Federal Reserve policymakers have been able to stave off sharply higher inflation even with low unemployment by managing expectations, central bank Chairman Jerome Powell said Tuesday.
Should those attitudes change, Powell said in a speech, the Fed won't hesitate to respond.
"From the standpoint of contingency planning, our course is clear: Resolutely conduct policy consistent with the [Federal Open Market Committee's] symmetric 2 percent inflation objective, and stand ready to act with authority if expectations drift materially up or down," he told the National Association for Business Economics in Boston.
The past several years have seen an economic anomaly: sharply lower unemployment without an associated rise in labor costs. That defies an economic model called the Phillips curve, which generally shows that when joblessness falls inflation will rise.