Trend inflation surge threatens economy with higher prices and expectations.
The article estimates trend inflation and analyzes the Phillips curve with changing parameters. Trend PCE inflation has exceeded the 2 percent target, reaching 3.4 percent in 2022:Q4. The Phillips curve slope has increased post-pandemic, indicating a stronger relationship between current inflation and inflation expectations. A slowing economy could lower inflation, but high short-term inflation expectations may counteract this effect.