Alexandria Ocasio-Cortez, a rising star in the progressive wing of the Democratic Party, asked the Fed boss about the Phillips Curve, a theory used as a guide by monetary policy makers for decades. It suggests there’s a trade-off between low unemployment and stable prices.
President Donald Trump’s top economic adviser praised left-wing Democrat Alexandria Ocasio-Cortez, after the political rivals found common ground in urging the Federal Reserve not to worry about low unemployment triggering inflation.
“I’ve got to give her high marks for that,” Larry Kudlow told Fox News on Thursday, referring to Ocasio-Cortez’s quizzing of Federal Reserve Chair Jerome Powell in Congress the previous day.
The New York congresswoman, a rising star in the progressive wing of the Democratic Party, asked the Fed boss about the Phillips Curve, a theory used as a guide by monetary policy makers for decades. It suggests there’s a trade-off between low unemployment and stable prices.
But Ocasio-Cortez said many economists are concerned that the formula “is no longer describing what is happening in today’s economy” — and Powell largely agreed.
“She got it right,” Kudlow told reporters at the White House later on Thursday. “He confirmed that the Phillips Curve is dead. The Fed is going to lower interest rates.”
Kudlow has also criticized the ideas behind the Phillips Curve — and joined his boss Trump in berating the Fed for keeping rates too high. He told Fox that he hopes to sit down with “Ms. AOC” and discuss supply-side economics very soon.
The supply-side school, which Kudlow has long been associated with, typically argues that it’s fine for governments to run budget deficits by cutting taxes, because the result will be faster economic growth that will eventually bring in more revenue and close the gap.
By contrast, Ocasio-Cortez has spoken favorably about modern monetary theory — which is also relaxed about budget red ink, but for different reasons. MMT says that countries which borrow in their own currencies can’t go broke anyway. So there’s room for more government spending on ambitious social programs — so long as inflation is subdued, like it is now.