The Federal Reserve, as early as next month, could begin normalizing interest-rate policy, by raising its benchmark short-term rate by a quarter point, based, in part, on the likelihood that "full employment" will give way to rising wages and, subsequently, rising consumer prices.
While expressing reservations about the Phillips curve effect, the Fed is still using it as a guide in setting policy.
The world is in the throes of deflation. Commodity prices have crashed. There is an abundant oversupply of labor around the world and slack demand for goods and services from Beijing to Brazil.
While the U.S. has been a relative oasis of prosperity, to borrow a term from former Federal Reserve Chairman, Alan Greenspan, it is more subject to deflationary forces exerting themselves on the global, and domestic, economy than inflationary influences.
The markets are telling us that inflation is not only NOT a problem, but virtually non-existent. Meanwhile an ancient curve from 1860-1957 is telling us to worry.
The Phillips curve, for all practical purposes, is dead. The Fed should bury it, along with a variety of other theoretical models and let the real world be its guide.
Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. Follow him on Twitter @rinsana.