-that-cannot-budget/

“Blitz Says Jobs Report Gives Warsh “Exactly What He Wants”: No Rate Hikes Through September” | Kathleen Hays Presents: Central Bank Central,
https://open.substack.com/pub/kathleenhays/p/blitz-says-jobs-report-gives-warsh

“Kevin Warsh names members of his Federal Reserve task forces, including Marc Andreessen, Doug McMillon” | CNBC,
https://www.cnbc.com/2026/07/09/kevin-warsh-names-members-of-his-federal-reserve-task-forces-including-marc-andreessen-doug-mcmillon.html

A Tutorial on the Phillips Curve

Here are 10 essential discussions, resource sets, and debates on the Phillips Curve. This selection spans historical roots, theoretical evolutions, and active policy debates, and is designed to provide a comprehensive learning toolkit. [1, 2]

Foundations and Core Mechanics

• Econlib: The Original Milestone
  • The Discussion: A clear primer outlining A.W. Phillips’ original 1958 discovery. It traces how his historical look at UK labor markets established the fundamental trade-off between unemployment and wage behavior.
  • Teaching Value: Best for introductory lectures to explain the initial “menu of policy choices” that gripped early Keynesian economists.
• Khan Academy: The Short-Run vs. Long-Run Model
  • The Discussion: A rigorous framework text explaining why the Short-Run Phillips Curve (SRPC) slopes downward while the Long-Run Phillips Curve (LRPC) is vertical. It clearly defines how aggregate demand shifts create movements along the Curve, whereas supply shocks shift the entire Curve.
  • Teaching Value: Ideal for AP/Undergraduate students mastering graphical mechanics and exam prep. [1, 2, 3, 4]

The Evolution of Expectations

• NPR Planet Money: Crocodile Hunters and Universal Truths
  • The Discussion: A fascinating audio podcast narrative tracing the life of Bill Phillips and how his engineering mindset birthed the Curve. It covers how the theory went mainstream and why universal economic “laws” are hard to keep stable.
  • Teaching Value: Keeps students highly engaged with real-world storytelling. Perfect as an out-of-class listening assignment.
• Think Like An Economist: Inflation and the Phillips Curve
  • The Discussion: Economists Betsey Stevenson and Justin Wolfers break down how expectations influence inflation. They dive into how supply problems and shifting consumer demand alter the traditional trade-off.
  • Teaching Value: Excellent conversational resource for teaching Milton Friedman’s expectations-augmented Phillips Curve in simple, intuitive terms.
• CORE Econ: Expected Inflation and the Curve
  • The Discussion: A video tutorial mapping out what happens when modern macro models incorporate rational and adaptive expectations. It shows how anticipated inflation alters labor behavior and breaks the simple trade-off.
  • Teaching Value: Great asset for flipped classrooms teaching intermediate macroeconomics using open-access materials. [1, 2, 3, 4, 5, 6]

Central Bank Policy and Global Debates

• Brookings Institution: The Hutchins Center Explains
  • The Discussion: A breakdown of how the breakdown of the Phillips Curve challenges monetary policy. It explores the debate within the Federal Reserve over whether the Curve is a “dead” or poor signal for future interest rate hikes.
  • Teaching Value: Highly scannable reference guide for teaching the practical, real-world constraints of the Federal Reserve’s dual mandate.
• Minneapolis Fed: Is There a Stable Phillips Curve After All?
  • The Discussion: A detailed research paper arguing that while national Phillips Curves look highly unstable due to central bank inflation targeting, regional data reveal a remarkably stable structural relationship.
  • Teaching Value: Provides advanced students and seminar groups an excellent look at econometric identification and the Lucas Critique.
• Brookings Papers: What’s Up with the Phillips Curve?
  • The Discussion: An analysis focusing on the flattening of the price Phillips Curve. It debates how a flat Curve forces monetary authorities to work much harder to anchor expectations and move inflation back to target.
  • Teaching Value: Perfect for teaching modern monetary innovations, such as Average Inflation Targeting (AIT). [, 2, 3, 4, 5, 6]

Academic Critiques and Alternative Realities

• Cato Institute: A Poor Guide for Monetary Policy
  • The Discussion: A critical evaluation arguing that the Curve mistakenly treats a statistical correlation as a causal link. The authors contend that relying on it misinforms central bankers and leads policy astray.
  • Teaching Value: Promotes critical thinking by introducing students to the monetarist and free-market skepticism of government fine-tuning.
• New York Fed via LinkedIn: Alive and Steep?
  • The Discussion: A modern debate on the 21st-century New Keynesian Phillips Curve. It highlights how the supply chain shocks and logistical hurdles of recent history complicate the relationship, shifting focus toward unobserved marginal costs.
  • Teaching Value: Great for capstone discussions on whether the Curve is still relevant in a technology-driven, supply-shocked global economy. [1, 2, 3, 4, 5]

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