On the Correlation between Unemployment & Inflation;

also, known as the Philips Curve

This is what Econ 101 teaches us about the relationship between unemployment and inflation. It's called the Philips Curve.  Apparently, the US Federal Reserve bases policy decisions on it.

Here's what quantitative equity fund manager John Hussman has to say about this relationship.

"You’ll find a ... shotgun scatter of uncorrelated points if you plot unemployment versus general price inflation, for example. It’s unfortunate that the Federal Reserve is actually allowed and even encouraged to impose massive distortions on the U.S. economy based on relationships that are indistinguishable from someone sneezing on a sheet of graph paper. [Highlights are mine.]"

In a nutshell, the Philips Curve is a fallacy.

The above quote was excerpted from Hussman's weekly newsletter for this week.

Author is also on Twitter.