New evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure, find Cleveland Fed researchers

Does the flatter Phillips curve really imply that the relationship between inflation and economic activity has weakened? This Economic Commentary revisits the relationship by focusing on the role of economic growth for inflation dynamics.

The link between inflation and economic activity remains, Cleveland Fed researchers Kristen Tauber and Willem Van Zandweghe show. But growth has replaced slack as the relevant gauge of economic activity. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.

The relationship between inflation and economic growth is a reassuring finding for monetary policymakers because it implies that the link between inflation and real activity has not vanished after all but has merely taken on a different form.

Read more: A Growth-Augmented Phillips Curve

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell, doug.campbell@clev.frb.org, 513.455.4479